[Senate Hearing 114-549]
[From the U.S. Government Publishing Office]
S. Hrg. 114-549
FREE TRADE AGREEMENT IMPLEMENTATION: LESSONS FROM THE PAST
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HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
MARCH 3, 2016
__________
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas BILL NELSON, Florida
JOHN THUNE, South Dakota ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
Chris Campbell, Staff Director
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
.................................................................
WITNESSES
Mulhern, Jim, president and chief executive officer, National
Milk Producers Federation, Arlington, VA....................... 6
Murphy, Sean P., vice president and counsel, international
government affairs, Qualcomm Incorporated, San Diego, CA....... 8
Prickett, Glenn, chief external affairs officer, The Nature
Conservancy, Arlington, VA..................................... 10
Tepp, Steven, president and founder, Sentinel Worldwide, Vienna,
VA............................................................. 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Brown, Hon. Sherrod:
Submissions for the record................................... 33
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 53
Mulhern, Jim:
Testimony.................................................... 6
Prepared statement........................................... 54
Responses to questions from committee members................ 63
Murphy, Sean P.:
Testimony.................................................... 8
Prepared statement........................................... 65
Responses to questions from committee members................ 71
Prickett, Glenn:
Testimony.................................................... 10
Prepared statement........................................... 76
Responses to questions from committee members................ 78
Tepp, Steven:
Testimony.................................................... 12
Prepared statement........................................... 82
Responses to questions from committee members................ 92
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 94
Communication
National Association of Manufacturers (NAM)...................... 97
(iii)
FREE TRADE AGREEMENT IMPLEMENTATION: LESSONS FROM THE PAST
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THURSDAY, MARCH 3, 2016
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10 a.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G.
Hatch (chairman of the committee) presiding.
Present: Senators Cornyn, Thune, Coats, Wyden, Cantwell,
Carper, Cardin, Brown, Bennet, and Casey.
Also present: Republican Staff: Everett Eissenstat, Chief
International Trade Counsel; Douglas Petersen, International
Trade Counsel; Andrew Rollo, Detailee; Kenneth Schmidt, Law
Clerk; and Shane Warren, International Trade Counsel.
Democratic Staff: Joshua Sheinkman, Staff Director; Elissa
Alben, Senior Trade and Competitiveness Counsel; Michael Evans,
General Counsel; Greta Peisch, International Trade Counsel; and
Jayme White, Chief Advisor for International Competitiveness
and Innovation.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
UTAH, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order.
I understand, again, some people have strong feelings about
this subject we are talking about today. That is fine, and we
respect you. The First Amendment guarantees your right to
express your views, but we have to allow a civil discussion to
occur in the context of this hearing. So for any friends who
are protesting, I ask that you respect the rights of others,
respect this committee, and remain quiet so that the hearing
can continue.
We are very happy to have all of our witnesses here today.
I would like to welcome everyone to this morning's hearing.
Last year, with the passage of our bipartisan legislation
to renew Trade Promotion Authority, or TPA, Congress provided
the administration with the necessary tools to negotiate and
conclude trade agreements to further open foreign markets to
American goods and services. In doing so, Congress included
high-standard negotiating objectives that must be achieved for
any agreement to be eligible for expedited TPA procedures in
Congress.
But setting the appropriate negotiating objectives is only
the first step in the process for concluding and implementing
trade agreements. Once those high standards are set, the
administration must consult closely with Congress and
stakeholders throughout the negotiations. And once an agreement
is concluded, Congress must closely scrutinize the agreement to
determine whether it meets the high standards of the TPA
statute and whether it is eligible for expedited TPA procedures
in the House and Senate.
That stage--the stage where Congress closely scrutinizes
and evaluates a trade agreement--is where we are with regard to
the Trans-Pacific Partnership, or TPP, the trade agreement most
recently signed by the Obama administration.
Ultimately, a high-standard free trade agreement only takes
effect once Congress passes implementing legislation pursuant
to the narrow legislative scope of TPA. But even when that
process is complete, our work will not be finished. In many
ways, the hardest work will just be beginning.
After a trade agreement is approved by Congress, the
administration must make sure that our trading partners fully
and faithfully implement their obligations under that agreement
before allowing the agreement to enter into force. After all, a
strong trade agreement that is not fully and faithfully
implemented and enforced is not worth much more than the paper
it is written on.
It is that part of the puzzle--full and faithful
implementation--that we will examine today. As a guidepost for
this examination, we will look at some of the lessons we have
learned under our existing trade agreements to see what has
worked and where we can do better in the future.
Over the past 3 decades, the United States has entered into
14 free trade agreements with 20 countries. Each of these
agreements has provided significant economic benefits to the
United States, as well as those countries. In fact, although
these 20 countries represent less than 10 percent of the global
economy outside the U.S., they purchase almost half of all our
Nation's exports.
Further, on average, in the first 5 years after a free
trade agreement enters into force, U.S. exports to these
partners have grown roughly three times more rapidly than the
global rate of growth for U.S. exports generally. Just as
important, free trade agreements have provided significant cost
savings and expanded choices for U.S. consumers.
However, despite these significant gains, there is
widespread agreement that many of our partners in existing free
trade agreements have not fully and faithfully complied with
all of their obligations under our agreements. Just yesterday,
I sent letters to the Korean and Colombian ambassadors to the
United States outlining my concerns with their countries'
implementation of and compliance with the U.S.-Korea and the
U.S.-Colombia free trade agreements. In addition, a review of
stakeholder submissions to the administration, in connection
with mandated reports to Congress, including the Special 301
Report, suggests that many of our trading partners have not
implemented, or are out of compliance with, their international
trade obligations.
Now, while there are many examples across the board, this
problem seems to be most pronounced when it comes to
implementation of intellectual property rights protections.
This is true with regard to trading partners across the globe,
including many TPP countries. And, all too often, those
countries are never held accountable for their noncompliance.
Thus, they get the benefits of a negotiated trade agreement
with the United States without fulfilling all of their
obligations. This is, to put it bluntly, unfair, and it must
stop.
Last year, with a number of different pieces of
legislation, Congress developed new tools to address these
concerns. For example, we included language in the TPA statute
requiring enhanced consultations before the administration may
allow any trade agreement to enter into force. We also
established the Interagency Center on Trade Implementation,
Monitoring, and Enforcement within the Office of the United
States Trade Representative, or USTR, to monitor our trading
partners' implementation of trade agreements and to assist in
investigating violations of trade agreement obligations. We
also established a Chief Innovation and Intellectual Property
Negotiator at USTR, with the rank of Ambassador and required
Senate confirmation, whose responsibilities include enforcing
the intellectual property rights obligations of our trade
agreements. Furthermore, we established a trade enforcement
trust fund of up to $15 million a year for use in improving the
ability of USTR to monitor and enforce existing trade
agreements.
Despite these new tools, I know that there is much more
that can be done, so today we are going to examine the
implementation of our existing free trade agreements and see
what lessons can be drawn. We have some very accomplished
witnesses here with us from a variety of sectors, including
agriculture, high-tech, the environment, and intellectual
property. I am very much looking forward to these testimonies
and to what I hope will be a robust discussion of how the U.S.
Government can more effectively ensure that our workers,
consumers, and job creators receive the full benefits of our
international trade agreements going forward.
[The prepared statement of Chairman Hatch appears in the
appendix.]
The Chairman. With that, I will turn to Senator Wyden for
his opening remarks.
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman, and I
think this is an important hearing.
I believe deeply in the benefits of trade. In America,
trade-
related jobs often pay better than do the non-trade jobs. And
there are going to be a billion middle-class households in the
world by 2023 with money to spend on American-made goods. So it
is my view that we need to make things here, we need to add
value to them here, and we need to ship them around the world.
Now, I see my good friend Senator Coats here, and Senator
Donnelly brought to my attention--and I am sure Senator Coats
is focused on it too--what just sounds like heartbreaking news
in Indiana, where Carrier Corporation and United Technologies
Electronic Controls have announced that they are shuttering
their plants and heading to Mexico. Senator Donnelly talked
with me about it again just yesterday. These are factories that
have been around for decades, supporting the livelihoods of so
many working families.
When you are a worker caught up in an awful situation like
this, it has to just curdle your blood when you hear some
callous line from an executive about how it is ``only
business,'' and the company is going to ``synergize its inputs
and maximize efficiencies.'' It must make workers who have been
at this plant--and this is the story all over America--just
feel like they are a little cog in a machine that they have no
power to influence.
My number one goal, when it comes to the cutthroat global
economy, is to fight with everything I have for American
workers. I believe we have to have trade policies that spur the
creation of red-white-and-blue jobs that can support a middle-
class family in Oregon and around the country. And I want to
make sure American workers and American businesses, and more of
them, get into the economic winner's circle when they compete
with foreign firms.
You do that by enforcing the rules here at home, stopping
unfair trade before it hurts American workers and families. And
you do it by writing new rules overseas. That means engaging
with other countries, hammering out commitments in trade
agreements that countries will drop unfair barriers to products
made in our country. You get commitments to raise the bar on
issues such as labor rights so that companies are not lured
away from the United States by opportunities to kick around
cheap foreign workers. You get commitments on environmental
protections so that countries do not turn a blind eye to
practices like illegal fishing or the sale of stolen timber
that often undercuts American producers and does harm to the
environment. You prevent a race to the bottom, you close
loopholes and end outdated policies, and you bring the world up
to our standards.
Then you have to enforce the agreements. The landmark
package of enforcement measures put together by this
committee--and very recently signed into law--is a major step
forward. In the past, trade policies were often too old, too
slow, or too weak to fight back when bad actors overseas found
ways to rip off American jobs. Our tough, new game plan on
enforcement is going to help change that. And I just saw some
evidence yesterday that our new approach to trade policy is
going to pay off. Last year, Senator Brown and I worked
together to close an egregious, old loophole in our trade laws
that allowed for certain products made by slave or child labor
to be imported to this country if there was no producer here at
home. Under this loophole--make no mistake about it--economics
trumped human rights, and Senator Brown and I said that was
wrong, that it was just 100-percent wrong. So we wrote a
provision that closed it. And yesterday, in my hometown, the
Portland Business Journal ran a story about how our crackdown
on imports made with slave labor has the potential to make big
improvements in the chocolate industry.
There was a company featured in this story, Tony's
Chocolonely, that just set up its U.S. headquarters in
Portland, and it is going to make a big push to source cocoa
without exploiting slave labor or child workers. One of the
company's leaders said in the story just yesterday, ``The
impact of this law''--our bipartisan law--``will depend greatly
on how it is executed and enforced.'' Not only is that true
when it comes to ending slave labor, it is true in all our
trade laws and agreements. Enforcement is vital, and the first
step in the enforcement of a trade agreement is getting
implementation done right. The United States cannot allow
countries to backslide on their promises before a trade
agreement even goes into effect. Our trading partners have to
take the commitments they have made at the negotiating table
and turn them into action before they see benefits. That means
writing or updating laws and regulations and dropping unfair
barriers so that American workers get the fair shake they have
been promised.
Now that the President has signed the Trans-Pacific
Partnership agreement, I believe that consultations on its
implementation will pick up steam. Confidence that the TPP will
be implemented the right way is an absolute prerequisite for
the agreement to win the support it would need to pass in the
Congress. I see this hearing as an opportunity to identify many
of the pitfalls and opportunities in the implementation
process. And it is going to be very helpful down the road when
it comes time to implement any trade deal.
Mr. Chairman, I just want to make one last comment, because
I am so appreciative of the work that you joined me in with
respect to the new transparency requirements. In the past, the
American people basically were in the dark with respect to
trade legislation. And when you believe in trade and you
believe in it strongly, you should not have any problems
talking about it in public. If you do not, it just looks like
some other sleazy thing is going on in Washington. So Chairman
Hatch worked very closely with me, and the full text of the TPP
has been in the hands of the American public since 60 days
before the President signed it. And we insisted on that; the
two of us on a bipartisan basis insisted that we have that kind
of transparency.
So what this means--and I will close with this, Mr.
Chairman--is everybody in America can come to a town hall
meeting of their Congressperson or their Senator and sit in the
audience with this agreement in full, draw their own
conclusions about it, ask questions, voice their opinions to
their elected representatives. And adding this sunlight was
just absolutely key to establishing what I believe we have to
work for in the days ahead, and that is, trade done right. So I
hope everybody will use this new transparency requirement.
Mr. Chairman, I want to thank you again, because we put in
a lot of time on these transparency provisions, because we both
felt it was time for some new sunlight, and everybody in
America who is paying attention to this trade debate can now
come to one of their legislators' town meetings with the full
agreement in their lap to ask questions of their elected
officials. And I thank you.
The Chairman. Well, thank you, Senator. I am happy to work
with you.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Now I would like to take a few minutes to
introduce today's witnesses.
Our first witness is Mr. James Mulhern, the president and
CEO of National Milk Producers Federation, or NMPF, a position
that Mr. Mulhern has held since January of 2014. Before taking
on this role, Mr. Mulhern spent 30 years in agriculture and
food policy. In fact, Mr. Mulhern served as NMPF's government
affairs director back when the 1995 farm bill was debated.
Between his first stint with NMPF and his current role, Mr.
Mulhern served as Senator Herb Kohl's chief of staff, worked as
managing partner for Watson Mulhern LLC, and provided expert
counsel to a host of Fortune 500 companies. Mr. Mulhern is a
graduate of the University of Wisconsin, Madison, with a degree
in agricultural journalism.
Our second witness is Sean Murphy. In his role as vice
president and counsel for international government affairs, Mr.
Murphy manages Qualcomm's international public policy agenda.
Before joining Qualcomm in 2001, Mr. Murphy practiced
international trade and regulatory law in Washington, DC in the
office of a major international law firm, and from 1993 to 2000
held a number of positions at the Office of the United States
Trade Representative. Mr. Murphy holds a bachelor's degree in
political science from the University of California, Santa
Barbara, a master's degree in international relations from the
University of Cambridge, and a law degree from Georgetown
University Law Center.
Our third witness is Mr. Glenn Prickett, the chief external
affairs officer at The Nature Conservancy, or TNC. Before
joining TNC in January 2010, Mr. Prickett spent 2 decades
working on international environment and development policy.
His prior experience includes 13 years at Conservation
International, the United Nations Foundation and the U.S.
Agency for International Development during the Clinton
administration, and the Natural Resources Defense Council. Mr.
Prickett graduated from Yale University with a B.A. in
economics and political science.
Our final witness today is Mr. Steven Tepp, the president,
CEO, and founder of Sentinel Worldwide, an organization that
provides intellectual property, legal, and policy counsel to
companies and associations with an interest in protecting
intellectual property. Mr. Tepp also teaches intellectual
property at George Washington University Law School. Before
forming Sentinel Worldwide, Mr. Tepp was chief intellectual
property counsel for the Global Intellectual Property Center of
the U.S. Chamber of Commerce as well as Senior Counsel for
Product and International Affairs at the U.S. Copyright Office
for many years. But before all that, Mr. Tepp got his start in
Washington working for me when I was the chairman of the Senate
Judiciary Committee. Mr. Tepp received his undergraduate degree
from Colgate University and graduated with his law degree from
American University's Washington College of Law.
I want to thank you all for coming. We will hear the
witness testimonies in the order that they were introduced. So,
Mr. Mulhern, if you will proceed with your testimony, we would
appreciate it.
STATEMENT OF JIM MULHERN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL MILK PRODUCERS FEDERATION, ARLINGTON, VA
Mr. Mulhern. Thank you very much, Mr. Chairman, Senator
Wyden, and members of the committee. It is a pleasure for me to
be here this morning to talk on behalf of America's dairy
farmers and their cooperatives on issues that our industry has
encountered in the implementation of prior free trade
agreements.
As I think all of you know, dairy exports have become a
very important, critical component for the U.S. dairy industry.
Over the last 15 years, exports have increased fivefold,
reaching a high of over $7 billion a year in 2014. So this is a
very important issue for us, and that growth has coincided with
the development of a number of free trade agreements: the
Uruguay Round and numerous other U.S. FTAs. Those agreements
have tackled many of the tariff and nontariff barriers that
have confronted or been problematic for our industry in the
past.
Most of the FTAs that we have worked on are working well.
But in certain cases, we have found it necessary to work hard
to ensure that the market access terms that the agreements have
put in place are not subsequently undermined. And sometimes we
have had to work harder on that than we did to negotiate the
agreements themselves. In my written submission, I noted a
number of measures that Canada, for example, has implemented
over the years to block U.S. dairy exports and to isolate their
dairy industry from even the very limited degree of imports
that resulted from NAFTA and the earlier U.S.-Canada FTA.
One example is the shift in 2007 that Canada made in its
cheese standards, a shift that was designed to restrict the
import of U.S. dried milk imports. And even just since the
conclusion of the TPP negotiations recently, Canada has already
been considering expanding this to include a restriction on the
use of ultra-filtered milk, a product that we currently export
to Canada on a duty-free basis. So if Canada is allowed to
continue with this pattern of eroding even existing limited
U.S. dairy market access, frankly, we are concerned about
whether new trade commitments with them will benefit our dairy
industry in practice.
By contrast, I should note that our other NAFTA trading
partner, Mexico, has been a much more reliable trading partner,
and where problems have arisen, our government has worked with
theirs to work those out.
One of the newer FTAs we have been engaged in with South
Korea has also experienced some early bumps in the road for
dairy, but the administration took quick action, prior to the
approval of the agreement and during its early stages of
implementation, to ensure that Korean officials worked with our
government to resolve most of them.
So the reality of our experience is that our trading
partners may often seek creative ways to improperly exploit the
terms of a trade agreement despite what the agreement may say.
And where our trading partners have persistently demonstrated a
willingness to circumvent their trade commitments in a certain
sector, as is the case with Canada and dairy, additional
measures that are specifically focused on the problem, in our
case the dairy issues, are needed to curtail the problem.
We believe the best window of opportunity to do that is
during the implementation phase prior to congressional
consideration of an agreement. It is important with TPP, as
this hearing is going to consider. It is also important with
TTIP, given the increasing focus on those negotiations, because
when it comes to dairy, the EU is very much like Canada with
respect to regulatory and technical barriers to trade. We are,
frankly, very concerned about the lack of progress in finding
dairy-specific solutions to addressing those issues in the TTIP
negotiations to this point. And given our past experience, we
do not believe that TTIP is currently on the right track for a
successful and truly market-opening conclusion when it comes to
dairy.
In addition to the critical SPS and other traditional
nontariff constraints we face in accessing the EU market, I
have to stress the importance, both in TTIP and globally, of
the threat to our industry posed by the EU's geographical
indications strategy. It is essential, in our view, that the
U.S. Government protect our trade rights from the onslaught of
EU efforts to bully our trading partners into blocking imports
of products that use names the EU wishes to reserve for itself
through its overly broad GI restrictions.
Mr. Chairman, my time is running out here, so let me just
say that we appreciate the work of this committee, Chairman
Hatch, Senator Wyden, other members of the committee, on the
issues that we have dealt with in TPP. We appreciate your
supporting our efforts on the GI issue in the TTIP
negotiations. And we look forward to working with members of
the committee to address the critical implementation issues in
TPP and will continue to work both with you and the
administration to develop more effective ways to avoid trade
barriers as well as to resolve problems as they arise. And I
want to note in closing that we do see progress on that front.
Just yesterday, USTR announced it has made progress with our
CAFTA partner, Honduras, in working on a problem with GI issues
there that resulted from the EU-CAFTA Free Trade Agreement.
So progress can be made on these issues. We appreciate your
support and your help in those efforts as well as those of the
administration.
[The prepared statement of Mr. Mulhern appears in the
appendix.]
The Chairman. Well, thank you.
Mr. Murphy?
STATEMENT OF SEAN P. MURPHY, VICE PRESIDENT AND COUNSEL,
INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED, SAN
DIEGO, CA
Mr. Murphy. Chairman Hatch, Ranking Member Wyden, and
members of the committee, I am pleased to be here today to
discuss the critical topic of lessons learned from existing
FTAs. I represent Qualcomm, which was founded in 1985 and is a
world leader in next-generation mobile communications
technologies. If you have a smartphone, tablet, or other smart
device, you are using Qualcomm's technology.
International trade is critical to our business. Last year,
Qualcomm generated more than 90 percent of its $25 billion in
revenues outside the United States. Because open markets and
strong patent rights are essential to our business, Qualcomm
has been and remains a strong supporter of trade agreements, in
particular of KORUS and the TPP.
We know the value of an FTA depends entirely on the extent
to which it is implemented and enforced, and based on that, I
offer four recommendations to help improve FTA implementation
in the statement that I submitted. First, we should ensure that
U.S. trade enforcement officials have sufficient resources to
do their jobs. Second, we should make better use of existing
trade tools in parallel to dispute settlement. Binding dispute
settlement is critically important, but litigation takes time,
and it is not the only means available to ensure compliance.
U.S. trade officials have other tools at their disposal,
including formal government-to-government consultations,
dedicated working groups that oversee specific FTA chapters,
and the statutorily mandated reports that publicly identify
trading partners for patterns of noncompliance. Third, we
should expand the administration's FTA enforcement tool box.
This may require new carrots and sticks to help motivate FTA
compliance and could be modeled after the so-called snap-back
provisions in the KORUS FTA. Finally, the administration should
consult with the private sector to complete an FTA compliance
checklist before the President certifies that any given
agreement is ready to enter into force. As Chairman Hatch
stated earlier, before an FTA to which the United States is a
party can enter into force, the President must first certify
that the trading partner has implemented all obligations that
are to take effect on day one. The U.S. private sector is on
the front lines in these foreign markets and is likely to have
important insights whether an FTA partner has adequately
updated its domestic regime consistent with its FTA
obligations. The administration should seek the private
sector's views to validate a precertification checklist or
inventory to determine whether and when Presidential
certification is appropriate and the agreement is ready to
enter into force. What I am proposing is like a pre-flight
checklist a pilot would use to ensure all systems are go before
takeoff.
Qualcomm's recent experience in Korea underscores the
importance of getting things right before an FTA enters into
force. Since KORUS took effect 4 years ago, Korea's antitrust
agency, the Korea Fair Trade Commission, or KFTC, has stepped
up its enforcement activity, resulting in some 40 antitrust or
consumer protection cases against American companies, including
Qualcomm. Senator Hatch, you spoke eloquently about this in
your letter that you issued yesterday. Thank you for calling
attention to this issue.
One of the important benefits of KORUS, which was critical
to private-sector and congressional support for the agreement,
is the important procedural safeguards in the competition
chapter. These obligations are intended to enhance due process
and transparency at antitrust proceedings. Specifically, the
KFTC must provide respondents in antitrust cases with the
opportunity to ``review and rebut the evidence and any other
collected information upon which the agency's determinations
may be based,'' and ``to cross-examine any witnesses or other
persons giving evidence in a hearing.'' Korea, however, has not
adopted these important procedures and safeguards, which are
fundamental to due process, explicitly required by the KORUS,
and consistent with international best practices.
A precertification checklist like I described might have
identified these deficiencies before KORUS took effect. The
U.S. Government would have had notice and opportunity to ensure
that Korea's antitrust procedures were fully compliant with
KORUS obligations prior to presidential certification of KORUS
and its entry into force.
I hope these recommendations will help advance the
discussion about how to improve free trade agreement
implementation. Thank you again for holding this important
hearing and for the opportunity to share Qualcomm's views on
this important topic.
I welcome your questions. Thank you.
[The prepared statement of Mr. Murphy appears in the
appendix.]
The Chairman. Well, thank you very much.
Mr. Prickett?
STATEMENT OF GLENN PRICKETT, CHIEF EXTERNAL AFFAIRS OFFICER,
THE NATURE CONSERVANCY, ARLINGTON, VA
Mr. Prickett. Thank you, Mr. Chairman, Ranking Member
Wyden, and members of the committee, for the opportunity to
share the views of The Nature Conservancy on implementation of
international trade agreements. It is very fitting that we meet
on World Wildlife Day today. As I will explain, trade
agreements, if properly implemented, can make a difference in
protecting endangered wildlife and the habitats they depend on.
The Nature Conservancy is the world's largest conservation
organization, with over a million members and supporters. We
work in the field around the world in 69 countries and all 50
States to conserve the lands and waters on which all life
depends. We continually face environmental challenges caused by
illegal or unsustainable patterns of trade, particularly
illegal trade in wildlife and timber, and illegal and
unsustainable fishing practices. Addressing these threats is
essential if we are to secure the health of the world's forest,
oceans, and wildlife for the benefit of current and future
generations.
The Nature Conservancy has strongly supported and welcomed
the increasing levels of environmental protection in trade
agreements over the years. Linking trade policy to improved
environmental management gives the United States valuable
leverage to help countries address threats to their natural
resources, many of which can be exacerbated by increased trade,
especially in countries with important timber, fisheries, or
other natural resources to export.
We applaud in particular the landmark agreement reached
between Congress and the Bush administration in May 2007 to
incorporate a list of multilateral environmental agreements
into trade agreements. This paved the way for successful
inclusion of environmental chapters in FTAs as well as stronger
enforcement mechanisms.
Incorporating environmental measures in trade agreements is
just the first step. Implementation makes all the difference.
We commend Congress for providing over $177 million to support
environmental cooperation and capacity building under FTAs with
20 different trading partners over the past 10 years. This
support has been crucial to the environmental progress we have
seen under the agreements.
In particular, these commitments have stimulated creation
of new environmental laws, policies, and institutions by our
trading partners. For example, the Peru Forestry and Wildlife
Law was in part a direct response to the U.S.-Peru Trade
Promotion Agreement, and laws and policies driven by the
Dominican Republic-
Central American Free Trade Agreement have been important to
conservation of wildlife and protected areas. TNC was directly
involved in CAFTA implementation in the Dominican Republic
through a USAID project to improve environmental regulations,
build enforcement capacity, and support biodiversity
conservation. These advances continue to play a role in
enhancing environmental performance in the Dominican Republic.
Provisions for transparency and public engagement on
environmental issues help ensure enforcement of domestic
wildlife conservation laws, especially regarding protection of
sea turtles.
The Peru Trade Promotion Agreement included a
groundbreaking approach to these core environmental concerns,
and it continues to serve as a platform to support Peru's
efforts to combat illegal logging and wildlife trade. TNC
provided expert advice on the agreement, and we advocated a
great deal of specificity in the Forest Sector Governance
Annex, because we believe clear environmental obligations
spelled out in the agreements, coupled with
follow-on funding, technical assistance, and capacity building
to implement those obligations, are the main ingredients for
success.
The Peru agreement illustrates the complex challenges
involved in implementing environmental provisions. Recent
disturbances in Peru in response to attempts by Peru's
independent forest and wildlife agency--OSINFOR--to enforce the
Forestry Annex underscore the scale of the problem. Competent
and honest officials are often outmatched by powerful and
corrupt elements in the timber sector.
The systems created under the Forestry Annex and built with
U.S. assistance are helping to identify illegal actors and to
hold them accountable. For example, an electronic timber
tracking system developed under the agreement has increased
transparency and thwarted the ability of criminals to change
source origin documentation. We now have detailed information
in a public database available to U.S. importers about the
concessions and companies involved in the Peruvian illegal
timber trade. There are still gaps, to be sure. We particularly
salute Senator Wyden and his staff for their efforts on this
issue. Much remains to be done both to strengthen the technical
tools and to build political will for enforcement. The United
States should continue to support Peru's capacity to implement
and remain diligent in challenging Peru to comply with its
obligations.
These experiences offer important lessons for future
agreements. First, strong, independent institutions are
essential, especially to address legality issues. Agreements
should specify the creation or reform of these agencies, and
the U.S. should provide financial and technical support to
strengthen them.
Enforcement requires greater efforts on the part of both
governments. The U.S. can support training and capacity
building for counterpart governments on enforcement of
environmental obligations. At the same time, the U.S. must be
diligent in monitoring compliance and take action where
necessary.
Transparency helps to strengthen governance, rule of law,
and public accountability. Programs to implement environmental
measures in trade agreements should be subject to public review
and comment and, where possible, undertaken by a broad
partnership of stakeholders.
Lastly, civil society can play a key role. Nongovernmental
organizations enhance public-sector accountability, provide
expert information, generate public support, and help combat
corruption. The U.S. should support development of local NGO
capacity to work on these issues.
While this hearing is focused on past trade agreements, the
recently concluded Trans-Pacific Partnership contains important
new obligations to address illegal and unsustainable trade. The
Nature Conservancy is optimistic about the potential of TPP to
tackle these critical issues. The steps I just outlined will be
critical to effective implementation.
Thank you, Mr. Chairman and members of the committee, for
this opportunity to share TNC's views.
[The prepared statement of Mr. Prickett appears in the
appendix.]
The Chairman. Well, thank you, sir.
Mr. Tepp, we will take your testimony.
STATEMENT OF STEVEN TEPP, PRESIDENT AND FOUNDER, SENTINEL
WORLDWIDE, VIENNA, VA
Mr. Tepp. Thank you, sir. Chairman Hatch, Ranking Member
Wyden, and members of the committee, thank you for the
opportunity to appear before you today to discuss the
implementation and enforcement of free trade agreements.
My name is Steven Tepp, and I am president and founder of
Sentinel Worldwide. Previously, I enjoyed a career of 15 years
of government service, beginning, as you said, with you, Mr.
Chairman, on your Judiciary Committee staff, and then at the
U.S. Copyright Office, where I had the opportunity to negotiate
the text and/or implementation of seven different free trade
agreements with countries around the world. I am here before
you today in my personal capacity as an expert in intellectual
property and a former trade negotiator. The views expressed are
my own and not necessarily the views of any client or employer.
Intellectual property is a tremendous source of value for
the United States and a dominant part of our foreign trade.
Almost two-thirds of U.S. merchandise exports are from IP-
intensive industries. Thus, the United States seeks to ensure
fair and modern intellectual property standards in our FTAs.
While some governments find themselves tempted by the
illusory short-term gain, the failure to properly protect IP
has serious negative consequences at many levels, and these
harms do not remain neatly tucked away from the American
consumer. In 2014, CBP seized infringing products with an
aggregate value of over $1.2 billion trying to come into our
country. And an investigation by GAO of military-grade
microchips made abroad found that every single microchip they
tested was bogus and substandard.
Foreign anti-IP policies can also be a front for industrial
policy and protectionism. Around the world and across all IP
disciplines, we see trading partners who fail to provide
sufficient protection. This is a distortion of national and
global marketplaces.
The intellectual property chapter of our free trade
agreements is crafted to address these problems. Further, the
IP provisions of our FTAs bring some of the basic building
blocks of liberty and freedom: rule of law, respect for
property rights, and transparency and accountability in
government.
If successfully negotiated and properly implemented, the
intellectual property chapters of our FTAs represent the most
advanced IP standards in the world and are a win-win for the
United States and its trading partners. And, by and large, the
story of the IP chapters of our FTAs is one of tremendous
success and progress.
But make no mistake: it is no easy task. Bismarck quipped,
``The two things you never want to see being made are sausage
and legislation.'' Bismarck never saw an FTA.
Throughout the process of negotiating text and
implementation with our trading partners, leverage is the key.
FTAs provide an opportunity to resolve longstanding areas of
concern, because the offer of improved access to the U.S.
markets melts intransigence that we may have seen in bilateral
negotiations for years. By the same token, it is critical to
achieve our goals in the negotiation, because once the process
is concluded, then intransigence will return.
We retain our leverage through the implementation process
up until the U.S. Trade Representative certifies compliance and
the FTA enters into force. At that point our trading partners
are enjoying the benefits of improved access to the U.S.
market, and ultimately our only recourse to address any
remaining noncompliance is a formal dispute process.
But transition periods are a distorting force in the
implementation process. Transition periods are a useful
negotiating tool that allow less-developed countries the time
to gain the expertise and capacity to implement modern trade
rules. Unfortunately, a trading partner can also misuse them as
delay tactics. And because the transition period typically
concludes after the FTA has entered into force, we have
considerably less leverage to ensure proper implementation of
those obligations.
Moreover, we have weakened our own hand. We have had FTAs
with modern IP chapters with a variety of trading partners for
approximately 15 years. In that time Congress has held no less
than 30 hearings on foreign IP theft, and Special 301
submissions of affected industries have set forth significant
instances of noncompliance with TRIPS and FTA IP provisions.
Yet the United States has not initiated a single dispute under
the IP provisions of any of our FTAs and none under TRIPS in
nearly a decade.
American innovators and creators face continuing challenges
in the markets of our trading partners who have not properly
implemented their IP obligations, but those trading partners
are enjoying the benefits of improved access to the U.S.
market. This is not the equity we achieved in the negotiations,
and we should not settle for it now. Simply put, we need to do
a better job of holding our trading partners to the obligations
they agreed to.
In conclusion, intellectual property is at the heart of our
culture and the spirit of American innovation. FTA negotiations
are hard fought and, like the rights they purport to secure,
they are without meaning if they are never enforced. The IP
provisions of U.S. FTAs are the top standard in the world. With
an energetic effort to hold our trading partners to their
commitments, we can all enjoy the benefits of progressively
improved IP protection around the world.
I again thank the committee for this opportunity to present
my views, and I would be happy to answer any questions. Thank
you.
[The prepared statement of Mr. Tepp appears in the
appendix.]
The Chairman. Well, thank you. I thought all four of you
were excellent and very helpful to the committee.
Now, Mr. Tepp, a 2014 report by the U.S. Chamber of
Commerce entitled, ``Trading Up: The Evolution and
Implementation of Intellectual Property Rights in U.S. Free
Trade Agreements,'' noted that U.S. negotiators should avoid
whenever possible agreeing to considerable transition periods
to implement IP protections because such transition periods
often undermine needed momentum to ensure implementation of the
agreement.
Now, you echo similar sentiments in your testimony, and you
provide some ideas on how to address this particular problem.
Could you just elaborate on some of those suggestions?
Mr. Tepp. Certainly, sir. Transition periods are a double-
edged sword. We might be able to secure better standards in the
negotiation by offering them, but they also make implementation
of that agreement harder to secure. To me it is about leverage.
We have the most leverage before the FTA enters into force, but
transition periods go past that time. So one possible approach
that allows us to reclaim that leverage is a mechanism that
suspends targeted benefits of the FTA if the trading partner
fails to implement its obligations within the allotted time.
The Chairman. Let me go to you, Mr. Murphy. In his
testimony, Mr. Tepp makes a compelling case that trade in
counterfeit products not only undermines economic rights, but
also puts the health, safety, and security of innocent
consumers at risk. Do you agree with that sentiment?
Mr. Murphy. I do, Senator. If I may just briefly comment on
Mr. Tepp's last statement, as I indicated in my testimony, I
also agree that the best opportunity for leverage to get things
right is prior to implementation. And I suggested a
precertification exercise, or a checklist, to try to ensure
that while the U.S. has maximum leverage before benefits are
extended, that we try to get things right. And I also made an
allusion to the KORUS snap-back provisions, which could be a
similar sort of mechanism whereby benefits could be withdrawn
or suspended pending compliance.
The types of issues you talk about are very important. Some
of the proposals that I have made could help to contribute to
circumstances where U.S. officials use what leverage they have
to improve consumer protection, ensuring that some of the
counterfeit and low-quality products that are coming into the
U.S. market can be stopped. But there are also additional steps
we should consider. The recently enacted Customs enforcement
bill creates a new fund for enforcement that has been
authorized but not yet appropriated. That would be important
unfinished business that the Congress should address to ensure
that we have the resources to manage the problem and ensure
that we have legitimate, safe, high-quality products coming
into the United States. This is both a trade issue as well as a
consumer-protection issue.
The Chairman. Well, thank you. The problems that you are
facing with protecting your innovation and intellectual
property in Korea are disturbing to me, and I am sure to
others. Unfortunately, the use of anticompetition laws to
compel disclosure of intellectual property rights seems to be
becoming more prevalent, not just in Korea but around the
world.
To what do you attribute the increased prevalence of
antitrust cases against American companies in Asia? And what do
you think is really motivating these investigations? Could this
affect Qualcomm's ability to keep jobs here in the United
States? And what can we in Congress do to help stop these
practices?
Mr. Murphy. That is an excellent question, Senator. Thank
you very much. You have connected several important dots, and,
hopefully, my testimony will help raise awareness more broadly.
Qualcomm has been licensing its patent portfolio of over
100,000 issued and pending patents globally for more than 25
years. Over that period of time, we have had relatively smooth
business experiences until 12 years ago when we started to
first see antitrust issues creep in. In most cases, what has
changed are not Qualcomm's business practices, which are very
much in line with how technology is licensed in the ICT
industry, but rather a dynamic has emerged whereby other
governments are very interested in promoting their own
indigenous innovation. They have very aggressive industrial
policy targets and are trying to help their industries move up
the value chain, and they still need inputs of American
technology companies' technologies, innovation, and
intellectual property rights. But we also are seeing the
emergence of so-called national champions. These are favored
companies that are very important to the local economy and/or
very well politically connected. In some respects, these
companies may have buyer's remorse and would prefer to
renegotiate the terms of the technology agreements that they
have with American and other technology providers in order to
obtain those valuable technology inputs at a much lower cost.
But the policy implications for the United States are
tremendous, as you rightly point out. IP-intensive industries
account for about $8 trillion of the U.S. economy, over a third
of U.S. gross domestic product, and directly or indirectly
support 40 million jobs. If we start to see an erosion of
strong IP rights and the use of antitrust enforcement for
improper purposes not related to anticompetitive conduct, we
may see a slippery slope situation where the United States
begins to lose its competitive edge. This would make it harder
for companies like Qualcomm, which invests as much as 20
percent of our global revenues into R&D, the majority here in
the United States, which supports high-wage, high-skilled jobs.
The Chairman. Well, thank you. My time is up.
Senator Wyden?
Senator Wyden. Thank you. And let me start with you, Mr.
Prickett, if I could. First of all, we want to thank you for
the relationship we have long had with The Nature Conservancy.
You always try to come to the table and look at ways in which
we can operate in a bipartisan way and actually get something
done.
Illegal logging is just economic poison for Oregon's
sawmill workers and resource-dependent communities across the
country, because it basically means that those workers--and
these are workers who, much like the workers I have been
talking about in this committee, have worked for decades in
industries where there are family-wage jobs--they can have
those jobs as long as they do not face an influx of cheap,
stolen wood. In other words, they can compete with anybody as
long as there is not cheating.
Now, you described some of the innovative commitments on
forestry that were included in the Peru agreement and how this
gives us a chance to up the ante in terms of fighting illegal
logging and the criminal enterprises that profit from it. But
as you acknowledge, serious challenges remain when it comes to
stopping illegal logging in Peru.
Now, I think that the kind of work that we are trying to
do, with your organization, with forestry groups, it is good
for the environment, it is good for ensuring that those good-
paying forestry jobs are available for our workers. But we have
a lot of work to do. The Trans-Pacific Partnership agreement
contains some new commitments on forestry, including a
commitment to combat and cooperate to prevent the trade of
wildlife taken or traded illegally.
So my first question is: what would be your advice to the
Congress and the administration for the coming months to make
sure that these environmental commitments are really followed
through on by our partners, so that I can tell sawmill workers
in Oregon and all of us who care about protecting our
environmental treasures that it is a new day on trade policy
and trade is going to be done right because we are going to
enforce the agreements?
Mr. Prickett. Thank you, Senator. Thank you for the kind
words about The Nature Conservancy. We also value the
relationship with you and your staff and the good work we are
able to do together.
Illegal logging is a disaster for American jobs, as you
point out. It is also a disaster for the environment in the
places we work. So it is one of The Nature Conservancy's
highest priorities in many of the countries where we work to
combat illegal logging. And I would note that the governments
of most of those countries want to see this problem addressed
as well.
The areas where we engage on it, including Peru, are
developing countries where rule of law in general is weak, so
in our mind, the key issue is to enhance the ability of
Peruvian institutions, governmental and nongovernmental, to
take action on the problem.
You ask a very good question: what can we do from this
point forward to really step up that effort? We think it is a
mix of both carrots and sticks. The carrot side is very
important--in other words, the support that the U.S. Government
and nongovernmental groups like ours can provide to countries
like Peru to combat illegal logging.
The United States, I would note, has been engaged in Peru
on conservation of its forests for close to 30 years. I have
worked on that effort myself at USAID and in a couple of
different nongovernmental organizations. So one point I would
emphasize is that we need a whole-of-government approach to the
problem. So efforts that USTR can take are critical, but a lot
of the action will be at USAID, at the State Department, at the
U.S. Forest Service, and other specialized agencies and NGOs.
So part of the answer is to look at not just the budget and the
enforcement effort at USTR but also at what USAID and some of
these other agencies have available to help Peru tackle the
problem.
The stick, as you have all pointed out, across all of these
issues, is more vigilance and more engagement on enforcement on
this side of the trade equation. So we were pleased to see last
week that USTR asked the Peruvian Government to investigate the
origin of certain contested shipments of illegal logging. That
was, I think, in large part in reaction to your efforts,
Senator, and the efforts of NGOs. So we need to see more of
that stepped-up enforcement on the part of USTR, and the
enforcement fund that you all created will be a key part of
that.
Senator Wyden. Thank you. Let me get one other question in.
Mr. Murphy, for you, in this room I have spent an extraordinary
amount of time pushing to ensure that we would have a free and
open Internet. Not long ago, we derailed the legislation that
would have changed the architecture of the Internet, what was
called the PIPA and SOPA legislation. We have to have a free
and open Internet in order to prosper, and that means the free
flow of data across borders.
You mentioned the U.S.-Korea Trade Agreement, which
included the first commitment on restrictions on cross-border
data flows. Now, some have raised some concerns about the
effectiveness of that commitment with respect to the future. So
the committee may in the future be considering the Trans-
Pacific Partnership, which, of course, again seeks to lock in
some significant new commitments to ensure a free and open
Internet.
I would be interested in a sort of technology version of
the question I asked Mr. Prickett with respect to illegal
logging. How could you envision our working through the
implementation process to ensure that we do everything possible
to promote a free and open Internet and do not see other
countries adopting policies that, in effect, Balkanize the
Internet and make it harder for us to tap the potential of
high-skill, high-wage jobs in our country, particularly
ensuring that we can export around the world?
Mr. Murphy. Well, I think the way you phrased the question
is the right one, and the term that you used,
``Balkanization,'' is very important. Obviously, there has to
be an important balance between privacy protection of personal
information and the free flow of information, which is innate
to the Internet in our borderless global economy.
You also raise another interesting and very important
point, which is that each of the FTAs we negotiate stands on
the shoulders of the prior one. We learn our lessons and apply
them in future negotiations. These agreements evolve over time,
and we gradually raise the bar from one agreement to the next.
That is crucial. You rightly point out that KORUS was the first
to include cross-border data flow rules. TPP takes them to the
next step. The e-commerce chapter of TPP, chapter 14, is seen
by many as one of the most important contributions of the TPP
to the advancement and the evolution of international rules.
It includes, for example, a requirement that the parties
allow cross-border data flows, period. That is itself
important. In many cases you have different rules, a patchwork
effect, across the Asia-Pacific region. The TPP creates a
uniform minimum requirement, which is very important, and
commercially meaningful.
Chapter 14 of TPP also includes prohibitions on forced
localization and forced disclosure of source code, which are
also of critical importance. Both of these outcomes will
increase confidence for American companies to go abroad and
engage in Internet-related businesses and cross-border flow of
data. Foreign localization requirements, which require that
servers be located in the territory of each country and impose
prohibitions on the free flow of information, would add to the
issue you identified, Balkanization. And localization mandates
also potentially undermine security, because instead of having
a company with one data center and one secure perimeter that it
needs to protect, it would be responsible for having multiple
different secure networks in multiple different economies,
which potentially increases the risk of inadvertent disclosure
or breaches.
Chapter 14 of TPP also ensures that there are no duties on
electronic transmissions, which is very important to helping
promote innovation. It also includes a requirement of non-
discrimination and national treatment for digital products so
that we do not have country-of-origin requirements for
different digital products.
Obviously, we understand that the financial services
industry is dissatisfied with where the TPP negotiations
concluded. But I also understand they are very much engaged
with the administration and with the Congress on trying to find
some creative solutions to address those concerns before the
committees of jurisdiction have to consider TPP.
Senator Wyden. Thank you, Mr. Chairman.
The Chairman. Well, thank you.
Senator Coats?
Senator Coats. Thank you, Mr. Chairman.
Mr. Tepp, I think this question should go to you, and if
others want to address it, they can. I represent several
companies in Indiana, including a large pharmaceutical company,
that have raised with me very significant concerns about how
the Canadians have implemented their commitments relative to
intellectual property. Based on what appears to me to be a
novel misinterpretation of the internationally accepted patent
utility standard called the ``Promise Doctrine,'' Canadian
courts have invalidated 24 patents on 20 innovative medicines,
many of them pioneered and manufactured in the United States
and in my State.
What is your take on that? Is Canada complying with its
commitments here? Are they gaming the system, moving it through
the courts to achieve what they should not be doing under their
agreements? And what is the best way for us to respond to that?
Mr. Tepp. Thank you for the question, Senator. It is
extremely disappointing that a developed country, the United
States' largest trading partner, is engaged in action that is
inconsistent with their trade agreement obligations. And it is
not only a problem for U.S. companies doing business in
Canada--it surely is--but it undermines our efforts at
implementing the TRIPS agreement and our FTA IP provisions
around the world, because if a developing country looks at
Canada and says, ``Well, if a developed country can do this,
the United States' largest trading partner can do this, why
should I have tougher rules?''--meaning actually comply with
the agreement. So it is deeply disappointing that Canada is
engaged in this activity.
Senator Coats. What is the recourse here? What should the
administration be doing to address this?
Mr. Tepp. I think the administration should be actively
pressing, and I believe they are actively pressing the Canadian
Government to address this, to fix it, and ultimately there is
the potential for a dispute case to be brought before the WTO
and then conceivably future trade agreements.
Senator Coats. Do you have any sense of where this has
risen in the priority chain here at the administration relative
to the dispute case, moving to a dispute case?
Mr. Tepp. I candidly do not think they are there yet. It
has certainly been mentioned in Special 301 reports from the
U.S. Trade Representative's office. But there is no indication
that the administration is close to initiating a case.
Senator Coats. When we are looking at future trade
agreements, should we be keeping this in mind and trying to
prevent something like this in the agreement before the
agreement is agreed to?
Mr. Tepp. Absolutely. Whenever I have been in a negotiation
with a trading partner for a prospective FTA, particular
existing irritants have been right up on the table and
discussed. At the very, very least, we should ensure that our
trading partners are properly complying with their existing
obligations before any new obligations are entered into force.
And I believe that this committee put language to that effect
in the TPA legislation.
Senator Coats. You know, Mr. Chairman and Ranking Member,
we fight this political battle back at home in terms of the
value of international trade and global trade. And yet when
trading partners like Canada, which we have had such good
relationships with in the past, are gaming the system against
us, it makes it all that much harder to go back home and
convince people that we ought to enter into these agreements.
Now, it is one thing, you know, to talk about our southern
border neighbors; it is another to talk about Canada gaming the
system here.
And so, when we are looking at ways of trying to implement
TPP or TTIP, we go back home and people say, ``Well, why should
we agree to stuff like this?'' We ought to be putting pressure
on the administration here to do something about it. We have
the kind of relations with Canada where we ought to be able to
go in there and simply say, ``You signed this agreement. You
are committed to this. Trade is vitally important between our
two nations. But you are gaming the system against us. And if
you expect cooperation in the future, you have to live up to
your commitments.''
With that, Mr. Chairman, I will yield back.
The Chairman. We are keeping the pressure on. I have to say
that.
Senator Brown?
Senator Brown. Thank you, Mr. Chairman, and thank you to
you and Senator Wyden for holding this hearing.
This panel, however, has some glaring omissions. No insult
to any of you four, but we do not have a single representative
of American manufacturers on this panel. We do not have a
single representative of American workers on this panel. And
listening to Senator Coats talk about the difficulty of passing
trade agreements--with the opposition so often of workers and
the groups that represent workers, you simply cannot have a
comprehensive discussion about trade agreement implementation
and enforcement without these stakeholders.
To ensure that the record for this hearing reflects a
consensus and the concerns of American workers, I would like
unanimous consent, Mr. Chairman, to insert in the record a
recently released report by the AFL-CIO about the state of
labor rights in TPP countries that details the compliance
status of all TPP countries with the agreement's labor
standards, and it should be part of the conversation about
FTAs.
The Chairman. Without objection, it will be entered.
[The report appears in the appendix beginning on p. 33.]
Senator Brown. I would also like to ask unanimous consent
to insert into the record a timeline of the AFL's efforts to
use state-to-state dispute settlement to respond to CAFTA labor
violations in Guatemala. The timeline illustrates the
ineffectiveness of the FTA state-to-state dispute settlement
process and lack of enforcement. I would like unanimous consent
on this.
The Chairman. Without objection.
Senator Brown. Thank you.
[The timeline appears in the appendix on p. 52.]
Senator Brown. And third, I would like to ask unanimous
consent to insert into the record the press release put out by
Ford Motor Company earlier this year announcing their
withdrawal from the Japanese market. This happened well after
TPP's release, so it is evident the company does not believe
TPP will grant them access to the Japanese market. Their
experience with Korea, that FTA, I think underscored that
conviction. I would like to ask unanimous consent on that.
The Chairman. Without objection.
[The press release appears in the appendix on p. 53.]
Senator Brown. Thank you. These documents illustrate, I
think, widespread issues with FTA implementation and
enforcement and the need to get them right under TPP.
Now, I have a couple of questions, starting with you, Mr.
Tepp, if I could. You said we need to do a better job--and I
agree with this--of holding trading partners to the obligations
they agree to or risk emboldening them to test our resolve
further. What message does it send to our trading partners that
we have pursued only one labor case under all of our FTAs and
have not resolved it nearly 8 years after the complaint was
originally file?
Mr. Tepp. Well, Senator, it is an even better message than
the fact that we have pursued zero cases under our FTAs for IP
violations. And I am certainly concerned about that.
Senator Brown. Okay. Thank you.
Mr. Murphy, a question for you, if I could. I know Qualcomm
has been disappointed with Korea's interpretation of some of
the KORUS competition law provisions. I understand your
concerns have not been resolved. If both options are available,
would you advise Qualcomm to pursue a case under state-to-state
dispute settlement or under investor-state dispute settlement?
And why?
Mr. Murphy. Thank you for the question, Senator. At this
point in time, given where our matter stands in Korea, we would
not rule out or rule in any options. We are hopeful that our
discussions with the KFTC and our efforts to remind them about
Korea's KORUS obligations will eventually cause them to agree
with us that some of the very fundamental and basic due process
principles that we are asking them to adhere to, which are
explicit in the KORUS, are the right way for them to go.
Qualcomm is one of several American companies that have
been the subject of investigation by the KFTC. Our hope is that
we can persuade the KFTC that our business practices are
lawful. Or, perhaps, another option that the KORUS makes
available to us, which is a new feature of Korean law as a
result of KORUS, is the possibility of a voluntary consent
decree. But again, right now, given where we stand, all options
are on the table. And I do not know that I am in a position
right now, given procedurally where the case is, to have a
strong view one way or the other.
Senator Brown. Let me ask one more question of you, Mr.
Murphy. I know that Senator McConnell has pretty much
indicated, it seems, that the future of TPP is still sort of
unknown and in question. I know that he does not want to put
his industrial State Senators on the spot before an election so
that they would have to vote on something so controversial in
their States, as Senator Coats might have suggested on TPP. But
in your testimony you indicate this committee has a critical
role in the analysis of trading partners' ability to implement
their FTA obligations. How do you suggest this committee get
more involved? And I think that Senator Hatch and Senator Wyden
in very good faith want to do that. How do we get more involved
in the certification process of our trading partners?
Mr. Murphy. Well, I am glad you asked that question
because, as I suggested during my opening remarks, I recommend
that we consider a formal checklist approach to determine
whether circumstances are right for an FTA to enter into force.
In my prepared statement, I mentioned that the greatest
leverage and the greatest opportunity to get things right are
before the FTA enters into force. I suggested that there be a
formal consultative mechanism that could involve the private
sector, Congress, and the administration to ensure that we
look, for example, in one column at all the different
obligations that TPP would create for one of our trading
partners, and in another column, we cross-reference TPP
obligations with specific measures that the relevant government
has taken to transpose a given TPP obligation into their
domestic law--whether it is new legislation, whether it is
revised regulations, whether it is changed procedures. Again,
in the case of Korea, had the KFTC changed its pre-KORUS
measures to provide for greater transparency and due process as
required under the FTA, then Qualcomm might not be in the
circumstances that we are in today.
So I think that dialogue within the jurisdiction of this
committee is very important. Hearings like this are an
important way to bring issues to the fore and ensure that we
are cognizant of what the potential FTA implementation
deficiencies are.
In addition, I think there is a role for the committee as
well with respect to the enforcement, after certification, once
the agreement takes effect, as reflected in key aspects of the
Customs bill that was recently enacted. I want to recognize
Senator Cantwell for her important work on ensuring that there
be an enforcement trust fund that was authorized. This
committee can also work with appropriators to make sure that
sufficient funds are available to ensure that the trade
agencies have sufficient staff, capacity building, training,
and travel funds. Other funds can be used to ensure effective
monitoring prior to certification so that we are making
informed decisions. Additional resources are needed post-
certification and post-entry into force to ensure that our
trading partners are living up to their obligations.
Senator Brown. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Cardin?
Senator Cardin. Well, thank you, Mr. Chairman. Thank you
for this hearing. I thank all of our witnesses.
I think it is important that we look at the lessons learned
from the past as we look forward. We have seen an evolution of
our objectives in trade agreements from when we were first
interested in dealing with tariffs--which are kind of easy to
figure out and implement and take action against for those who
violate their obligations--to the nontariff issues, which
become more difficult to calculate and to enforce.
So as we talk about labor, as we talk about environment, as
we talk about good governance and human rights as objectives,
it becomes more challenging. And we need to look at what we
have learned from the past.
Some of the proudest moments in America were to show how
important access to U.S. markets can be in bringing about
fundamental change. It was U.S. leadership that brought down
the Soviet Union on emigration policy. It was the United States
that brought down the apartheid government of South Africa on
trade policy. We used trade pretty effectively to bring about
fundamental change.
Mr. Murphy, I agree with you that we need to have progress
made before we enter into an agreement. One of the things that
I think we have learned is that we have to put these
commitments in the core part of the trade agreement, make them
enforceable in the core part of the trade agreement, but the
blueprint for how to bring about the structural changes needs
to be understood before we sign off on the agreement. I think
that is a very important point.
Mr. Prickett, I would like to ask you a question, because
your organization has been in the forefront of transparency and
anticorruption issues. I would like to get your assessment as
to how we can do more to advance good governance,
anticorruption, and transparency in the implementation of trade
agreements. We talk about it in trade agreements, but we have
no record of being able to actually bring about fundamental
change as a result of recent trade agreements. We are trying to
do that with TPP, but I would welcome your observations as to
how we could be more effective on this.
Mr. Prickett. Well, thank you, Senator, and first I want to
thank you for your leadership on environmental issues over the
years. It is a very good question. We talked earlier about this
general challenge. We think there is a combination of carrots
and sticks that the U.S. Government needs to put forward--and
not just the government, but the NGO community as well.
I guess one point I want to make is that on environmental
issues in these trade agreements, unlike some other more
commercial issues, environmental harm by our trading partners
hurts those countries as well. Senator Wyden spoke earlier
about the impact that illegal logging has on forestry-sector
jobs here. Illegal logging also hurts people, wildlife, and
economies in the developing countries themselves.
The reason I say that is that we work in many of the
countries the United States trades with to support those
governments and those societies to take action on environmental
harm, particularly illegal logging, illegal fishing, illegal
wildlife trade. So a lot of what the United States can do is to
provide support for the governmental institutions and the
nongovernmental organizations in those countries that are
taking action on those illegal natural resource issues. So
there is a lot more we can do, not just through our trade
policy but through our development assistance, through our
foreign policy, and through other U.S. Government functions, to
support conservation efforts in those countries. And at the
same time, we need to be more diligent in enforcing the
environmental measures that we have put into trade agreements.
The good news is, over the last 10 years more and more
trade agreements have actionable environmental commitments
within them, and those are only good if they are used. So we
need to step up our enforcement efforts as well.
Senator Cardin. And as this committee is aware, in TPP we
do have commitments not only on the environment and labor but
also on anticorruption and good governance. And it is
interesting that we have a firm commitment in regards to anti-
human trafficking, as we should, and that has been a subject of
some debate in this committee, because we have tiered ratings.
We know what good practices are and what they are not.
It is not as clear on good governance and anticorruption.
In my role on the Senate Foreign Relations Committee, we are
looking at developing similar ratings on countries' performance
on fighting corruption, because there are indicators. Do you
have an independent judiciary? Do you have the resources for
it? Do you have independent prosecutors? Do you have
transparency? There are things that we can point to that might
help us in enforcing trade agreements, particularly as we are
now moving to countries that have challenges in dealing with
corruption and good governance, that we want to establish
better trade relations with, but that we also want to make
significant progress in adopting recognized standards to deal
with corruption.
I just point that out because I think we can learn from the
past in that, unless we are pretty specific on these areas, it
is going to be difficult after the agreements are signed and in
effect to bring about these types of behavioral changes.
Mr. Prickett. And if I may just add quickly, many of the
issues around corruption come out of the natural resource
sectors in the countries we are talking about. So this is an
issue The Nature Conservancy and other environmental
organizations care passionately about. We are eager to work
with you on this agenda. And I would note that transparency,
support for independent nongovernmental organizations to do
fact-finding and to bring issues to light, and then support for
truly independent regulatory institutions that can take tough
action, are going to be very important.
Senator Cardin. I just came back from the southern part of
Africa where I saw firsthand some of the wildlife issues and
corruption and poaching and similar issues.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Carper?
Senator Carper. Thanks. Thanks, Mr. Chairman. Welcome, one
and all. As you know, we serve on a variety of committees, and
I have been over in the Committee on Homeland Security this
morning, and my focus has been there, and I missed your
testimony.
Let me just ask you to start off by asking this question of
each of you. Could you share with me, in terms of important
issues that you have discussed in your testimony and that are
before us today in this hearing, what are one or two of the
points where you think you all basically agree, important
points where there is a broad consensus? I do not care who
goes--would you like to go first?
Mr. Prickett. Sure. I think as I listened to the
testimonies, this point about the need for stepped-up
enforcement of our trading partners' obligations that they have
undertaken in trade agreements is critical. Those obligations
are only good if they are enforced, and the United States can
do more to be vigilant and enforce the agreements we have
reached.
Senator Carper. All right. Thank you.
Mr. Tepp. Proving the truth of that, I will agree. And----
Senator Carper. You approve that message?
Mr. Tepp. Yes, I approve that message, sir.
Senator Carper. All right.
Mr. Tepp. And I will add to it that I think I have heard
agreement down the line that it is important to get the best
possible text during the course of the negotiation and to
ensure that it is fully implemented and in force. And combining
my comments in response to Senator Coats's question as well as
Mr. Mulhern's comments from earlier, I think there is at least
some agreement that we have a series of problems on trade
issues with Canada.
Senator Carper. All right. Thank you.
Mr. Murphy. If I can briefly add, I think there is also a
consensus that once a text is in place, ensuring that those
obligations have effectively been implemented in domestic law
in the trading partner's economy is critical. That is a time of
maximum leverage, and withholding presidential certification
until those benefits are ready to go on day one is, I think, an
area where we are all in agreement.
Senator Carper. Okay. Thank you.
Mr. Mulhern. I would just add, Senator, in agreement with
my fellow panelists, that the important thing is having a
commitment not only to the letter but also the spirit of these
agreements. And negotiations are one thing, but to have them go
into effect and be undermined by nontariff barriers or ways to
try to circumvent what has been agreed to has certainly been a
problem in our industry, and I hear that from some of my other
panelists as well.
Senator Carper. In the time that I have been here, we have
been involved in negotiating, debating NAFTA, more recently
South Korea, Colombia, Panama. When you think back on just
those two trade negotions, is there anything that we learned
from those trade agreements, mistakes or things we could have
done better, should have done better, that we have actually
addressed in this trade agreement? Please, Mr. Mulhern, why
don't you go ahead and lead us off?
Mr. Mulhern. On this one, Senator Carper, I am going to
defer to my colleagues who are more expert in trade
negotiations than I. I think they will have a better
perspective than I will.
Senator Carper. All right. Mr. Prickett?
Mr. Prickett. That is a great question. I worked on NAFTA
20-odd years ago, and certainly not everything in Washington
has gotten better over that time, but I think trade and
environmental policy have. I mentioned in my written remarks
that there was a landmark agreement in 2007 between the Bush
administration and the Congress on the environment to specify
multilateral environmental agreements within trade agreements
so that commitments countries have made under environmental
agreements are actionable under trade agreements. And that has
been a breakthrough.
So the agreements we have seen since--particularly we have
been talking about Peru--the terms of the Peru Trade Promotion
Agreement are a dramatic improvement over what we had in NAFTA
and earlier agreements, because the commitments are more
specific and they are enforceable. Again, that is only good if
they are enforced, but the precision and the weight of trade
agreements on environmental matters at least has gone up
significantly over time, and Congress and successive
administrations get credit for that.
Senator Carper. All right. Thank you.
Mr. Tepp?
Mr. Tepp. Thank you, Senator. I think in one way, in terms
of the intellectual property chapters, there is a great deal of
consistency over our trade agreements, and I think that
reflects the importance of the sector to our economy. I
mentioned in my opening statement that two-thirds of U.S.
merchandise exports are from IP-intensive industries, and there
are 40 million jobs and $5 trillion to the U.S. economy--GDP--
that come from that sector.
In terms of what Mr. Murphy said about making sure that our
partners will implement their full set of obligations, even
subject to transition periods, one thing that I think has been
learned is, I see that in the TPP there is a requirement for
our trading partners to report along the way on their progress
towards implementing those obligations. I think that is
helpful. Ultimately, though, there is still a leverage problem
if the agreement enters into force before the transition period
ends. We need to be serious about that. And because we have not
taken a single case in dispute under any of our FTA IP
provisions ever, or under TRIPS for almost a decade, I think we
need to reestablish our credibility in that area. There are
certainly a number of areas that are ripe.
Senator Carper. All right. Thank you all. Thanks very much.
Yes, sir, please?
Mr. Mulhern. Senator, I would add one thing that does come
to mind in TPP, and it is the language in the agreement on
geographical indications, GIs, which has been a problem for our
industry in particular and several other food-producing
industries.
Up to this point, when the EU in particular is negotiating
FTAs with third countries, there is not transparency. There is
no ability for us to engage in that process. The language in
TPP that will commit TPP partners to have an open, transparent
process, to at least have an opportunity for us to weigh in
during the process of establishing what is a legitimate GI in a
third market, is going to be very important for the dairy
industry in particular going forward, so that we are not
blocked out of exporting our cheese products into those
countries.
Senator Carper. Great. Thanks.
The Chairman. Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman. I want to pick
up on my colleague Senator Brown's comments, because I really
do believe that not having this TPP agreement being discussed--
you know, next December in the dark of night is not good for
us. If we are going to have this discussion, we should have it
now, and it should be in the broad daylight, and we should
discuss issues about enforcement and Trade Adjustment Authority
and also workforce training issues here at home.
So I am very disappointed that the other side, at least
over in the House, maybe even here in the Senate, seems to
think, well, you know, if you are going to get a trade
agreement, then you have to cut Trade Adjustment Assistance,
which we did, and you have to limit the focus on actually doing
enforcement. So as Mr. Murphy said, we authorized enforcement,
but we did not fund enforcement because the House did not want
to fund enforcement, even though they said to everybody and
Speaker Ryan promised, ``Oh, we will do enforcement.''
Now here we are having this discussion this morning about
the lack of structure for enforcement, and so I am going to
keep pushing on this issue, because I come from a State--I tell
people we were trading with China before Lewis and Clark showed
up, okay? So we know about trade. But this is about creating a
system that is a fair system and that has a structure.
So much of the world's economy is going to be happening on
a global basis, and if we want to compete, then we have to
chase those market opportunities, but we also have to have
cooperation and we have to have enforcement.
So there are definitely more people up here on the dais
than there are in our enforcement operations, and yet the
economy of the United States that we need to chase is outside
of our borders. So we need to get enforcement.
I want to point out that a GAO audit on enforcement
provisions of the free trade agreements found that since 2008
the Department had resolved only one single complaint out of
five that had been filed, and that the relevant agencies
responsible for enforcing these provisions suffered from
constant staffing and resource complaints. So to me, this is a
key issue, and, Mr. Prickett, you specifically stated in your
discussion about the Peru Free Trade Agreement that we need
robust training on enforcement with local officials, coupled
with continued monitoring.
So I sit here and I think, oh, my gosh, I applaud what was
in the Peru agreement as far as sustainable forestry practices.
I look at what is being discussed in TPP with addressing
illegal and unsustainable fishing practices and combating
illegal wildlife trade, and I want to applaud. I think these
are great standards to be setting around the globe
environmentally. And yet if we do not have the money or the
other side will not fund enforcement, how are we going to make
this work?
So I wanted to hear from you, Mr. Prickett, what you think
we need to do to help get enforcement funded. And, Mr. Murphy,
thank you for your commitment to Washington and the same with
you, if you have ideas about what we should be doing on this
particular case in Korea--that is, what the U.S. Government
could do. I am assuming you think it is better to have the
agreement than not to have the agreement, but, if you could,
comment on that. And, obviously, Mr. Mulhern, please add
anything you want to say about what we should be doing on
dairy. I mean, I am excited that wheat and potatoes would get
better treatment under the Trans-Pacific Partnership, but I
know that you have some concerns about dairy. So as quick as
people can be----
Mr. Prickett. Well, thank you, Senator, for your concerns
about illegal logging, illegal fishing, and wildlife
trafficking. These are crises for the environment that are
going to go on and accelerate with or without trade agreements,
to set that context. We think that having them addressed in the
TPP is a good step which provides the United States and the NGO
community, frankly, more leverage to try to get a handle on the
problems. And as I said earlier, the governments themselves
that we trade with see these illegal activities as a problem
that they want to tackle. So the trade agreement not only gives
us more leverage, but it gets us a higher-
profile platform in which to cooperate on enforcement.
So, point one, enforcement certainly applies to the United
States and how we police the trade agreements and the resources
we provide to our own agencies, but it also applies in the
first instance to the developing countries where the illegal
activity is happening. So I would start with enforcement in
those nations and the need for the U.S. Government and
organizations like mine to provide more support, financial and
technical, to strengthen their capacity.
And then I think you said it: we need to provide the
resources here in our government so that the agencies who want
to do their job can do their job. And we need to hold their
feet to the fire to take action when the other countries are
not living up to their obligations.
Senator Cantwell. Mr. Murphy, do we need enforcement?
Mr. Murphy. Absolutely. And again, I want to commend your
work on the recent enforcement bill. I agree with you about the
importance of ensuring that the administration's trade
enforcement officials have adequate resources, something I
spoke about in my prepared statement. It is of utmost
importance. Effective enforcement is not only an important
aspect of domestic confidence-
building, it is critical to ensure that we achieve the benefits
that we negotiated for.
With respect to the matter in Korea you raised, one area
where the U.S. Government could be helpful is to recognize that
there is a problem. Perhaps too often antitrust cases abroad
are seen as sort of a garden variety law enforcement matter. In
reality, if you look more closely, you will see that there is
something animating many of these cases that is not legitimate
antitrust enforcement. I think there are protectionist and
industrial policy issues that we need to address. And where the
U.S. Government could be helpful would be a ``one-government''
or a ``whole-government'' approach to these problems. There is
a critical need for U.S. antitrust officials as well as U.S.
trade officials to come together, look at some of these issues
holistically, look at the trend--again, Qualcomm is one of some
40 American companies that has been the subject of an antitrust
investigation in Korea since the KORUS entered into effect 4
years ago. Senator Hatch yesterday sent a letter to the Korean
ambassador spelling out some of the very serious concerns that
we and other companies have about the KFTC and other aspects of
KORUS implementation. And it is very important that the
administration is responsive to those concerns.
Senator Cantwell. Thank you. My time has expired, and I
have gone over. Maybe Mr. Mulhern could submit something for
the record. Thank you.
Senator Wyden [presiding]. That would be great.
[The response appears in the appendix on p. 64.]
Senator Wyden. Senator Thune, before we go to you, I just
want to indicate that I am going to put into the Congressional
Record the exact details of some of these issues with respect
to TAA. For example, TAA was expanded to permanently include
service workers, which was a lifeline in my home State where
Levi workers, several hundred of them, were laid off. They were
able to get help, and also the legislation doubled TAA funding.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman, and I think many of
us share the concerns that were voiced by Senator Cantwell
about enforcement and funding for that. There was a trust fund
created in the Customs bill that I think Chairman Hatch is
interested in trying to make sure has the dollars in there,
appropriated funds, to make sure that there are resources there
to follow through on some of these enforcement issues that are
so important.
I think today's hearing is really important, because we
have too many Americans who see trade as one-sided, where our
trading partners violate the rules without repercussions. And
when that happens, it is all too easy to ignore the many
benefits of trade and focus only on the negatives, and that is
why Congress did recently enact a strong trade enforcement law,
and that is why the Trade Promotion Authority law is rightly
focused on holding our trading partners' feet to the fire.
Simply put, if we want to build the public support that is
necessary for new trade agreements, we have to convince the
American people that we are not only opening new markets to our
goods and services, but that we have the ability to ensure that
our trading partners play by the rules as well. So I am going
to be very interested in following up too. And there are some
issues that specifically impact my State of South Dakota in
that regard, and that is why some of us on this committee--
Senator Wyden and I, going way back to a few years ago when he
was the chair of the Trade Subcommittee, had hearings on----
Senator Wyden. I coined the legendary term from you,
``honey laundering.''
Senator Thune. ``Honey laundering.'' And I think we made
some good headway in this last bill on that front.
But let me just ask a question here, and anybody can feel
free to answer this. But the new trade law specifies that the
government must examine how a nation has adhered to its
existing trade obligations when considering if the U.S. will
enter into a new trade agreement with that nation. I am just
wondering if you agree with that as a right approach, and
maybe, put another way, how important is past compliance when
considering if a country is likely to comply with the terms of
a new trade agreement?
Mr. Mulhern. I will jump in first, Senator, and say I think
it is very important. I completely agree with you. And Canada
is, in our view, a case study in that. The limited access we
have been granted in previous trade agreements in dairy, they
have already, as I said in my statement, tried to figure out
ways to evade that. And even before the TPP agreement goes into
effect, is even approved, there are already efforts underway in
Canada to try to, again, circumvent some access that the U.S.
dairy industry has into that market.
So those kind of commitments are very important with
respect to TPP, and, frankly, given the long history of
nontariff trade barriers deployed by the European Union in
agriculture and in dairy specifically, we are very concerned
about the TTIP agreement as well. The discussions to date have
been too much on the European agenda and not enough on the
American agenda when it comes to dairy access and dairy trade.
There are a number of barriers that the Europeans have
routinely put up as nontariff trade barriers to our access to
that market. And it is important from our perspective for those
issues to be dealt with before there is any possibility that we
could support a TTIP agreement.
Senator Thune. Let me follow up, because in your testimony
you described our neighbor to the north, Canada, as actively
seeking to thwart dairy trade obligations, and you say that
this merits a unique approach by the United States. Could you
elaborate on what you mean by that?
Mr. Mulhern. I think what we are looking for, in cases like
this is, I think we need a sector-specific approach. We have
been working with USTR on these issues. We are in active
discussions with them. They are aware of our concerns and have
been helpful to date in trying to address them. But it does
give us great pause when we see a good trading partner for the
United States--Canada--as Senator Coats mentioned in his
comments, try to deploy efforts to circumvent agreements that
we think we have with them on paper.
So it is making sure through specific language, a written
agreement, that the access that is supposed to be granted in
one of these agreements is not circumvented through other
efforts.
Senator Thune. And what is so different about how Canada
treats dairy? Just for purposes of the record.
Mr. Mulhern. Well, Canada is committed certainly to
protecting its domestic dairy industry, because they have a
supply management program within Canada which limits domestic
production. In order to do that, to keep a price level, they
have long had their policy to greatly limit imports of dairy
into that country.
Our point through the TPP negotiations was, if you are
going to be part of a free trade agreement, free trade is about
free trade, and you cannot pick and choose. Frankly, we did not
get the access into Canada that we had hoped to get in the TPP
agreement, and that is an issue for us. But the limited access
we did get we would like to be able to utilize.
Senator Thune. You, in your testimony, also focused at
length on the issue of geographical indications and how their
misuse is threatening to create barriers to U.S. exports in a
wide range of markets. As the U.S. explores how best to address
this nontariff trade barrier, is it the European Union that we
need to take to task? Or should we turn our attention to our
trading partners who are agreeing to some of these
restrictions?
Mr. Mulhern. We need to do both. Number one, we need to
address this issue head-on with the European Union. This is
something that should be addressed perhaps on the side of the
TTIP, because I think in our view it is going to hold it up if
they try to keep pushing their approach through the TTIP
negotiations. But it is also important that the U.S. Government
deal with this directly in third markets where the EU is
actively engaged in trade negotiations.
TPP, frankly, has very good language which will help, and
we pushed that GI language in TPP. That will be helpful. But it
is happening in other markets as well. USTR has been engaged in
this. They announced yesterday an agreement with Honduras to
address GI issues in that market that we had raised as
concerns. So I think we can see that progress can be made, but
it is an effort that has to be done both directly with the EU
first, and if we cannot stop that effort, we are going to have
to continue to do what we are doing right now, which is in
third countries' markets.
Senator Thune. Thank you.
Mr. Chairman, my time has expired. I hope we can figure out
a path forward on dairy. That is the one area--not the only
area, but certainly one area that causes great concern in this
country with regard to implementation of the trade agreements
that are in front of us. And by and large, most of the people,
organizations that I represent that are in production
agriculture, are very supportive of TPP, and I hope we get a
good TTIP agreement. But dairy is certainly an outlier in that,
and I hope we can make some headway that gets us to where this
is a good deal for them as well.
Thank you, Mr. Chairman.
Senator Wyden. Thank you, Senator Thune. I am glad you
brought up the dairy issue, and I intend to submit some
questions in writing for that purpose as well.
The chairman and I want to wrap this up by thanking all of
you. We very much appreciate your being here and our colleagues
participating. We have learned a lot at this hearing, and we
are going to continue to work on both sides of the aisle to
look at ways to improve U.S. trade policy, and particularly
potential issues that may be encountered through implementation
of future trade agreements, both in the United States and
abroad.
The chairman requests that any written questions for the
record be submitted by Thursday, March 17th of this year.
With that, the Finance Committee is adjourned.
[Whereupon, at 11:35 a.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Submissions for the Record From Hon. Sherrod Brown
A GOLD STANDARD FOR WORKERS?
The State of Labor Rights in
Trans-Pacific Partnership Countries
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
AFL-CIO
Commonly Used Abbreviations:
Collective Bargaining Agreement (CBA)
Department of Labor (DOL)
Department of State (DOS)
Free Trade Agreement (FTA)
International Labor Organization (ILO)
Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC)
North American Agreement on Labor Cooperation (NAALC)
North American Free Trade Agreement (NAFTA)
Office of Trade and Labor Affairs (OTLA)
Organisation for Economic Co-operation and Development (OECD)
Trans-Pacific Partnership (TPP)
United Nations (UN)
United States Trade Representative (USTR)
INTRODUCTION
This report seeks to shed light on the state of labor rights and
commitments among the Trans-Pacific Partnership (TPP) partner
countries. Respect for labor rights is at the core of increasing jobs,
raising wages and creating broadly shared prosperity. The Obama
administration had promised that the TPP would be a 21st century
agreement, a ``gold standard,'' that would promote and respect labor
rights, and raise wages for U.S. workers and workers across the Pacific
Rim. Unfortunately, the grim conditions facing workers in TPP partner
countries were not effectively addressed in the TPP text or consistency
plans. Many commitments to improve labor rights remain vague, and the
proposed enforcement scheme relies on the discretion of the next
administration. The failure of the TPP to incorporate needed
improvements to labor commitments that already have proved themselves
inadequate in previous agreements belies the agreement's stated
commitment to workers. It is clear that, as currently drafted, the TPP
would increase corporate profits and skew benefits to economic elites,
while leaving workers to bear the brunt of the TPP's shortcomings,
including lost jobs, lower wages and continued repression of worker
rights.
The majority of this analysis is based on the submission of the Labor
Advisory Committee for Trade Negotiations and Trade Policy (LAC), a
body consisting of U.S. trade union leaders with a statutory
responsibility to provide advice to U.S. trade negotiators. The LAC had
the statutory duty to respond to three questions concerning the TPP:
1. Is the Trans-Pacific Partnership in the economic interests of the
United States?
2. Does the TPP achieve the applicable overall and principal
negotiating objectives?
3. Does the TPP provide equity and reciprocity for labor interests?
On all three of these crucial questions, the LAC concluded that the TPP
fell short. Overall, the LAC found the TPP is likely to harm U.S.
manufacturing interests, cost good jobs, suppress wages, and threaten
our democracy and economic security interests, while doing little to
improve conditions for workers in the United States and overseas.
Before dealing with the question of labor conditions in the TPP
countries, it is important to dispel some of the arguments that the
supporters of the Trans-Pacific Partnership advance regarding the labor
rights provisions in the text of the TPP.
``Enforceable'' Labor Rights Provisions
The TPP's supporters note that the TPP's labor provisions are
``enforceable.'' This is the wrong measuring stick. The correct
measurement is whether there are sufficient provisions to provide
confidence that they will be enforced. The United States has never
imposed trade sanctions or even a fine as a response to labor
violations by FTA partner countries. It has only attempted dispute
settlement once, against Guatemala. The Guatemala case has been ongoing
since 2008 and workers have yet to experience any measurable
improvements as a result.\1\ Despite receiving numerous specific
recommendations, informed by experience, on how to turn theoretical
enforceability into actual enforcement, the United States Trade
Representative (USTR) failed to incorporate these recommendations. For
example:
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\1\ As of February 1, 2016, a panel report from the first hearing
(held in June 2015) has not even been published. Publication of the
report is far from the end of the process. The case seems likely to
drag on for years.
The TPP fails to require parties to advance to the next stage in the
dispute settlement process when an earlier stage proves ineffective
(Article 19.15). This failure means that future labor submissions are
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likely to languish as the Guatemala case has.
The TPP fails to include deadlines for its public submission process
that would require parties to advance TPP submissions they receive in a
timely manner (Article 19.9). This failure means that parties will be
able to use ``administrative delays'' to indefinitely defer acting on
such submissions, as happened with the Honduras case, in which the
petitioners waited for an initial report for two and half years, and
formal consultations have still not commenced.
The TPP fails to clarify the obligations of the parties with respect
to International Labor Organization (ILO) standards (Article 19.3).
This vagueness as to what the obligation regarding freedom of
association and other fundamental labor rights mean makes it less
likely the labor obligations will be enforced effectively.
The TPP fails to include measurable benchmarks or an independent
evaluation to determine whether the consistency plans for Vietnam,
Brunei and Malaysia are met. This failure means the determination that
a consistency plan has been fulfilled and the TPP is ready for entry
into force is wholly discretionary. The decision will be subject to
immense commercial pressures to prematurely declare fulfillment. Such
pressure was brought to bear regarding the Colombia Labor Action Plan
(LAP), which also contained positive objectives, but lacked
benchmarking criteria or an independent evaluation mechanism. As a
result, success was declared prematurely, and Colombia has been out of
compliance with its labor obligations since Day One of the agreement.
This premature certification of compliance with the LAP apparently has
deterred the U.S. government from self-initiating labor consultations
with Colombia even though workers continue to be subjected to threats
and violence, up to and including murder, in order to discourage them
from the free exercise of their fundamental labor rights. There is no
reason to expect a different outcome from the TPP plans.
The TPP contains different dispute settlement mechanisms for foreign
investors and working people (Chapters 9 and 19). Foreign investors can
bring cases against TPP parties on their own, without having to
petition their own government to do so. Working people must petition
their governments, and then engage in years-long campaigns to attempt
to move the cases through the arduous process. The negotiators
demonstrated they know how to create effective dispute settlement
mechanisms when they want to (Article 9). Thus, we conclude the failure
to equalize the dispute settlement procedures available to workers was
purposeful.
The TPP's supporters say the labor chapter responded to all of labor's
concerns. This is a spurious claim--one that easily can be
disproved.\2\ As detailed in the section above, a number of important
labor recommendations were wholly ignored. Those proposals that were
not wholly ignored were included in a weakened form that would
undermine their effectiveness.
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\2\ See ``Report on the Impacts of the Trans-Pacific Partnership''
by The Labor Advisory Committee on Trade Negotiations and Trade Policy,
December 2, 2015, especially Chapter V and Annex 1.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
After providing high levels of engagement at the initial stages of the
TPP negotiations, USTR moved in the opposite direction. Between
February 21, 2012, and July 2015, the USTR and the Department of Labor
(DOL) provided no updated texts of the labor chapter (and the same was
true for many chapters of interest to working people). Furthermore, the
LAC was never allowed to review the text or substance of the draft
labor consistency plans for Vietnam, Malaysia and Brunei, despite
numerous requests. Given that these arrangements are focused on these
countries' labor and employment laws, the unwillingness of U.S.
negotiators to share draft text of these arrangements with its labor
advisers (who have security clearances) is indicative of the
indifference USTR generally displayed toward its consultation process
with the LAC throughout TPP negotiations. The gaps in labor rights
coverage and lack of accountability mechanisms in the TPP exemplify the
outcome of such an approach. The LAC could have offered advice that
would have plugged holes and strengthened weak spots, but we were not
provided an opportunity to do so, despite our role pursuant to the
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Trade Act of 1974.
The TPP's supporters say it is much stronger than the May 10th labor
chapter. USTR argues the TPP labor chapter greatly improves on language
developed in 2007 known as the ``May 10th'' agreement on labor, which
included ``enforceable'' language requiring countries to adopt and
maintain in their laws, and to practice five basic internationally
recognized labor principles as stated in the ILO Declaration on
Fundamental Principles and Rights at Work. Yet the changes are minor
and provide little value to workers (for example, TPP parties must set
a minimum wage, but there is no level below which that wage cannot go).
As the AFL-CIO noted at the time, the May 10th agreement, though an
important step forward from previous FTAs, was ``by no means a complete
fix appropriate for any country or any situation.'' \3\
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\3\ Letter from Bill Samuel, director, Department of Legislation,
AFL-CIO, to Congress. Available at: www.massaflcio.org/sites/
massaflcio.org/files/PERUlettertoHouse.907.pdf.
Because both the May 10th agreement and earlier labor provisions have
been weakly enforced,\4\ the labor movement worked hard to develop
proposals, provide recommendations and engage positively with USTR to
reform labor texts that had proved ineffective, even when dealing with
countries with less severe labor and human rights issues than Vietnam
and Malaysia. Rather than trying a new model, the TPP incorporates
without improvement numerous provisions, including the discretion to
indefinitely delay acting on labor rights violations, already known to
be ineffective. Because employers in our trading partner countries will
continue to abuse workplace rights, workers throughout the TPP region
will continue to make lower wages and will have fewer benefits and more
dangerous workplaces than they otherwise might. An injury to a worker
in Vietnam will indeed affect his or her American counterpart by
driving down wages and working conditions.
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\4\ Government Accountability Office (GAO), ``Free Trade
Agreements: U.S. Partners Are Addressing Labor Commitments, But More
Monitoring and Enforcement Are Needed,'' November 2014. Available at:
www.gao.gov/assets/670/666787.pdf; GAO, ``Four Free Trade Agreements
GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on
Labor and Environment Remain,'' July 2009. Available at: www.gao.gov/
products/GAO-09-439.
TPP supporters say the TPP would, for the first time, require parties
to have laws concerning ``acceptable conditions of work with respect to
minimum wages, hours of work and occupational safety and health.''
Unfortunately, because the TPP sets no minimum standards for these
laws, this provision is not as valuable as it might first appear. The
TPP explicitly provides that these obligations will be satisfied ``as
determined by'' each country (Article 19.3.2). As a result, a TPP
country can set a minimum wage of a penny an hour, or allow shifts of
20 hours per day with no overtime pay, or require workers to provide
their own safety gear--and yet be fully compliant with the TPP. Thus,
this provision adds little in terms of meaningful new protections for
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workers in TPP countries.
TPP supporters say it requires TPP countries to combat trade in goods
made with forced labor. Rather than requiring countries to prohibit or
even combat trade in goods made with forced labor, the TPP requires
parties only to ``discourage'' trade in such goods ``through
initiatives it considers appropriate'' (Article 19.6). This language
ensures a TPP party can judge for itself whether it is ``discouraging''
such trade. A TPP country not inclined to do much might, for example,
put up a poster alerting customs employees that trade in goods made
with forced labor should be discouraged. The provision allows parties
to judge for themselves whether their initiatives are adequate, and
even contains a footnote noting the provision provides no authorization
to discourage trade in goods made with forced labor if such activities
would violate obligations made in other trade deals. Thus, this
provision provides no assurances that workers would be protected from
forced or compulsory labor, including forced or compulsory child
labor--and explicitly prioritizes trade obligations over obligations to
protect human rights.
TPP supporters say the TPP obligates parties not to waive or derogate
from statutes or regulations implementing minimum wages, hours of work,
and occupational safety and health in a special trade zone or customs
area. This is yet another provision that adds little for workers. As
explained above, a TPP party's laws need not set meaningful standards
regarding minimum wages, hours of work, and occupational safety and
health. While preventing TPP parties from reducing these standards
through waiver or derogation is a laudable goal, this particular
obligation only applies ``in a special trade or customs area, such as
an export processing zone or foreign trade zone, in the Party's
territory.'' Thus, it leaves the vast majority of TPP workers without
this protection. The AFL-CIO had requested that parties not be allowed
to waive or derogate from laws regarding acceptable conditions of work
for any worker--as such a commitment would have been useful. Limiting
the reach of this provision to special zones only limits its
usefulness.
The TPP's supporters say it requires countries to eliminate
discrimination in employment. Unfortunately, the text of the TPP itself
is vague regarding what types of discrimination are prohibited, even
though a number of TPP countries have entrenched in practice (and in
some cases in law) discrimination against disfavored groups. For
example, Vietnam's consistency plan only requires Vietnam to prohibit
discrimination on the basis of color, race and national extraction. It
fails to mention religion, political opinion, LGBT status or
immigration status.\5\ These glaring omissions leave open the strong
possibility that these other bases of discrimination will be used as a
pretext to discourage unions and deter workers from exercising their
rights. Similarly, the Malaysia consistency plan fails to address
discrimination on the basis of LGBT or immigration status, even though
discrimination on these grounds is pervasive throughout Malaysia.
Likewise, the Brunei consistency plan fails to address LGBT or
immigration status even though it enacted a Sharia legal code during
the TPP negotiations that includes the death penalty for illicit sexual
relations.\6\ Moreover, neither the TPP text nor the consistency plans
address basic human rights, including freedom of expression. Without
even basic protections for such freedoms, it seems insincere to argue
that governments that have engaged in years of repression against free
and independent labor unions will not resort to other legal means at
their disposal to continue to undermine workplace rights. These glaring
omissions mean that workers who should be protected likely will
continue to face major threats and discrimination that the TPP, on its
face, will be unable to address.
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\5\ While gender also is not mentioned in the Vietnam consistency
plan, Vietnam already has strong gender equity laws.
\6\ Quratul-Ain Bandial and Bandar Seri Begawan, ``A New Era for
Brunei,'' The Brunei Times, April 30, 2014. Available at:
www.bt.com.bn/frontpage/2014/04/30/new-era-brunei.
TPP supporters argue that the TPP is ``one of the best tools we have to
fight forced labor and human trafficking'' in Malaysia.\7\ Similar
promises were made about the Colombia trade deal. The ``strong labor
provisions'' of that trade deal were supposed to provide leverage to
raise standards for a country with notoriously abusive labor practices,
which had reduced labor density to 1% through a campaign of terror
against labor leaders and activists. Unfortunately, because the
Colombia trade deal went into effect before it had complied in both law
and practice with its labor obligations, the promised leverage was
lost. Now, even though threats and violence against trade unionists
have increased since the deal's entry into force, the United States has
failed to respond. The commercial pressure to keep trade flowing freely
has superseded efforts to protect workers so they can act collectively
to raise their wages and conditions of work. Likewise, the TPP includes
Malaysia, a country with a notoriously bad record on human trafficking
and forced labor. To deal with this, labor unions suggested new
protections for migrant workers that would have obligated all TPP
countries to prohibit certain practices by employers and labor
recruiters that are linked to forced labor and human trafficking. We
also recommended a clause making clear that migrant workers are
entitled to the same rights and remedies as all other workers. Both of
these recommendations were soundly rejected. Since the trafficking
provisions in the Malaysia consistency plan apply only to Malaysia and
have no independent evaluation mechanism, it is unlikely the TPP will
prove effective at addressing trafficking and forced labor.
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\7\ https://medium.com/the-trans-pacific-partnership/frequently-
asked-questions-on-the-trans-pacific-partnership-
eddc8d87ac73#.rn5kzfxr8.
ANALYSIS OF LABOR CONDITIONS IN TPP PARTNER COUNTRIES
The TPP includes countries with entrenched labor and human rights
abuses that are unlikely to be solved during a short implementation
period.\8\
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\8\ It is important to note the United States is also out of
compliance in a number of ways with fundamental labor rights. As Human
Rights Watch put it, ``Freedom of association is a right under severe,
often buckling pressure when workers in the United States try to
exercise it.'' Particularly egregious examples include restrictions and
in some cases even prohibitions on the rights of freedom of association
and collective bargaining for many public employees (at the federal,
state and local levels), child labor in the agricultural sector, many
prison labor systems, and the lack of a federal regime sufficient to
deter private-sector employers from routinely interfering with the
right to freedom of association.
The following summary of the labor and human rights practices of other
TPP countries is broken down into three categories: countries with
critical labor rights violations, countries with serious concerns and
selected labor rights violations in partner countries. Holistically,
each partner country is assessed on the basis of its adherence to the
ILO's five fundamental labor rights: the right to freedom of
association, the right to collectively bargain, the abolition of forced
or compulsory labor, the abolition of child labor and
nondiscrimination. This report also will consider how the TPP and, in
some cases, U.S.-negotiated labor consistency plans (side agreements
for Vietnam, Malaysia and Brunei) would impact the situation for
workers in the future. It will conclude with recommendations for a
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worker-centered trade policy.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
I. Countries with Critical Labor Rights Violations (Out of Compliance)
Mexico
The human and labor rights situation in Mexico is rapidly
deteriorating. Mexico currently fails to adopt and implement laws that
protect the ILO's core labor standards. Indeed, the Department of State
(DOS) Mexico 2014 Human Rights Report concludes that:
The government did not consistently protect worker rights in
practice. Its general failure to enforce labor and other laws
left workers without much recourse with regard to violations of
freedom of association, working conditions, or other
problems.\9\
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\9\ DOS, DRL, ``Country Reports on Human Rights Practices for 2014:
Mexico,'' 2014. Available at: www.state.gov/j/drl/rls/hrrpt/
humanrightsreport/index.htm#wrapper.
The use of ``protection contracts'' (agreements masquerading as
collective bargaining agreements (CBAs) signed between an employer and
an employer-dominated union, often without the knowledge of the
workers) is the most serious threat to freedom of association and
collective bargaining in Mexico. Today, there are estimated to be tens
of thousands of protection contracts and tens of thousands of
workplaces in Mexico covering millions of workers. In thousands of
workplaces, workers are governed by contracts they have never ratified,
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were never consulted on, and in many cases have never seen.
When workers attempt to bring complaints about protection contracts,
these complaints are heard by Mexico's Conciliation and Arbitration
Boards (CABs), which are politically biased and corrupt.\10\ Instead of
ensuring workers can exercise their rights under Mexican and
international law, the CABs, the labor authorities and sometimes
privately hired or public police forces have interfered with workers'
freedom of association. This situation presents itself at the worksites
of many multinational companies, including Atento, Excellon, Honda, PKC
and Teksid.\11\ In the agricultural sector, child labor, forced labor
and inhumane working conditions exist on farms that export fresh
produce into the United States, which then is sold at major retailers,
including Walmart and Safeway.\12\ The recent mobilizations in Baja
California for better wages in the agricultural sector and the right to
form independent unions were met with police repression.\13\
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\10\ Graciela Bensusan and Arturo Alcalde, ``El sistema de justicia
laboral en Mexico: situacion actual y perspectivas,'' (June 2013).
Available at: www.fesmex.org/common/Documentos/Libros/
Paper_AP_Justicia_Laboral_Bensusan-Alcalde_Jun2013.pdf; U.S. National
Administrative Office, public review of submission 9703 (Itapsa)
(evidence ``raises questions about the impartiality of the CAB and the
fairness, equitableness and transparency of its proceedings and
decisions''); public review of submission 9702 (Han Young); Julie M.
Wilson, ``Mexican Arbitral Corruption and the North American Agreement
on Labor Cooperation: A Case Study.'' Swords and Ploughshares: A
Journal of International Affairs 12, No. 1 (Spring 2003): 61-77; Adam
Bookman and Jeffrey K. Staton, ``A Political Narrative of Mexican
Labour Arbitration Boards and Legal Strategies.'' Paper prepared for
presentation at the Conference on the Scientific Study of Judicial
Politics. Texas A&M. October 21-23. Political Science Working Paper
#375. It has been suggested that the boards can be made more efficient
by adopting oral procedures. See Instituto Mexicano para la
Competitividad, Por una mejor justicia laboral (2014). However, it has
been reported that in some labor boards the recordings of these
proceedings are being used to bring criminal complaints against workers
and their attorneys. Manuel Fuentes Muniz, La justicia laboral de
embudo, July 1, 2014. Available at: http://
manuelfuentesmuniz.blogspot.com/2014/07/la-justicia-laboral-de-embudo-
la-silla.html.
\11\ Sindicato Mexicano de Electricistas, Public Communication
under the North American Agreement on Labor Cooperation (November 4,
2011): 5-6. Available at: www.dol.gov/ilab/submissions/pdf/
MexicoSubmission2011.pdf.
\12\ Marosi, Richard, ``Product of Mexico,'' Los Angeles Times,
December 7, 2014. Available at: http://graphics.latimes.com/product-of-
mexico-camps/.
\13\ Binkowski, Brooke, ``Arrests as Mexico farming wage strike
turns violent,'' Al Jazeera, May 12, 2015. Available at:
www.aljazeera.com/news/2015/05/150512051555205.html.
The union certification process is designed to limit worker
representation. For example, a requirement known as toma de nota has
been used by the labor authorities as a tool to deny union office to
leaders who are politically disfavored under the guise of an elections
certification process. Labor authorities also have denied legal
registration to independent unions on seemingly arbitrary or technical
grounds. They continue to assert that unions may represent only workers
in specific industries, and that the state may restrict a union to a
specific ``radius of action'' (radio de accion).\14\
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\14\ See Secretaria Auxiliar de Conflictos Colectivos, Junta
Especial Numero Quince, Expediente Numero: IV.54J2012.
The magnitude of these problems has been well documented in public
reports, submissions under the North American Agreement on Labor
Cooperation (NAALC),\15\ reports of the ILO Committee on Freedom of
Association,\16\ academic investigations \17\ and recent case
studies.\18\ Although Mexico and the United States have had more than
20 years to work on bringing Mexican labor law and practice up to
minimum international standards through the NAALC process, labor abuses
in many cases are worse now than before the North American Free Trade
Agreement (NAFTA), and these abuses appear to be concentrated in supply
chains that feed U.S. markets.
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\15\ See U.S. National Administrative Office, public reports of
review for public submissions 940003 (Sony), 2003-01 (Puebla), 2005-03
(Hidalgo), 9702 (Han Young), 9703 (Itapsa).
\16\ See, e.g., ILO CFA cases 2115, 2207, 2282, 2308, 2346, 2347,
2393.
\17\ Jose Alfonso Bouzas Ortiz (Coordinador) EVALUACION DE LA
CONTRATACION COLECTIVA EN EL DISTRITO FEDERAL, Friedrich Ebert
Foundation, 2009. Available at: www.democraciaylibertadsindical.org.mx/
media_ files/LIBRO_BOUZAS.pdf; Carlos de Buen Unna, ``Collective
bargaining agreements for employer protection (`protection contracts')
in Mexico,'' Friedrich Ebert Foundation, 2011. Available at:
www.democraciaylibertadsindical.org.mx/media_ files/
Paper_Charles_De_Buen.pdf; Chris Tilly and Jose Luis Alvarez Galvan,
``Lousy Jobs, Invisible Unions: The Mexican Retail Sector in the Age of
Globalization.'' International Labor and Working-Class History 70
(2006), pp. 1-25.
\18\ See, e.g., Worker Rights Consortium, Violations of
International Labor Standards at Arneses Y Accesorios De Mexico, S.A.
DE C.V. (PKC GROUP), June 18, 2013. Available at: http://
workersrights.org/Freports/
WRC%20Findings%20and%20Recommendations%20re%20Arneses%
20y%20Accesorios%20de%20Mexico%2006.18.13.pdf; Centro de Reflexion y
Accion Laboral, ``After the Reform: Fifth report about the labor
conditions of Mexico's electronics industry,'' August 2013. Available
at: www.fomento.org.mx/novedades/Informe2013-ingles.pdf.
In short, NAFTA has contributed to labor abuses, not improvements.
NAFTA also contributed to massive displacement of Mexican
campesinos.\19\ Some of these workers searched for promised new jobs in
the maquiladoras. Many others migrated north to the United States,
either through irregular channels or by utilizing often-exploitative
labor recruitment firms and guestworker visa programs. As documented in
a 2011 NAALC petition, migrant workers in the United States are subject
to a range of labor rights violations.\20\ Meanwhile, companies have
shifted manufacturing work to Mexico for decades to take advantage of
displaced campesinos and other impoverished workers who lack the most
basic workplace protections.
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\19\ M. Angeles Villarreal, ``NAFTA and the Mexican Economy,''
Congressional Research Service, June 3, 2010.
\20\ Petition on Labor Law Matters Arising in the United States
submitted to the National Administrative Office (NAO) of Mexico under
the NAALC, ``Regarding the Failure of the U.S. Government to
Effectively Enforce its Domestic Labor Laws, Promote Compliance with
Minimum Employment Standards, and Protect Migrant Workers,'' September
19, 2011.
There is currently a crisis of violence and impunity taking place in
Mexico that raises doubts about whether the Mexican government can and
will fulfill its obligations under the TPP. The disappearance last year
of 43 students, now declared dead, from the teachers' college in
Ayotzinapa, Guerrero, by local police and criminal gangs widely
believed to be responsible, is a horrific example of violence,
corruption and dissolution of the rule of law. More than 22,000 persons
have disappeared since 2007, including more than 5,000 in 2014
alone.\21\ These crimes rarely are investigated and almost never
prosecuted, allowing public security forces--the same that have
sporadically engaged in violent worker repression over the years--to
operate with impunity.
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\21\ ``Law and Order in Mexico,'' The New York Times, November 11,
2014. Available at: www.nytimes.com/2014/11/12/opinion/murder-in-
mexico.html?_r0; ``Mexico's Disappeared,'' Human Rights Watch, February
20, 2013. Available at: www.hrw.org/reports/2013/02/20/mexicos-
disappeared-0.
There is nothing in the TPP's labor chapter that would ensure Mexico's
history of worker abuse and exploitation will be remedied. No
provisions were added to the enforcement section to ensure monitoring
and enforcement of the labor obligations will be deliberate,
consistent, timely, vigilant, effective or automatic. There is not even
a ``consistency plan'' for Mexico despite the U.S. government's
extensive knowledge of the problems--problems that not only impoverish
Mexico's workers, but also act as an inducement to transfer production
out of the United States. The TPP fails to even include any specific
protections for equal rights and remedies for migrant workers, or
specific prohibitions against exploitive or fraudulent international
labor recruitment, which labor union presidents had recommended
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strongly.
In December 2015 in Cancun, Mexico, President Pena Nieto announced he
would send new labor law reform proposals to Congress early this year,
but to date there is no clear process to include independent unions and
civil society in developing these proposals.
The president of Mexico also sent ILO Convention 98 on the right to
organize and collective bargaining to the Senate for ratification, and
the labor secretary has announced a new inspection protocol that
supposedly would verify whether workers understand their contracts, but
workers still would lack the right to get a copy of their contract,
which reinforces the current protection contract model.
On January 20, 2016, the Mexican Supreme Court ruled the government can
cap back pay at one year in lawsuits over unjust firings, although on
average these cases take more than three years to resolve. This ruling
creates a perverse incentive to fire workers who attempt to organize
democratic unions.
Despite public statements promising to address worker rights issues,
the Mexican government has failed to address systemic worker rights
violations. The government continues to fail to eliminate the CABs and
replace them with independent labor judges, create transparency in the
union contracts and certification, or ensure that union democracy is
protected through improved election and certification processes. Labor
rights must be enforced, not be just potentially enforceable, to have
an impact on the ground. As currently written, the TPP fails to meet
this benchmark, and would reward Mexico with more trade benefits before
the government makes fundamental and structural changes to its labor
system to bring it into compliance with international labor law.
Vietnam
Vietnam has an authoritarian government that limits political rights,
civil liberties and freedom of association. The government maintains a
prohibition on independent human rights organizations and other civil
society groups. Without the freedom to exercise fundamental labor
rights, labor abuses in Vietnam are pervasive, artificially suppressing
wages, stifling the ability of Vietnamese workers to escape poverty,
and putting U.S. and other workers at a disadvantage in the global
market. Labor provisions in the TPP and the labor consistency plan do
not appear to be carefully crafted to effectively mitigate this urgent
problem or empower workers to improve conditions.
The Vietnamese government currently restricts union activity outside
the official unions affiliated with the Communist Party's Vietnam
General Confederation of Labor (VGCL), which actually controls the
union registration process.\22\ Workplace-level VGCL unions generally
have management serving in leadership positions, and when that is not
the case, workers cannot meet as the union without management
present.\23\ This effectively bars the possibility of establishing
independent trade unions in Vietnam. Further, there is no right to
strike in Vietnam. Wildcat strikes and industrial actions outside VGCL
unions have led to government retaliation, including prosecution and
imprisonment.
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\22\ U.S. DOS, ``Vietnam 2014 Human Rights Report,'' 2014.
Available at: www.state.gov/documents/organization/236702.pdf.
\23\ ITUC, ``Survey of Violations of Trade Union Rights: Vietnam,''
2014. Available at: http://survey.ituc-csi.org/
Vietnam.html?lang=en#tabs-3.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Government repression of civil liberties further undermines industrial
relations in Vietnam. Corruption in the judicial system and widespread
law enforcement abuse, including arbitrary killings, stifles
whistleblowers and labor activists, as well as human rights
defenders.\24\ The government blocks access to politically sensitive
websites and monitors the Internet for the organization of unauthorized
demonstrations.\25\
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\24\ Human Rights Watch, ``World Report 2015: Vietnam,'' 2015.
Available at: https://www.hrw.org/world-report/2015/country-chapters/
vietnam.
\25\ DOS, ``Vietnam 2014 Human Rights Report,'' 2014.
Vietnam has significant problems with forced labor and child labor. The
U.S. DOL finds that child labor is prevalent in the production of
bricks and garments. Forced labor and human trafficking also is
prevalent in the garment sector and in the informal economy.\26\
Vietnam is the second-largest source of apparel and textile imports to
the United States, totaling just under $10 billion in value \27\ and
employing more than 2 million workers.\28\ Many of the clothes contain
textiles produced in small workshops subcontracted to larger factories.
These workshops frequently use child labor, including forced labor
involving the trafficking of children from rural areas into cities.\29\
---------------------------------------------------------------------------
\26\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced
Labor: Vietnam,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Vietnam; Office to Monitor and Combat
Trafficking in Persons, 2015 Trafficking in Persons Report,
``Vietnam.'' Available at: www.state.gov/documents/organization/
243562.pdf; scroll down to Vietnam report, page 362.
\27\ ITA, Office of Textiles and Apparel, ``Major Shippers Report:
U.S. General Imports By Country,'' September 2015. Available at: http:/
/otexa.trade.gov/msrcty/v5520.htm.
\28\ Worker Rights Consortium, ``Made in Vietnam,'' May 2013.
Available at: www.
workersrights.org/linkeddocs/WRC_Vietnam_Briefing_Paper.pdf.
\29\ Ibid.
The government of Vietnam also actively imposes compulsory labor on
drug offenders. In these work centers styled as drug treatment centers,
detainees are harassed and physically abused when they do not meet
their daily factory quotas in so-called ``labor therapy.'' An estimated
309,000 people were detained in Vietnam's drug detention centers from
2000 to 2010. The detainees receive little or no pay for their
work.\30\
---------------------------------------------------------------------------
\30\ Human Rights Watch, ``World Report 2015: Vietnam,'' Adeline
Zensius, ``Forced Labor in Vietnam: A Violation of ILO Convention 29,
``International Labor Rights Forum, December 2011. Available at: http:/
/laborrightsblog.typepad.com/international_labor_right/2011/09/forced-
labor-in-vietnam-a-violation-of-ilo-convention-
29-.html#sthash.FJEFKvw8.dpuf.
The labor consistency plan with Vietnam offers many improvements on
paper, but few of them are likely to be actualized given that full TPP
membership and market access will be granted after ratification and
before changes are made. The plan contains a number of other
shortcomings. It allows Vietnam to give ``independent'' unions
``mandatory political obligations and responsibilities'' so long as
they are not ``inconsistent with labor rights as stated in the ILO
Declaration.'' It is inconsistent with the concept of free and
independent unions to allow the government to saddle them with
``political obligations'' of any kind. The plan calls for a prohibition
on discrimination, but does not include religion, political opinion,
immigration status and sexual orientation/gender expression as
protected categories. Despite important language clarifying the right
to strike, the right of unions to independently manage their own
affairs and elect their own leadership, and to create independent
federations, it is not clear that penalties for employer violation of
---------------------------------------------------------------------------
these rights will be established.
Further, the plan provides a free pass to Vietnam to deny the right to
freedom of association above the enterprise level for at least the
first 5 years after the TPP's entry into force. The potential penalty
is only a delay of future tariff reductions. However, by Year Six of
the agreement, Vietnam already will enjoy the bulk of the tariff
reductions required by the TPP, including significant market access in
the all-important garment sector. By providing a grace period, the
agreement gives away important leverage that could improve the
situation now.
The market opening benefits of the TPP should not apply to Vietnam
unless and until Vietnam comes into full compliance with fundamental
labor rights. Anything less essentially will create a permanent ceiling
on labor and human rights in Vietnam, stunting Vietnamese wage growth,
suppressing Vietnamese demand and continuing to allow social dumping on
world markets.
Malaysia
Malaysia has grave problems with every one of the five fundamental
labor rights. Particularly troubling is its profound failures to
protect workers from forced labor and human trafficking. The DOL
reports that forced labor is prominent in the electronics and garment
industries, and the palm oil sector, which also uses child labor.\31\
The majority of the victims of forced labor in Malaysia are among the
country's 4 million migrant workers--40% of the overall workforce.\32\
The government of Malaysia's failure to uphold labor rights, or even
basic human dignity, puts the products of forced labor into the hands
of U.S. consumers, and forces U.S. workers to compete with a workforce
with few rights and protections.\33\ Under current conditions, it is
difficult, if not impossible, to imagine these workers moving into the
middle class and becoming a significant market for U.S. exports.
---------------------------------------------------------------------------
\31\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced
Labor: Malaysia,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Malaysia.
\32\ ``Immigration in Malaysia: Assessment of its Economic Effects,
and a Review of the Policy and System,'' The World Bank: Human
Development Social Protection and Labor Unit East Asia and Pacific
Region, 2013. Available at: http://psu.um.edu.my/images/psu/doc/
Recommended
%20Reading/Immigration%20in%20Malaysia.pdf.
\33\ Verite, ``Forced Labor in the Production of Electronic Goods
in Malaysia: A Comprehensive Study of Scope and Characteristics,''
2014. Available at: https://www.verite.org/research/
electronicsmalaysia.
Freedom of association is strictly limited, as there are many legal
restrictions on industrial action and police permission is required for
public gatherings of more than five people.\34\ Collective bargaining
also is restricted, especially for migrants and public-sector workers.
Employers use provisions that allow for multiple unions at the
enterprise level to set up company-dominated unions and erode the
bargaining power of representative unions. Trade union leaders and
workers report that employers regularly terminate or penalize workers
for expressing their political opinions or highlighting alleged
wrongdoings by employers. These practices contribute to the overall
level of exploitation, suppressing wages and driving demand down.
---------------------------------------------------------------------------
\34\ ITUC, ``Survey of Violations of Trade Union Rights:
Malaysia,'' 2015. Available at: http://survey.ituc-csi.org/
Malaysia.html?lang=en#tabs-2.
Migrants to Malaysia face a range of abuses related to their
recruitment and placement, and often are threatened with deportation
for speaking out. Migrant workers in agriculture, construction,
textiles and electronics, and domestic workers throughout Malaysia, are
subjected to restrictions on movement, deceit and fraud in wages,
document confiscation, and debts by recruitment agents or employers.
Migrants also are limited in their ability to improve these conditions.
While the Malaysian Employment Act of 1955 guarantees all workers,
including migrant workers, the right to join a trade union, employers
and government authorities discourage union activity among migrants,
and work contracts and subcontracting procedures often undermine worker
agency.\35\
---------------------------------------------------------------------------
\35\ Human Rights Watch, ``US/Malaysia: Letter to Secretary Kerry
on Trafficking in Persons in Malaysia,'' July 31, 2015. Available at:
https://www.hrw.org/news/2015/07/31/us/malaysia-letter-secretary-kerry-
trafficking-persons-malaysia; Kosh Raj Koirala, ``Malaysia flouts own
law on migrants' trade union rights,'' Nepal Republic Media, June 26,
2015. Available at: www.myrepublica.com/politics/story/23544/plight-of-
nepalis-in-malaysia-flouting-own-law-malaysia-prevents-migrants-
joining-trade-union.html#sthash.txEWzuIN.dpuf.
Some of the most recognizable electronics brands operate or source
components from Malaysia, including Intel, Advanced Micro Devices, Dell
and Flextronics.\36\ Verite interviewed more than 500 workers and found
that approximately 28% of electronics workers toiled in conditions of
forced labor. Additionally, 73% of workers reported violations that put
them at risk for forced labor, such as outsourcing, debt from
recruitment fees, constrained movement, isolation and document
retention.\37\
---------------------------------------------------------------------------
\36\ Malaysia Investment Development Authority, ``Top 10 U.S.
Companies in Malaysia,'' 2012. Available at: www.mida.gov.my/env3/
uploads/events/TIMUSA29042012/02Top10USCompan
ies.pdf.
\37\ Verite, ``Forced Labor in the Production of Electronic Goods
in Malaysia.''
In May 2015, Malaysian police uncovered 139 makeshift graves in the
jungle alongside abandoned cages used to detain migrant workers--an
operation so massive many believe local officials were complicit.\38\
Not long after, the U.S. State Department made the disastrous and
apparently political decision to upgrade Malaysia in its annual
Trafficking in Persons Report from Tier 3 to the Tier 2 watch list--
removing the country from the threat of trade restrictions under the
TPP or other sanctions tied to Tier 3 status.\39\ The situation in
Malaysia has not improved: forced labor, human trafficking and
exploitation remain pervasive.
---------------------------------------------------------------------------
\38\ Wang Kelian, ``Malaysia finds 139 graves in `cruel' jungle
trafficking camps,'' Reuters, May 25, 2014. Available at:
www.reuters.com/article/us-asia-migrants-idUSKBN0OA06W20150525#
lbtiVKhvKl33D1cQ.97; Ambiga Sreenevasan, ``Malaysia's deadly
connection,'' MalayMail, July 24, 2014. Available at:
www.themalaymailonline.com/what-you-think/article/malaysias-deadly-
connection-ambiga-sreenevasan.
\39\ Office to Monitor and Combat Trafficking in Persons, 2015
Trafficking in Persons Report, ``Malaysia.'' Available at:
www.state.gov/j/tip/rls/tiprpt/countries/2015/243485.htm.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Fundamental reforms must be taken in terms of Malaysia's labor,
immigration and industrial policies before workers will be able to
escape the cycle of exploitation and vulnerability that often leads to
labor abuses and trafficking. Despite Malaysia's notorious failure to
combat human trafficking and protect the rights of migrant workers, the
TPP fails to even include any specific protections for equal treatment
for migrant workers or against exploitive or fraudulent international
---------------------------------------------------------------------------
labor recruitment.
The TPP labor provisions and the Malaysia consistency plan have some
helpful provisions. For example, the consistency plan calls on Malaysia
to amend its laws to limit the ability of labor officials to deny trade
union registration and affiliation; make it illegal to retain a
worker's passport; expand the right to strike; and allow migrant
workers improved trade union rights. However, despite these provisions,
they do not appear sufficient to ensure working people in Malaysia will
be able to exercise their fundamental labor rights.
The plan does not clearly call for an expansion of the right to bargain
collectively in all sectors, nor does it appear to hold employers fully
accountable for abuses in subcontracting and recruitment processes--
major factors in the perpetuation of forced labor. Improved rules
regarding access to justice, recruitment fees, targeted labor
enforcement in industries known to be problematic and victim services
still could be lacking even under the agreement. Nor does the agreement
address basic human rights, including the right to free assembly and
lack of civil rights for LGBT persons. As such, employers and
government officials still may attack workers for their advocacy, while
claiming to be using a different section of Malaysia's legal code to do
so.
All workers in Malaysia must be broadly empowered to improve wages and
working conditions. The consistency plan fails to meet this benchmark
and lacks any specific measurements or criteria to evaluate the
implementation and enforcement of the required reforms. Given that
Malaysia could be rewarded with greater market access under the Trans-
Pacific Partnership without having to first enforce the changes it
promises to make on paper, there will be little incentive for the
government to end exploitative working conditions or the brutality of
forced labor after entry into force.
Brunei
The human and labor rights situation in Brunei is dire. Under the
Sultan of Brunei, whose family has ruled for more than six centuries,
the country adheres to a strict penal code based on Sharia law, which
mandates flogging, dismemberment and death by stoning for crimes such
as adultery, alcohol consumption and homosexuality. Despite widespread
calls from U.S. labor, LGBT and human rights groups to exclude Brunei
from the TPP, it appears the agreement and the consistency plan situate
the U.S. and Brunei governments to enter into a permanent trading
relationship without ensuring that working families can exercise their
fundamental human and labor rights in Brunei.
Freedom of speech in Brunei is severely limited, and the legislature
has a limited role.\40\ It is difficult, if not impossible, to imagine
freedom of association will exist where the right to free speech does
not accompany it. Under the Internal Security Act, activists deemed to
be anti-government can be detained without trial indefinitely,
renewable for two-year periods.\41\ Harsh punishment stifles worker
activism, and there is a nationwide prohibition on collective
bargaining.
---------------------------------------------------------------------------
\40\ U.S. Department of State (hereinafter DOS), ``Brunei 2014
Human Rights Report,'' 2014. Available at: www.state.gov/documents/
organization/236638.pdf.
\41\ Amnesty International, ``Amnesty International Report 2014/15:
Brunei Darussalam,'' 2015. Available at: https://www.amnesty.org/en/
countries/asia-and-the-pacific/brunei-darussalam/report-brunei/.
Workers, and migrant workers in particular, have few protections for
their basic rights. The government prohibits strikes. The law does not
provide for reinstatement for dismissal related to union activity. The
government can refuse to register trade unions.\42\ Government
permission is required for holding a public meeting involving more than
10 people, and the police can break up any unofficial meeting of more
than five people if they regard it as liable to disturb the peace.\43\
---------------------------------------------------------------------------
\42\ U.N. Human Rights Council, ``Report of the Working Group on
the Universal Periodic Review Brunei Darussalam,'' July 7, 2014.
Available at: www.upr-info.org/sites/default/files/document/
brunei_darussalam/session_19_-_april_2014/a_hrc_27_11_e.pdf.
\43\ DOS, ``Brunei 2014 Human Rights Report.''; ITUC, 2010 Annual
Survey of violations of trade union rights--Brunei Darussalam,'' March
3, 2010. Available at: http://survey.ituc-csi.org/Brunei-
Darussalam.html?lang=en#tabs-2.
Many of the 85,000 migrant workers in Brunei face labor exploitation
and trafficking related to debt bondage from labor recruitment fees,
wage theft, passport confiscation, abuse and confinement. Immigration
law allows for prison sentences and caning for workers who overstay
their visas, fall into irregular status, or work or change employers
without a permit.\44\ This traps migrant workers in abusive employment
and impedes access to justice and compensation if a migrant worker
chooses to leave an exploitative employment relationship.
---------------------------------------------------------------------------
\44\ U.S. DOS, ``Brunei 2014 Human Rights Report,'' 2014.
The labor consistency plan with Brunei is wholly inadequate to deal
with the serious problems indicated above. For example, it calls for an
end to document confiscation and ``an outreach program to inform and
educate stakeholders,'' but does not address excessive recruitment fees
or the criminalization of migrant workers. While it requires that
employment discrimination be made unlawful, it fails to include LGBT
workers within this new protection. Moreover, it fails to provide for
labor courts or other structures free from the political influence of
---------------------------------------------------------------------------
the sultan.
The labor side letter fails to include any specific benchmarks to
evaluate the implementation and enforcement of the required legal and
regulatory changes. The letter includes no independent evaluation
mechanism, which means that partial and ineffective fulfillment of the
plan's elements or changes on paper could be substituted for actual
changes in workers' lives. In short, the Brunei side letter seems
likely to be partially implemented on paper, but likely will continue
to leave workers without the ability to freely exercise their
fundamental rights.\45\
---------------------------------------------------------------------------
\45\ For a thorough explanation of the need for labor provisions in
trade agreements that incorporate robust monitoring and enforcement
mechanisms, as well as measurable benchmarks for change instead of a
rigid focus on rules to the exclusion of implementation, see Barenberg,
Mark, ``Sustaining Workers' Bargaining Power in an Age of
Globalization: Institutions for the meaningful enforcement of
international labor rights,'' EPI Briefing Paper No. 246, October 9,
2009.
---------------------------------------------------------------------------
II. Countries of Serious Concern
Chile \46\
---------------------------------------------------------------------------
\46\ ITUC, ``Survey of Violations of Trade Union Rights: Chile,''
2015. Available at: http://survey.ituc-csi.org/Chile.html.
Today, 25 years after the end of the Pinochet regime, workers confront
a profound lack of legal guarantees and effective protection by the
state. The current labor legislation remains largely the same and thus
perpetuates the destructive legacy of the past. As a result, there has
been a steep decline in the rate of unionization--from 30% in 1973 to
only 8% today. Today, Chile has among the lowest unionization rates
among all OECD members. While the current government has formulated
amendments to address some of the issues described below, the
---------------------------------------------------------------------------
legislation has yet to pass.
Freedom of association is restricted, particularly in the public
sector. Police, military personnel and civil servants of the judiciary
are prohibited from joining a union. Temporary workers also have no
right to organize. The constitution also provides that the holding of a
trade union office is incompatible with active membership in a
political party, and that the law shall lay down related sanctions
(Political Constitution, Art. 23). In addition, broad powers are
granted to the Directorate of Labor for supervision of union accounts,
and financial and property transactions.
Collective bargaining also is restricted in a number of ways.
Industrywide agreements that set minimum standards for wages and
working conditions for all workers once were common, but since largely
have disappeared as the law does not require bargaining above the
enterprise level. In addition, workers without permanent contracts and
other temporary workers are excluded from collective negotiations, a
serious problem as employers are shifting to short-term contracts even
for work that in reality is full time. The law also permits groups of
workers to submit draft collective agreements, even when there are
unions present, undermining the role of unions as a bargaining
representative.
Finally, Chile also circumscribes the right to strike. According to the
Labor Code, a strike must be agreed to by an absolute majority of the
company's employees (Sections 372 and 373) and must be carried out
within three days of the decision to call the strike (374). No strike
action may be taken by workers if they are deemed to provide services
of a public utility, or it would present a serious threat to health,
the country's economy or national security. This goes beyond the
``essential services'' strike restrictions acceptable under ILO
guidance. Section 254 of the Penal Code provides for criminal penalties
in the event of the interruption of public services or public utilities
or dereliction of duty by public employees, and Act No. 12927
authorizes the imprisonment of anyone involved in the interruption or
collective suspension, stoppage, or strike in public services or public
utilities. Section 381 provides for the possibility of hiring
replacement workers during a strike. Agricultural workers are not
guaranteed the right to strike.
Peru
Since the U.S.-Peru free trade agreement (FTA) came into force, Peru
has reduced protections for workers and weakened mechanisms to enforce
labor legislation. Peruvian unions report there are low levels of
public investment to eliminate child labor and forced labor, promote
equality and nondiscrimination in employment, and to ensure the right
to organize and collectively bargain. Labor rights, generally, and
rights in export sectors, in particular, have been eroded by a
disproportionate increase in temporary employment.
According to the DOS, Peru does not fully comply with the minimum
standards for the elimination of trafficking. Peruvian workers are
exploited in conditions of forced labor, primarily in informal gold
mining, logging, agriculture, brick making and domestic service. Many
of these victims are indigenous, rural or migrant workers who face
deceptive recruitment, debt bondage, restricted freedom of movement or
inability to leave, withholding or nonpayment of wages, and threats and
use of physical violence. Forced child labor occurs in begging, street
vending and criminal activities.\47\ The DOL also has found significant
instances of child labor in the production of bricks, coca, fireworks,
fish, gold and timber.\48\
---------------------------------------------------------------------------
\47\ Office to Monitor and Combat Trafficking in Persons, 2015
Trafficking in Persons Report, ``Peru.'' Available at: www.state.gov/
documents/organization/243561.pdf; scroll down to Peru report, page
277.
\48\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced
Labor: Peru,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Peru.
Last year, the Peruvian government passed a series of laws to roll back
health, safety and environmental regulations--purportedly ``to create a
more friendly environment, to reduce the impediments to investment.''
Despite the fact that regressive laws likely violated trade
commitments, the government turned back 2011 improvements to
occupational health and safety and inspections processes. It also
weakened enforcement mechanisms, fines and mandated action plans.\49\
---------------------------------------------------------------------------
\49\ ``Paquetazo laboral viola tres TLC,'' Diario Uno, July 13,
2014. Available at: http://diariouno.pe/columna/paquetazo-laboral-
viola-tres-tlc/?fb_action_ids=10203308215938885&fb_
action_types=og.likes%20; ``Moody's: Peru crecera hacia un 6% para el
2016, asegura ministro Castilla,'' America Noticias, February 7, 2014.
Available at: www.americatv.com.pe/noticias/actualidad/miguel-castilla-
sobre-informe-moodys-peru-crecera-hacia-6-2016-n143824.
Further, it has been well documented by national and international
organizations, including the ILO and the UN Office of the High
Commissioner for Human Rights (OHCHR), that the Peruvian government is
not enforcing its own labor laws in the sectors of garments, textiles
and agricultural product exports, which together employ hundreds of
thousands of workers who produce billions of dollars of goods for the
U.S. market.\50\ In the textile and garment industry, the Law for the
Promotion of Non-Traditional Exports (Law No. 22342)--designed to
encourage investment by allowing workers to be hired under an
indefinite number of short-term contracts--has been a major obstacle to
the promotion of labor rights. The largest textile and garment
companies are the major beneficiaries of the law, and the 30 largest
companies account for more than 70% of the contracts covered by these
regulations. Employers can issue contracts as short as 15 days and
renew the contract every two weeks for as long as 15 years. The law
allows employers to discriminate against trade unionists by firing them
under the pretext of not renewing their contract because of ``economic
circumstances.''
---------------------------------------------------------------------------
\50\ See Report Number 357 of the Committee on Freedom of
Association (CFA), June 2010, case 2675; Office of the United Nations
High Commissioner for Human Rights (OHCHR), ITUC submission to the URP.
Available at: http://lib.ohchr.org/HRBodies/UPR/Documents/Session2
/PE/
CSI_PER_UPR_S2_2008_InternationalTradeUnionConfederation_uprsubmission.p
df.
As documented in a recent submission to the Office of Trade and Labor
Affairs (OTLA) on the failure of the government of Peru to comply with
labor standards under the FTA, employers routinely have abused their
power to renew short-term contracts of their workers when they are
trying to constitute or become members of a union, making them
permanent victims of firings for this purpose.\51\ This is the second
submission regarding Peru's labor practices in less than a decade,
while many also have requested U.S. action on Peru's violation of its
environmental obligations as well.\52\ The lack of robust action by the
USTR to enforce the first ``May 10th'' agreement sends the wrong
message to TPP parties: that despite the ``historic'' nature of the
obligations, these obligations are unlikely to be enforced.
---------------------------------------------------------------------------
\51\ ``PUBLIC PRESENTATION TO THE OFFICE OF TRADE AND LABOR ISSUES
(OTLA) UNDER CHAPTERS 17 (LABOR) AND 21 (DISPUTE SETTLEMENT) OF THE
TRADE PROMOTION AGREEMENT BETWEEN THE U.S. AND PERU,'' July 23, 2015.
\52\ See: USTR, ``Review of 2012 EIA Petition Regarding Bigleaf
Mahogany and Spanish Cedar Exports,'' 2013. Available at: https://
ustr.gov/sites/default/files/EIA%20Review%20Summary
.pdf. Environmental Investigation Agency, ``Implementation and
Enforcement Failures in the U.S.-Peru Free Trade Agreement (FTA) Allows
Illegal Logging Crisis to Continue,'' June 2015. Available at: http://
eia-global.org/images/uploads/Implementation_and_Enforcement_Failures
_in_the_US-
Peru_Free_Trade_Agreement_(FTA)_Allows_Illegal_Logging_Crisis_to_Continu
e.pdf.
The TPP Labor Chapter does not make significant and meaningful
improvements to substantive labor provisions of the U.S.-Peru FTA and
offers no improvements to the enforcement mechanisms. This, combined
with 20 years of lackluster labor enforcement by the U.S. government,
makes it clear that TPP will do little to improve working conditions or
raise wages in Peru. Because Peru is currently in violation of the
U.S.-Peru FTA, Peru will be in clear violation from the moment the TPP
enters into force unless both governments take immediate actions to
---------------------------------------------------------------------------
secure Peru's compliance.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Singapore \53\
---------------------------------------------------------------------------
\53\ ITUC, ``Survey of Violations of Trade Union Rights:
Singapore,'' 2015. Available at: http://survey.ituc-csi.org/
Singapore.html.
---------------------------------------------------------------------------
Substantial legal limitations on freedom of association, collective
bargaining and the right to strike exist in Singapore. The Registrar of
Trade Unions has wide-ranging powers to refuse to register a union or
cancel registration. The parliament may impose restrictions on the
formation of a union on the grounds of security, public order or
morality. The registrar has the right to refuse the rule change if she
or he deems it either unlawful or ``oppressive or unreasonable.''
The Trade Unions Act limits what unions can spend their funds on and
prohibits payments to political parties or the use of funds for
political purposes. Although the Trade Unions Act prohibits government
employees from joining trade unions, the law gives the president of
Singapore the right to make exceptions to this provision. The
Amalgamated Union of Public Employees (AUPE) was granted such an
exemption, and its scope of representation now covers all public-sector
employees except the most senior civil servants.
Migrant workers particularly are limited in exercising their rights.
The Trade Unions Act bars any person ``who is not a citizen of
Singapore'' from serving as a national or branch officer of a trade
union unless prior written approval is received from the minister. The
act also stipulates that a foreign national cannot be hired as an
employee of a trade union without prior written agreement from the
minister. Similarly, a foreign national is forbidden to serve as a
trustee of a trade union without the minister's written permission.
As in other countries with existing serious rights violations, the
United States failed to secure a labor consistency plan with Singapore.
The TPP, as in other countries, will come into force, offering
Singapore enhanced benefits, before any changes are required.
III. Selected Labor Rights Concerns in Other TPP Countries
Freedom of Association and the Right to Collective Bargaining
In Japan, all national and local public employees and some employees of
private companies or state-run companies that provide essential
services such as electricity are banned from striking. Dismissal and
fines or imprisonment for up to three years can be imposed if a trade
union leader is convicted of inciting a strike action in the public
sector--this limitation for public-sector workers is a serious
violation of the ILO forced labor convention (C. 105), which remains
unratified by Japan.\54\
---------------------------------------------------------------------------
\54\ ITUC, ``Survey of Violations of Trade Union Rights: Japan,''
2015. Available at: http://
survey.ituc-csi.org/Japan.html.
New Zealand's employment law allowing employers in the film and video
game production industry to classify workers as contractors, denying
them rights to collective bargaining and minimum labor standards, was
introduced specifically to attract investment to that industry at the
demand of Warner Brothers.\55\
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\55\ www.theguardian.com/business/2010/oct/31/warner-bros-new-
zealand-hobbit-film.
In March 2015, changes to New Zealand's Employment Relations 2000 came
into force. Key changes to collective bargaining allow employers to end
negotiation more easily, weaken good faith negotiations, remove
protections for new workers and make collective bargaining more
difficult. The changes specifically allow employers to opt out of
multiemployer negotiations without providing reasons or being subject
to industrial action.\56\
---------------------------------------------------------------------------
\56\ ITUC, ``Survey of Violations of Trade Union Rights: New
Zealand,'' 2015. Available at: http://survey.ituc-csi.org/New-
Zealand.html.
In Australia, there are a number of legal obstacles with regard to
freedom of association and the right to collectively bargain. The Fair
Work Act of 2009 imposes a number of restrictions related to trade
union rights to elect representatives and to draw up their constitution
and rules. Any person who has been convicted of a prescribed offense at
any time is prohibited from holding trade union office, and individuals
in vocational placement cannot join a registered union in connection
with their work on that vocational placement. A 2015 amendment to the
act further restricts freedom of association and the right to
collectively bargain, in particular by setting an expiry date for
negotiations in greenfield workplaces, after which an employer's
``draft agreement'' will be treated as a collective bargaining
agreement when, in truth, the workers never agreed to it. Due to the
act, a representative trade union also may be just one of a number of
bargaining representatives taking part in the negotiations, which
reduces the power of collective bargaining.\57\
---------------------------------------------------------------------------
\57\ ITUC, ``Survey of Violations of Trade Union Rights:
Australia,'' 2015. Available at: http://survey.ituc-csi.org/
Australia.html.
In Canada, federal labor law applies only to approximately 10% of
workers; in workplaces and occupations that are not federally
regulated, provincial and territorial governments are responsible for
labor laws. This translates into a number of categories of workers
being prohibited or limited from forming or joining a union or holding
a union office, due to their professional designation or sector (such
as in the medical professions or in agriculture). In the public sector,
the government of Canada gave itself the exclusive right to define what
constitutes an essential service, and to unilaterally designate its
employees as essential. If 80% or more of the bargaining unit is
designated as essential, strikes are prohibited.\58\
---------------------------------------------------------------------------
\58\ ITUC, ``Survey of Violations of Trade Union Rights: Canada,''
2015. Available at: http://survey.ituc-csi.org/Canada.html.
Forced Labor and Child Labor
New Zealand has no minimum age of employment.
In Australia, forced and compulsory labor are explicitly prohibited by
law; however, there have been a few reports of temporary workers in
such sectors as agriculture, cleaning, construction, hospitality,
manufacturing and domestic service being subject to forced labor. There
also are numerous instances of foreign workers on temporary work visas
being underpaid, exploited and denied their rights under Australian
law.
Canada prohibits all forms of forced labor, and the government enforces
the law. Some reports indicated that child labor occurred, especially
in the agricultural sector. In British Columbia, children as young as
12 years old can work legally in any industry; a letter from the parent
is all that is required, and the province places no legislative or
regulatory restrictions on the occupations, tasks or time of day a
child can work. There is some evidence of forced labor trafficking of
workers from Eastern Europe, Asia, Latin America and Africa who are
subjected to forced labor in agriculture, construction, restaurants,
hospitality, food processing plants and as domestic workers.
Discrimination
Japan mandates equal pay for men and women. However, the Japanese Trade
Union Confederation (JTUC-RENGO) reports many cases of discrimination
against union members or activists as well as gender discrimination in
wages and working conditions.
Canada prohibits discrimination with respect to employment or
occupation on the basis of race, gender, etc. However, the Public
Service Equitable Compensation Act makes it a criminal offense for a
union to encourage or assist any employee in filing or proceeding with
a pay equity complaint. Unions are subject to summary conviction and
fined up to $50,000 if they assist their members in any way in
advancing pay equity complaints.
CONCLUSIONS AND RECOMMENDATIONS
The TPP, as currently written, is troubling in numerous ways. Of
course, the agreement covers not just traditional trade issues, such as
tariffs and quotas, but sets rules that will limit our democracy and
how our government can regulate in the public interest. The TPP creates
new and expansive legal rights for foreign investors--including their
very own private legal system that is outside the reach of U.S. courts.
The current labor chapter, even with improved language, does not
represent a counterbalance to the protections and privileges gained by
corporations. In the TPP, the interests of workers and the promotion of
their rights are embedded in a failed model.
The labor movement has now had years of experience with labor rights
language in trade agreements. As documented by the Government
Accountability Office, the U.S. government does little to actively
monitor or enforce commitments made in the labor chapter.\59\ Unlike
corporations that are able to unilaterally access dispute settlement
mechanisms, workers do not have the power to initiate complaints and
must petition their governments to advocate on their behalf. For
workers denied their rights, trying to convince another government to
initiate a complaint focused on the rights of foreign workers has
resulted in an unworkable process. The fact is no worker in the global
economy has won the right to form an independent union and to bargain
collectively as a result of the enforcement of a worker rights
provision in a trade agreement. There has never been a single monetary
fine or tariff penalty imposed for labor violations in any U.S. trade
agreement.
---------------------------------------------------------------------------
\59\ Government Accountability Office (GAO), ``Free Trade
Agreements: U.S. Partners Are Addressing Labor Commitments, But More
Monitoring and Enforcement Are Needed,'' November 2014. Available at:
www.gao.gov/assets/670/666787.pdf; GAO, ``Four Free Trade Agreements
GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on
Labor and Environment Remain,'' July 2009. Available at: www.gao.gov/
products/GAO-09-439.
To make matters worse, as outlined above, the United States seeks to
enter into the TPP with a number of Pacific Rim nations with troubling
anti-worker practices. USTR gave away crucial negotiating leverage by
not insisting that trade benefits be contingent on adherence and
promotion of the core labor standards. To let the TPP enter into force
without full compliance with all labor commitments from all 12
countries undermines the entire agreement. It sends the message that
promises to comply--in any area--are sufficient. If the TPP is going to
---------------------------------------------------------------------------
have beneficial effects, promises and changes on paper are not enough.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Nor does the TPP rebalance the playing field in ways beneficial for
workers in the United States or globally. The chapters setting out
rules for services, financial services, food safety and other
regulations put some economic decision making a step further from
democratic control, encircling domestic decision making within the
neoliberal, deregulatory, Washington consensus indefinitely. This means
that when political winds blow in the opposite direction, seeking more
activist policies regarding Wall Street or food safety or government
purchasing, foreign countries and foreign companies will be empowered
to challenge those policies. Even if the labor promises of the TPP's
authors were to come to fruition, the labor chapter alone would not
create an equity of benefits for workers. The rules included in the
other chapters enshrine an inequitable ``you're on your own'' economic
model that places all of the downside risk of trade on working people
without setting up adequate countermeasures that ensure future economic
growth will be sustainable and inclusive.
As it currently stands, the TPP fails workers. The AFL-CIO and global
labor movement stand in opposition to the agreement. To be effective at
creating shared prosperity and inclusive growth, the TPP must be
renegotiated to include protections for workers, as well as the
environment and other public interest issues, that are as strong as all
other protections in the agreement--including those for investors.
Moreover, the other chapters must be renegotiated to include rules that
promote rather than inhibit progressive economic policies that correct
market failures, ensure adequate government investment in
infrastructure and human development, and provide certainty for
workers, not just global businesses. The AFL-CIO urges Congress to only
support a people-centered trade approach that will guarantee the
benefits of trade can improve the working and living lives of millions
of workers and their families in the United States and throughout TPP
countries. Further, we stand ready to work with Congress and the
administration to renegotiate the TPP so that it works for people who
work.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
AFL-CIO RICHARD L. TRUMKA ELIZABETH H. TEFERE GEBRE
President SHULER Executive Vice
Secretary- President
Treasurer
______
TIMELINE FOR AFL COMPLAINT FILED AGAINST GUATEMALA FOR LABOR VIOLATIONS
UNDER CAFTA-DR
April 2008--DOL receives submission from AFL
June 2008--DOL accepts submission for review
January 2009--DOL issues report without recommending consultations
June 2009--DOL reassesses and concludes Guatemala has made insufficient
progress
July 2010--USTR requests formal consultations with Guatemala
August 2011--Consultations fail; USTR requests arbitration panel
November 2012--Arbitration panel is constituted
April 2013--Arbitration panel suspended in lieu of an Enforcement Plan
April 2014--Enforcement Plan deadline passes without full
implementation of plan; USTR grants Guatemala 4-month extension
September 2014--U.S. government reconvenes arbitration panel
June 2015--Dispute settlement panel hearing is held
September 2015--Dispute settlement panel initial report deadline of
October is extended to December
November 2015--Dispute settlement panelist resigns, no new date for
report deadline established
February 2016--Anticipated publication date of dispute settlement panel
report is announced as June 2016
Sources: GAO Report GAO-15-160, AFL
______
Ford Japan Business Operations Announcement
January 25, 2016
The following statement is attributable to Karen Hampton, VP of
Communications, Ford Asia-Pacific:
Ford remains committed to serving global markets while aggressively
restructuring parts of our business which have no reasonable path to
achieve sales growth or sustained profitability, particularly in areas
where market dynamics prevent us from competing effectively. After
pursuing every possible option, it has become clear that there is no
path to sustained profitability for us in Japan. Therefore, we will
cease all operations in Japan before the end of 2016 and concentrate
our resources elsewhere.
This decision has just been made and has been communicated to our
employees and dealers. As we work through the closures, our priorities
are to ensure we treat our employees and our dealer partners with
respect and support them in this transition. Additionally, we are
reaching out to our customers to explain our commitment to facilitate
ongoing servicing, spare parts and warranty support for their vehicles
following the closures.
______
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
today delivered the following opening statement at a hearing examining
implementation of existing free trade agreements with the United
States' trade partners:
I would like to welcome everyone to this morning's hearing.
Last year, with the passage of our bipartisan legislation to renew
Trade Promotion Authority, or TPA, Congress provided the administration
with the necessary tools to negotiate and conclude trade agreements to
further open foreign markets to American goods and services. In doing
so, Congress included high-standard negotiating objectives that must be
achieved for any agreement to be eligible for expedited TPA procedures
in Congress.
But setting the appropriate negotiating objectives is only the
first step in the process for concluding and implementing trade
agreements. Once those high standards are set, the administration must
consult closely with Congress and stakeholders throughout the
negotiations. And, once an agreement is concluded, Congress must
closely scrutinize the agreement to determine whether it meets the high
standards of the TPA statute and whether it is eligible for expedited
TPA procedures in the House and Senate.
That stage--the stage where Congress closely scrutinizes and
evaluates a trade agreement--is where we are with regard the Trans-
Pacific Partnership, or TPP, the trade agreement most recently signed
by the Obama administration.
Ultimately, a high-standard, free trade agreement only takes effect
once Congress passes implementing legislation pursuant to the narrow
legislative scope of TPA. But, even when that process is complete, our
work will not be finished. In many ways, the hardest work will just be
beginning.
After a trade agreement is approved by Congress, the administration
must make sure that our trading partners fully and faithfully implement
their obligations under that agreement before allowing the agreement to
enter into force. After all, a strong trade agreement that is not fully
and faithfully implemented and enforced isn't worth much more than the
paper it is written on.
It is that part of the puzzle--full and faithful implementation--
that we will examine today. As a guidepost for this examination, we
will look at some of the lessons we've learned under our existing trade
agreements to see what has worked and where we can do better in the
future.
Over the past 3 decades, the United States has entered into 14 free
trade agreements with 20 countries. Each of these agreements has
provided significant economic benefits to the United States. In fact,
although these 20 countries represent less than 10 percent of the
global economy outside the U.S., they purchase almost half of all our
Nation's exports.
Further, on average, in the first 5 years after a free trade
agreement enters into force, U.S. exports to these partners have grown
roughly three times more rapidly than the global rate of growth for
U.S. exports generally. Just as important, free trade agreements have
provided significant cost savings and expanded choices for U.S.
consumers.
However, despite these significant gains, there is widespread
agreement that many of our partners in existing free trade agreements
have not fully and faithfully complied with all of their obligations
under our agreements. Just yesterday, I sent letters to the Korean and
Colombian Ambassadors to the United States outlining my concerns with
their countries' implementation of and compliance with the U.S.-Korea
and the U.S.-Colombia free trade agreements.
In addition, a review of stakeholder submissions to the
administration, in connection with mandated reports to Congress,
including the Special 301 Report, suggests that many of our trading
partners have not implemented, or are out of compliance with, their
international trade obligations.
While there are many examples across the board, this problem seems
to be most pronounced when it comes to implementation of intellectual
property rights protections. This is true with regard to trading
partners across the globe, including many TPP countries. And, all too
often, those countries are never held accountable for their non-
compliance. Thus, they get the benefits of a negotiated trade agreement
with the United States without fulfilling all of their obligations.
This is, to put it bluntly, unfair, and it must stop.
Last year, with a number of different pieces of legislation,
Congress developed new tools to address these concerns. For example, we
included language in the TPA statute requiring enhanced consultations
before the administration may allow any trade agreement to enter into
force.
We also established the Interagency Center on Trade Implementation,
Monitoring, and Enforcement within the Office of the United States
Trade Representative, or USTR, to monitor our trading partners'
implementation of trade agreements and to assist in investigating
violations of trade agreement obligations.
We also established a Chief Innovation and Intellectual Property
Negotiator at USTR, with the rank of Ambassador and required Senate
confirmation, whose responsibilities include enforcing the intellectual
property rights obligations of our trade agreements. Furthermore, we
established a trade enforcement trust fund of up to 15 million dollars
a year for use in improving the ability of USTR to monitor and enforce
existing trade agreements.
Despite these new tools, I know that there is much more that can be
done. So today we are going to examine the implementation of our
existing free trade agreements and see what lessons can be drawn.
We have some very accomplished witnesses here with us from a
variety of sectors, including agriculture, high-tech, the environment,
and intellectual property. I am very much looking forward to their
testimonies and to what I hope will be a robust discussion of how the
U.S. Government can more effectively ensure that our workers,
consumers, and job creators receive the full benefits of our
international trade agreements going forward.
______
Prepared Statement of Jim Mulhern, President and Chief Executive
Officer, National Milk Producers Federation
I am Jim Mulhern, and I am here this afternoon representing the
National Milk Producers Federation (NMPF). I appreciate the opportunity
to express the views of America's dairy farmers on the issues our
industry has encountered in the implementation of prior U.S. free trade
agreements (FTAs).
NMPF develops and carries out policies that advance the well-being
of dairy producers and the cooperatives they own. The members of NMPF's
31 cooperatives produce the majority of the U.S. milk supply, making
NMPF the voice of more than 40,000 dairy producers on Capitol Hill and
with government agencies.
executive summary
Diligent implementation of U.S. free trade agreements (FTAs) is a
vital component to ensuring their effectiveness. Past experience in the
dairy industry has demonstrated to us the clear value in strong
engagement with our trading partners to foster compliance with their
obligations to the U.S.
In some cases this type of engagement has yielded quite positive
results such as with Korea prior to Congressional consideration of the
U.S.-Korea FTA and subsequently during the early stages of
implementation. In other countries such as Canada there is in contrast
a pervasive pattern of actively seeking to thwart dairy trade
obligations that must merit a unique approach in order to effectively
ensure that current market access opportunities are not continually
eroded and that future trade opportunities can in practice be realized.
Another pervasively problematic challenge our industry has faced are
the trade barriers various countries are erecting as a result of
geographical indication (GI) provisions in their FTAs with the European
Union. The U.S. has rightly recognized that a strong focus on even
smaller markets is vital to sending the right message to our trading
partners that the U.S. rejects inappropriate GIs that impair the use of
common food names.
Based on past experience, we believe that it is clear that the
greatest window of opportunity for influencing how countries will
implement their obligations to the U.S. is during the period prior to
Congressional approval of an agreement. Action during this window not
only ensures that Congress has a clear understanding of how the
agreement is intended to work in practice, but it utilizes the
strongest point of leverage the U.S. possesses: whether or not we will
decide to put in place a strengthening of our trade ties with the FTA
partner.
Given that the U.S. has recently concluded FTA negotiations with a
large group of important trading partners (the Trans-Pacific
Partnership) and is working to try to conclude an agreement with the
EU, we believe that this hearing is an excellent opportunity to ensure
that we carefully examine how past U.S. actions during the
implementation and pre-implementation stages have helped to shape the
impact of our prior trade agreements.
background
Our nation has gone from exporting less than $1 billion in 2000 to
exporting over $5.2 billion in 2015, an increase of 435 percent. (Sales
in 2014 even greater at over $7 billion before retrenching during a
global dairy recession last year as noted below.) It is not
coincidental that the enormous growth over this period occurred when
the U.S. began negotiating market-opening free trade agreements and the
Uruguay Round took steps to reduce export subsidies and implement the
first SPS agreement. These agreements lowered and ultimately removed
tariffs and in many cases they gave our products a preferential
advantage over other supplying countries. They also helped remove
technical and regulatory barriers to our trade. Over that period, our
exports of dairy products to FTA partners grew by 489 percent as
compared to 384 percent to non-FTA countries.
We must acknowledge that dairy exports last year temporarily
dropped from the record $7.1 billion achieved in 2014. This was due in
large part to a significant drop in global prices for milk powders and
cheeses. In addition, the increased value of the dollar and the strong
global milk supply have contributed to the decline in prices. But it is
also worth noting that, while our exports to non-FTA countries
contracted by 32 percent, they fell by only 20 percent to our FTA
partner countries.
Our FTAs have created important new market access opportunities for
us and we have worked very hard through our market development efforts
to ensure that we are taking full advantage of them. Two to three
decades ago our industry feared trade agreements. Now, we fear that if
we fail to take advantage of such agreements to tear down foreign
barriers to our products and effectively enforce the terms of U.S.
agreements, we will lose out to competitors who are themselves cutting
FTA deals around the world.
However, negotiating these trade deals is only part of the job. We
have found that in a number of cases it has been necessary to work just
as hard to ensure that the market access terms of the agreements are
not subsequently undermined, or even violated entirely, by governments
under pressure from domestic producers to keep imports at bay.
This has been a full-time and, regrettably, not always entirely
successful undertaking, as I will outline here. But I must also point
out that of the 20 U.S. FTAs now in place, many are working well for
dairy with little or no compliance problems.
canada
Canada gets top billing as the FTA partner that has not only kept
its old barriers, but erected the most new impediments to dairy access
negotiated in a free trade agreement, in this case it is the 1989 U.S.-
Canada Free Trade Agreement and later the North American Free Trade
Agreement (NAFTA). The examples I am providing below are not all-
inclusive, but are representative of the types of efforts the Canadian
government has engaged in, and is likely to continue to engage in, to
shield its industry from the import access it committed to allow in our
trade agreements.
Cheese Standards
In 2007 Canada altered its cheese standards in order to more
tightly restrict the range of permissible ingredients in standardized
cheeses sold in Canada. The regulatory changes placed percentage limits
on the amount of non-fluid dairy ingredients used in standardized
cheeses that could be incorporated in the product from non-fluid
sources.
These changes were prompted by pressure from Canadian dairy farmers
to find a way to restrict imports of U.S. milk protein concentrates
(and to a lesser extent other dried protein imports such as casein/
caseinates). Canada undertook a WTO Article 28 tariff renegotiation to
allow it to raise tariffs on imports from other sources, but NAFTA
prevented this from applying to products from the U.S. The new cheese
standards were explicitly discussed by the Canadian legislature as
providing a way to also limit imports of these products from the U.S.
Our industry and the U.S. Government undertook ample efforts to
prevent this action, arguing that it was an impairment of concessions
granted the U.S. under NAFTA, but we were ultimately unsuccessful in
preventing the changes from taking effect. The changes have adversely
affected not only opportunities for imported ingredients but also
imposed additional requirements on imported cheeses, since all cheeses
sold in Canada were required to document compliance with the
requirements.
Yogurt Standards
Canadian dairy farmers have more recently been encouraging their
government to put in place similar restrictions with respect to yogurt.
Again, the primary goal of this action would be to restrict the ability
of Canadian yogurt manufacturers to make use of imported dairy
products, particularly those that could be exported under low to zero
duty tariff-lines secured by the U.S. under NAFTA. These have not yet
been adopted, but it is something we continue to monitor.
Ultra-Filtered Milk Requirements
Canada has also begun consideration of how to further restrict
other U.S. dairy imports through such standards. In response to
complaints by Canadian dairy farmers about growing imports of ultra-
filtered milk, which is currently unrestricted in use in standardized
Canadian cheeses, the government is reportedly considering a few
possible options.
One is to administratively determine that U.S. exports of 85%
protein level ultra-filtered milk are ``diafiltered milk,'' rather than
unrestricted ultra-filtered milk. Since ``diafiltration'' is simply one
possible step in the ultra-filtration process and it does not result in
an entirely different product, the final product is still ultra-
filtered milk. If Canada adopts this measure it would clearly be solely
for the purpose of evading its NAFTA obligations.
The other option the Canadian government may be considering is to
arbitrarily cap the level of protein in ultra-filtered milk that is
allowed at unrestricted levels in standardized cheeses. Imposition of
such a limit would have no science-based health or safety
justification. The only grounds for such a change could be to force a
tariff classification change in such a way that the product currently
entering Canada under duty-free NAFTA status is no longer permitted and
would be allowed entry only at a prohibitively high tariff level.
In addition to cheese standard revisions aimed at impairing these
U.S. imports, the province of Ontario has recently approved a special
milk class for ingredient usage that is designed directly to force out
competition from U.S. imports. This is just the latest in a series of
narrowly targeted milk classes that have been created over the past few
years specifically in order to displace imports. Although Canada is not
alone in having different classes for milk usage and it is not our view
that milk classes are in and of themselves problematic, the way Canada
has utilized its milk class system is unique.
Canada's milk class system is regularly evolving in order to
constrain imports. Canada's ``Special Milk Class Permit Program'' was
created in 1995 and provides lower-priced fluid milk to Canadian
processors for use in certain narrowly defined groups of products. The
way in which Canada is operating its milk class pricing system suggests
an intent to erect trade barriers.
Tariff Reclassification
In 2013 Canada enacted a law that reversed multiple rulings by the
Canadian Border Services Agency (which had been upheld by Canada's
International Trade Tribunal) that imports of a food preparation
product containing mozzarella, pepperoni, oil and spices were being
properly imported from the U.S. under the appropriate duty-free tariff
line (1601.00.90.90). This law was in direct conflict with multiple
Canadian Customs rulings that determined that the product was correctly
classified. By reclassifying the cheese portion of the products from
that tariff line into one with a duty of over 200%, the intent and
effect of the legislation was to block all imports of these food
preparation products from the U.S. This action thereby impaired the
value of U.S. market access secured for that tariff line under NAFTA.
Limiting ``Cross-Border'' Shopping
Although the Uruguay Round of multilateral trade agreement under
the World Trade Organization (WTO) is not an FTA, it is worth noting
that in that agreement, Canada obligated itself to provide a TRQ to
allow access for 64,500 MT of fluid milk (0401.10.1000). But Canada
then banned commercial shipments from making use of this TRQ. To our
knowledge, Canada does not track cross-border shoppers in order to
ensure compliance with its WTO obligation but instead simply asserts
that cross-border shoppers between the U.S. and Canada fill this TRQ.
Our industry continues to believe this is a grievous distortion of the
access Canada committed to provide for fluid milk. Similarly, Canada
restricts access to its 484 MT TRQ for ice cream to imports in retail
size containers, meaning that ice cream mix for further processing in
Canada is not permitted to enter under that TRQ.
We note these Uruguay Round compliance issues here since they help
to illuminate a consistent and deeply problematic pattern of Canada
systemically working to undermine the value of concessions that it has
granted in prior agreements. Due to Canada's well-documented strategy
of erecting regulatory barriers to impair the full utilization of U.S.
dairy market access, we have serious concerns about whether Canada will
comply with future trade obligations to which it has committed itself.
Almost immediately upon the close of Trans-Pacific Partnership
(TPP) talks, Canada announced that it would be taking steps that appear
designed to take with one hand what they committed to provide with the
other. Canada announced the introduction of several subsidy programs
intended to help ease the burden of transition for its producers. We do
not take issue with Canada's right to create these domestic support
tools but we do strongly object to the accompanying pledges to take
measures to further constrain dairy imports.
For instance, the previous government pledged to exclude supply-
managed products from the Government of Canada's Duties Relief Program
and the new government has not yet signaled an intention to preserve
this access. A large portion of current U.S. dairy exports to Canada
enter under the current Duties Relief Program whereby a processor is
able to import dairy ingredients duty-free provided that the final
product in which they are used is subsequently exported. Elimination of
this program would create substantial disruption in U.S.-Canadian trade
and underscore industry concerns that the TPP access Canada has
committed to provide may not translate to truly new sales opportunities
compared to the pre-TPP status quo.
It is critical that the U.S. formulate this year a much stronger
strategy than has to date been in place throughout the implementation
of NAFTA (and the Uruguay Round) in order to curb Canada's consistent
and intentional impairment of the value of dairy concessions to the
U.S. Without this, dairy trade with our northern neighbor will continue
to be much more volatile than should be reasonably expected and U.S.
companies will be hesitant to depend upon reliable access to the market
openings Canada has committed in trade negotiations to provide.
colombia
Colombia has overall proven to be a reliable and responsive FTA
partner, although some issues have arisen over the course of the U.S.-
Colombia FTA. One of those issues currently still under discussion is
detailed here; another relates to restrictions on U.S. exports of
asiago and feta, both of which have been blocked as a result of the EU-
Colombia FTA. Although these limitations on commonly produced U.S.
cheeses have restricted the range of opportunities for U.S. exporters
in Colombia, Colombia has also taken some helpful steps to clarify that
U.S. companies can continue to ship products such as parmesan and
provolone. These types of clarifications have been critical in clearly
establishing for U.S. companies the range of permitted cheeses that can
continue to be shipped to Colombia under our FTA with that country,
despite GI-driven restrictions in Colombia's agreement with the EU.
Risk Categorization and Associated Import Requirements
Colombia has implemented risk categories through INVIMA Resolution
719 of 2015 as a basis for new import requirements. Ministry of Health
Decree 539 of March 12, 2014 establishes numerous new requirements for
high risk foods, including plant registration with INVIMA and the
inspection of facilities intending to export to Colombia. Colombia did
not notify the WTO and accept comments from trading partners before
this decree was issued, and the implementing regulations corresponding
to this decree risked closure of the Colombian market in September
2015. The strong relationships built through the U.S.-Colombia FTA,
however, were successful in helping swiftly respond to this threat and
permitting trade to continue. In response to industry concerns, USDA's
Foreign Agricultural Service and the Colombia government moved quickly
to head off the tremendous trade disruption that abrupt imposition of
this implementing regulation would have caused for U.S. exports and as
a result additional time for a more careful examination of the plant
registration requirements was granted.
At this stage Colombia has indicated its intention to develop new
implementing requirements and notify them to the WTO, but dairy remains
at risk for burdensome requirements which could again have the
potential to close the market as long as it remains in the high risk
category. We must note that the criteria that Colombia has used to
assign risk were not compliant with Codex risk category principles and
Codex guidelines, and also ignored OIE and Codex guidance on the impact
of heat treatment on dairy products. Colombia placed all dairy products
in the high risk category regardless of processing or packaging. The
U.S. has challenged these risk categories. We appreciate the
administration's work with Colombia to ensure that shipments under the
FTA can continue without undue burden and that regulations reflect a
recognition of the high level of food safety assured by U.S. dairy
regulations and oversight.
mexico
In contrast to Canada, our other NAFTA partner, Mexico, has been
much less inclined to use back door means to negate commitments
undertaken in our trade agreement. And where problems did arise,
particularly during the implementation period while tariffs were being
eliminated, our government was generally been able to resolve them. As
a result, with limited exceptions, trade in dairy products is now
operating fairly smoothly. We consider Mexico not only to be our best
foreign market but also a very good trading partner. This situation has
not resulted accidentally, however; it is the result of considerable
hard work over the years by the U.S. to enforce NAFTA commitments when
problems arose and actively work to help establish today's much
smoother trading conditions.
One element that does merit review is the sometimes excessive
documentation requests from Mexico regarding Rules of Origin. Although
we very much support the importance of rules of origin in FTAs, the
requirements for meeting these rules must be clearly outlined and not
unduly burdensome. Overly invasive requests can work to the detriment
of U.S. companies and undermine market access. Lack of sufficient
oversight however can be similarly harmful. Towards that end we
encourage U.S. Customs to investigate butterfat shipments from Mexico
into the United States to verify that the product is actually from
Mexico and not a transshipment.
peru
Peru has also been a relatively reliable trading partner since the
implementation of the U.S.-Peru FTA. U.S. exports have grown and trade
problems are quite infrequent in this market. With that said, some
issues have arisen.
The GI restrictions cited above in Colombia are also present in
Peru and impose regrettable limitations on the value of Peru's
concessions for cheese in its FTA with the U.S. This over-arching issue
is detailed further below.
Another issue of concern has been the reports by U.S. companies
that Peru may not be fully complying with U.S. regulations for and the
U.S.-Peru FTA's rules of origin and standards of identity for
evaporated and condensed milk. We would appreciate an analysis by U.S.
Customs and the Food and Drug Administration to determine whether or
not Peru's shipments of this product are in keeping with the terms of
the FTA as well as U.S. standards of identity set by FDA. Careful
enforcement of the provisions of our agreements--both for imports and
for exports--are critical to upholding confidence in the bargains
struck with our trading partners.
south korea
Although the Korea-U.S. Free Trade Agreement (KORUS) has been in
place only since 2012 and full free trade is still years away, it has
played an important role in opening up more export opportunities for
many U.S. companies and has already helped expand U.S. dairy product
shipments to that market. Dairy exports to Korea in 2015 totaled over
$305 million, more than double the average of the three full years
prior to KORUS, despite being down from 2014.
We believe that KORUS is a good example of how the U.S. could deal
successfully with an FTA partner's market access sensitivities
regarding dairy products and had hoped it would serve as a useful model
for our efforts in the Trans-Pacific Partnership (TPP) negotiations
with Japan and Canada.
Still, a few issues have arisen that required assistance from our
government to help ensure that the terms of the agreement were being
honored. Korea's response to these concerns to date has been
encouraging and we hope that a similarly successful way forward can be
found on a current in-process concern.
TRQ Administration
For instance, early on we and other sectors had concerns about how
Korea was administering the auction system it used to manage certain
dairy tariff rate import quotas (TRQs). The initial auctions were not
very successful in fully filling the quotas granted to the U.S. under
KORUS. The administration engaged extensively with Korea to understand
why this was occurring and explore ways to ensure that the auction was
not interfering with market demand for U.S. dairy products. USTR and
USDA's prompt and sustained work in this area was critical to ensuring
effective implementation of this vital avenue of KORUS agricultural
access. As a result, the process has greatly improved and we are
currently satisfied with how it is operating. We will continue to
monitor it, however, to ensure that problems do not recur.
Organic Certification
Another issue that has been successfully resolved involved imports
of organic products generally and, for us, organic dairy products in
particular. In late 2013, Korea announced its intention to begin
enforcing organic certification regulations adopted in 2008 but which
were not previously enforced. These regulations would have halted
exports of organic products while exporters attempted to comply.
Successful efforts by USDA and USTR, however, resulted in adoption of
an organic equivalency agreement that ensured continued access to the
Korean market for these high-value products.
Rules-of-Origin
Similarly, the administration worked extensively to address a
pattern of overly burdensome rules-of-origin requests for U.S.
agricultural exports from the Korean Customs Service. We worked with
our exporters to ensure that they provided to Korean Customs
information necessary to comply with the KORUS rules of origin
requirements and FAS, together with other U.S. agencies, worked to
ensure that Korean Customs stopped demanding overly invasive and
burdensome information in a manner designed to impede trade. If left
unresolved, this issue could have led to serious disruptions in KORUS
market access. But prompt and sustained U.S. work with Korea appears to
have established a more reasonable approach to documenting rules of
origin issues while still ensuring that the product is fully in
compliance with the terms of KORUS.
Inequity Vis-a-Vis New Zealand's FTA
There is another KORUS-related issue that we are currently
pursuing, as a result of more favorable treatment granted to New
Zealand for cheddar cheese under the New Zealand-Korea FTA and an
unusual staging of the tariff elimination for U.S. cheddar cheese under
KORUS. New Zealand negotiated a tariff and TRQ phase out for cheddar
cheese that occurs in year 7 of their agreement, which was implemented
at the end of 2015. Under KORUS the tariff for this product is
eliminated in year 10 of our own FTA. Year 7 of the Korea-New Zealand
FTA and year 10 of KORUS are both 2021. However, due to how the timing
of the tariff elimination is structured in the New Zealand agreement
vs. under KORUS, New Zealand cheddar will be subject to a lower tariff
in the critical final 2 years prior to the elimination of the tariff
for all suppliers.
In 2019 New Zealand will enjoy a tariff almost 40% less than that
U.S. exporters will pay under KORUS (10.3% vs. 16.8% for the U.S.); in
2020 this gap will grow such that New Zealand cheddar will face a
tariff approximately \1/3\ the size of that paid by U.S. exporters
(5.1% vs. 14.4% for the U.S.). While not strictly a compliance issue,
we do not believe that U.S. and Korean negotiators intended that such a
situation should arise and we hope that the phase out for the quota and
the tariff on U.S. cheddar cheese can be aligned to avoid this problem
in order to avoid undermining the market share the U.S. has established
under KORUS.
Geographical Indication Requirements
A final concern in Korea relates to Korea's implementation of
restrictions on the use of generic names for certain dairy products as
a result of Korea's FTA with the EU. The EU insisted that Korea adopt
rules that prevent the use of these ``geographical indications'' (GIs)
by any country other than those in the EU. The Administration made
excellent use of the period prior to the implementation of KORUS to
secure a very clear understanding from Korea regarding the scope of
protection for the numerous multi-term GIs (e.g., Mozzarella di Bufala
Campana) that were on the list of GIs included in the EU-Korea FTA.
This written clarification was essential in ensuring that KORUS market
access opportunities for various cheeses were preserved. We were not
able, however, to restore access for several U.S. cheeses directly
banned by the terms of the EU-Korea agreement (asiago, feta, fontina
and gorgonzola). U.S. exporters have faced increasing enforcement
against shipments of these products over the past year.
While stressing that my industry's overall experience with KORUS to
date has been positive, the residual GI-driven restrictions in Korea
have in practice undermined the value of the cheese concessions granted
under KORUS and the same problem is spreading around the world through
the EU's many other FTAs, as I describe in detail below.
geographical indications in eu ftas undermine
the value to dairy of u.s. ftas
In a nutshell, the EU has been using its market-size muscle to lean
on countries around the world to block imports of products from
countries that allow the use of product names the EU inappropriately
seeks to reserve for itself. The EU-Korea FTA and its impact on our
KORUS agreement was the first indication of what has turned into a
massive world-wide problem for us and for other dairy-producing
countries.
We very much appreciate the work of Chairman Hatch and Senator
Wyden, as well as the many members of this committee and throughout
Congress, who have expressed serious concerns about this issue and have
helped shine a spotlight on the impacts of the EU's activities. For
those who may not be as familiar with some of the details of this
issue, let me provide a little background.
Many well-known names for cheeses, meats and other foods trace
their origins to Europe, but thanks to generations of emigration and
trade, these products are now made and enjoyed throughout much of the
world. This has greatly increased the popularity of certain cheeses
such as parmesan, romano, feta and others to the commercial benefit of
both European and non-European producers.
However, the EU has been working in recent years to monopolize
usage of many of these terms, while resisting efforts to clearly
identify which names have already entered into wide-spread common
usage. This is being done through use of the EU's geographical
indication (GI) system, which is aimed initially at keeping such
products out of its own market. It is now also being done on the global
level, however, through EU efforts to negotiate exclusive use of many
EU GIs through its free trade agreements, including with many U.S. FTA
partners, and through multi-lateral efforts within the World
Intellectual Property Organization. This greatly hinders effective
competition with EU products in those markets, as well as in the EU
market, since U.S. companies are prohibited from accurately labeling
their products.
For instance, as noted above, the EU-Korea FTA forbids the use of
the terms gorgonzola, feta, asiago and fontina by non-EU suppliers. It
also required Korea to register the EU GIs automatically; that is,
stakeholders with an interest in the Korean market had no opportunity
to present arguments that the GIs at issue were in fact widely used
generic names or otherwise should not have been protected in Korea.
Even the EU provides a case-by-case opposition procedure, something it
prevented Korea from adopting as part of their FTA. U.S. companies have
had to forego sales opportunities in Korea due to these restrictions.
After its initial success in the EU-Korea FTA, the EU has busied
itself expanding that model to many other markets around the world,
including countries with which the U.S. has FTAs, such as Peru,
Colombia, Canada, Central American countries and Singapore. U.S.
engagement with these countries on this issue has been mixed, with some
having provided assurances similar to those provided by Korea for
multi-term GIs, while others continue to flout U.S. efforts to obtain
sufficient clarity regarding the scope of protection they have granted
to GIs registered under their FTA with the EU. After extensive U.S.
outreach, some countries such as Guatemala and El Salvador have chosen
to do the right thing and preserve access for many key U.S. exports but
others such as Costa Rica have introduced harmful new restrictions on
the use of certain common names.
Other countries such as Nicaragua and Morocco have to date not
published any information regarding which components of multi-term GIs
are subject to restriction and which can continue to enjoy common
usage. Morocco has compounded this problem significantly by proposing
to grant protection to all EU GIs en masse despite any apparent
individual examination of each GI and no public opportunity for comment
on these new trade restrictions. Across all EU FTA markets,
restrictions on U.S. exports of asiago, feta, fontina and gorgonzola
are proliferating, even where these markets are also U.S. FTA partners.
As noted earlier, the case of Costa Rica has been particularly
concerning. In that country the government interpreted its trade
commitments as requiring it to restrict the use of parmesan and
provolone, despite the fact that the applied-for GIs were ``Parmigiano
Reggiano'' and ``Provolone Valpadana.'' This was done despite the fact
that even the EU does not currently restrict use of ``provolone'' and
the Central America-EU FTA clearly permits a country to decline to
restrict use of generic terms such as parmesan and provolone which were
both used by the local industry for decades and more recently by U.S.
exporters under CAFTA.
The EU has also included GI requirements in FTAs it has negotiated
with several members of the Trans-Pacific Partnership (TPP), i.e.,
Canada, Peru, Singapore and Vietnam. Of these, the agreement with
Vietnam provides the greatest clarity to date regarding the scope of
protection for multi-term GIs yet it too commits to a ban starting in
2017 on new U.S. exports of asiago, feta, fontina and gorgonzola. The
EU is also pursuing GI commitments in its ongoing negotiations with
Japan, Malaysia and Mexico.
Of course, we are also in the middle of negotiations on an FTA with
the EU--the Transatlantic Trade and Investment Partnership (TTIP)--and
it is abundantly clear that EU producers and politicians expect their
negotiators to deliver an agreement that imposes strict EU GI rules on
the United States. Our industry is even more adamant in its expectation
that our negotiators should only come to an agreement on GIs with the
EU if it simultaneously rejects restrictions in the U.S. market on
common names, addresses the trade barriers erected against U.S. exports
to third country markets and restores access into the EU for key U.S.
exports such as parmesan and feta, labeled as such.
I want to make it entirely clear that we are not opposed to
legitimate GIs. Having an avenue to protect GIs is an existing
international obligation and the U.S. complies with that obligation by
permitting the registration of both U.S. and foreign GIs through our
trademark system. In fact, the EU already has a number of GIs
registered in the U.S. system. They have available to them all the same
enforcement opportunities as do U.S. companies, many of which are small
or medium size operations themselves.
In other words, we have no problem with the existing registrations
in the U.S.--or elsewhere around the world--of names such as
``Provolone Valpadana'' or ``Parmigiano Reggiano.'' What we oppose is
the EU's effort to effectively license to itself names that are
commonly (and globally) used to identify a type of cheese. Production
of such cheeses outside the European region to which the EU wants to
provide a monopoly often represents a very sizable portion of global
production, a clear indication that the name is not a term unique to
one corner of the world. In some cases the names were even used
generically in the EU until the EU decided to bestow just one country
the permanent claim to them. (This was the case for parmesan and feta,
which were produced by many European countries until roughly a decade
ago when the EU made its final decision to award sole use within the EU
of those generic names decides to Italy and Greece respectively.)
The EU's approach to restricting common food names through the use
of GI registrations abuses a good concept in order to impose trade
barriers against competitors. This has no place in TTIP or any other
trade agreement. In forcing its trading partners to adopt the same
trade-restrictive GIs in recent FTAs, the EU has turned FTAs, which are
supposed to expand trade, into tools for discriminating against third
countries to gain unfair market shares.
This is a major issue for our industry and it will continue to be
so as long as new U.S. and EU FTAs are negotiated and implemented and
the EU continues using GI's as a means of protectionism.
conclusion
We look forward to working with the members of this committee to
address implementation issues in free trade agreements and we will
continue to collaborate closely with USTR and USDA to resolve problems
as they arise. Active enforcement of not only the clearly enunciated
commitments in an FTA but also the overall value of the package
provided under that trade agreement is absolutely critical to upholding
confidence in those deals. Agreements on paper mean little without the
threat of strong enforcement measures behind them.
Based on past experience, we also believe that it is clear that the
greatest window of opportunity for influencing how countries will
implement their obligations to the U.S. is during the period prior to
Congressional approval of an agreement. Action during this window not
only ensures that Congress has a clear understanding of how the
agreement is intended to work in practice, but it utilizes the
strongest point of leverage the U.S. possesses: whether or not we will
decide to put in place a strengthening of our trade ties with the FTA
partner.
Where trading partners have demonstrated a consistent flouting of
their trade commitments to us in certain sector--as is the case with
Canada and dairy--additional and specifically-focused measures are
needed to curtail this problem. Canada's consistent behavior in
creatively finding new ways to constrain trade is reminiscent of
another potential U.S. FTA partner--the EU. It is in part because of
our past experience with Canada that we believe it is essential for the
U.S. to secure clear dairy-specific results from the EU as part of TTIP
in order to help try to guard against the type of shifting requirements
that have proved to be so problematic with one of our oldest FTA
partners. We are deeply concerned that the goal of concluding TTIP this
year is not compatible with the type of high-quality dairy-specific
result needed on nontariff issues given the lack of concrete progress
towards that goal.
If the U.S. lets major trading partners evade their commitments to
us through complex regulations that are nonetheless intentionally
designed to negatively impact U.S. exports, we run a high risk that
this emboldens other countries to similarly impair the letter and/or
the spirit of their commitments to us. As an industry that exports $5
to $7 billion a year, this is a dynamic the U.S. dairy industry simply
cannot afford to see develop. When a country has demonstrated a
sustained commitment to limiting trade, the U.S. must adopt uniquely
targeted approaches to hold that trading partner to account.
That is also why U.S. actions with other major countries--even when
not FTA partners--is very important. Russia undertook several
obligations upon joining the WTO. Its current ban on many U.S.
agricultural products, including dairy, has created severe upheaval in
global markets and is not in keeping with its WTO commitments. In a
similar vein, the EU is not currently an FTA partner, yet it too is
bound by existing WTO obligations, including the Agreement on Technical
Barriers to Trade. Its continued moves toward the imposition of
restrictions on more and more common names runs directly counter to its
obligations under that agreement.
NMPF believes U.S. enforcement of both WTO obligations and existing
FTA obligations is vitally important to ensuring the future faithful
adherence of our FTA partners with their commitments. Without this,
U.S. companies cannot be assured of the value of U.S. FTAs which would
seriously undermine support for those future agreements.
I appreciate the opportunity to testify here today on this issue
and look forward to continuing to work with this committee, as well as
with the administration, on the important issue of faithful FTA
implementation.
______
Questions Submitted for the Record to Jim Mulhern
Question Submitted by Hon. Orrin G. Hatch
russia enforcement
Question. Mr. Mulhern, USTR stated in its 2015 Report on the
Implementation and Enforcement of Russia's WTO Commitments that,
``currently, only a limited number of U.S. agricultural products enter
the Russian market due to the ban on certain imported food products,
and Russia is also restricting the transit of some U.S. agricultural
shipments through its territory to other markets.'' Russia is clearly
breaching its WTO obligations by imposing an import ban on U.S.
agricultural products. This is just one example of non-compliance.
Russia has taken a nearly countless number of economic measures against
the United States, many of which USTR itself acknowledges ``are not
consistent with Russia's WTO obligations.''
Are you surprised that, despite the fact that Russia has been a WTO
Member for nearly 4 years, USTR has not brought a single dispute
against Russia?
Answer. In our view, aggressive enforcement of U.S. trade
agreements is critical to ensuring confidence in trade and in the U.S.
Government's commitment to holding our trading partners to account.
Russia has been a particularly frustrating trading partner given its
blatant flouting of WTO agricultural commitments, even prior to the
current ban on imports. The current ban has had a tremendous impact on
global dairy trade by cutting off access for some of our largest
competitors which has in turn driven those exports to other markets we
have normally supplied. In addition to being a major agricultural
market, Russia is of course a leading global player. Other countries
are therefore carefully watching what the U.S. and others such as the
EU opt to do in terms of insisting on WTO compliance. We hope that USTR
is examining how to best address the numerous problematic trade
concerns Russia has prompted in the past few years.
______
Questions Submitted by Hon. Ron Wyden
Question. Congress just passed a trade enforcement bill, which I
hope will significantly up the game for U.S. trade enforcement,
including by helping ensure that trade enforcers have the resources
they need to get the job done. Each of you has identified some areas
where trade agreement implementation has fallen short, yet you all seem
to agree on the importance of the implementation process and having the
right resources to get it done right. If more resources are dedicated
to trade capacity and enforcement in coming months and years, what
areas related to implementation are in your view in greatest need of
additional resources?
Answer. We suggest three primary points of focus:
1. In addition to simply verifying whether a country has made the
appropriate shifts to its laws to come into compliance with the letter
of the agreement, it's critical to be also examining--prior to
implementation of an FTA--whether they are actively in compliance with
existing obligations. If they are not--particularly if the degree of
noncompliance demonstrates a pervasive pattern of blocking trade as is
the case with dairy and Canada--then we need to first shore up the
existing situation before extending new benefits to a country. If a
country is consistently working to undermine market access granted in
prior agreements, as we have seen time and again with Canada's dairy
policies in particular, it is essential that the U.S. take specific
steps to address that pre-existing problem. Otherwise, our trading
partners are likely to assume that ``business as usual'' will be fine
moving forward.
2. We believe additional resources should be devoted to bringing
cases against countries demonstrating habitual flouting of trade
commitments. In particular, this effort should encompass countries that
utilize a range of tools to impair trade, including through
nullification of concessions, rather than simply one primary
regulation. Countries' use of a complex combination of regulatory and
policy approaches designed to intentionally thwart trade need to be
taken into account, rather than viewing each policy in isolation.
Again, we cite Canada's approach to dairy as a strong example of this
type of pattern.
3. Resources are also critical to invest when a challenge is
global in nature, as is the problem we face with geographical
indications currently. Due to the EU's efforts to block competition
from the U.S. and other suppliers, we are seeing a proliferation of GI
restrictions in numerous markets. USTR has worked aggressively to
combat this dynamic and been successful in numerous cases. Yet despite
this, U.S. exports still face a growing number of restrictions.
Enforcement efforts for challenges that are global in scope such as
this issue necessitate an approach design to address the core of the
problem and then demonstrate to other trading partners what types of
policies will not be tolerated.
We appreciate the administration's and Congress's recognition of
the importance of trade agreement compliance.
Question. You have highlighted an important trade barrier for
cheese producers in Oregon, and throughout the country: the spread of
restrictive Geographical Indications regimes. If a market is closed to
U.S. goods using generic terms, such as ``parmesan,'' ``mozzarella,''
and ``provolone,'' our farmers and cheese producers simply can't
compete there. It is critical that we use every tool in our toolbox to
combat this unfair trade practice. Could you elaborate on how
implementation could further the goal of keeping markets open for U.S.
cheese?
Answer. As noted above, this is a critical issue for our industry.
The EU's abuse of geographical indications--both in its own market and
around the world--to restrict competition in common food product
categories must be rejected as an unacceptable nontariff trade barrier.
The driver of a policy is often an important element in determining
whether trade impacts are unintentional collateral of a sound
underlying policy priority--or whether trade impacts are the direct
intention of a policy. In the case of how the EU has developed its
approach to GIs too often we are seeing the latter situation whereby
the EU is wielding these provisions specifically in a way designed to
shut down trade. The CATO institute illuminated this dynamic well in a
recent report entitled: Reign of Terroir: http://www.cato.org/
publications/policy-analysis/reign-terroir-how-resist-europes-efforts-
control-common-food-names.
TPP breaks new ground in establishing stronger tools to help us
better tackle this growing global threat to U.S. exports. However, it
is critical to send the signal to countries that we fully expect
compliance with both the letter and spirit of those commitments.
Several TPP partners--as well as potential future TPP countries--are in
active negotiations with the EU on GIs or are likely to implement EU
FTAs in the near-term. As those countries weigh precisely how to handle
EU requests to restrict trade and face the same pressure the U.S. is
experiencing in TTIP to impose new limits on competition simply to
placate EU desires to unfairly gain a leg up on other suppliers, it is
essential that the U.S. also be consistently reminding them of the
importance of these commitments and the expectation that the U.S. will
be able to actually make use of full value of the market access
packages negotiated under both TPP and previously under the Uruguay
Round.
______
Question Submitted by Hon. Maria Cantwell
Question. Mr. Mulhern, I understand the dairy industry did a study
that found that the free trade agreements the U.S. concluded with its
partners generated $8.3 billion in profit for the U.S. dairy over 10
years.
For example, in the decade following implementation of the North
American Free Trade Agreement (NAFTA), U.S. dairy exports to Mexico
increased from $250 million to $1.6 billion. And after the U.S.--Korea
Free Trade agreement went into effect, U.S. dairy exports to South
Korea have increased from $223.7 million in 2011 before the entry into
force of the agreement in 2012) to $416 million in 2014, an increase of
86%.
Now, I have also heard from other growers and agricultural
producers in my state that will benefit from lower tariffs in Vietnam
and Japan on potatoes and wheat under the Trans-Pacific Partnership
(TPP). At the same time, I understand the dairy industry has had mixed
views of the Trans-Pacific Partnership. It provides some benefits but
also has some challenges on access in some markets.
What should be done regarding dairy as Congress prepares to
consider the Trans-Pacific Partnership this year?
Answer. Although at the time of the hearing NMPF did not yet have a
position on TPP, we have now announced our support for the agreement.
That decision was very carefully taken given both pluses and minuses in
the TPP dairy market access results, as well as our disappointment that
the dairy export provisions with Canada and Japan did not go as far as
prior U.S. FTAs. On the whole, however, and taking non-tariff elements
such as TPP's SPS and GI provisions into account, we believe the terms
of the TPP agreement will be positive for our industry and are
recommending that Congress approve it. A key factor in that, however,
is what Canada plans to do since our analysis assumes that we will not
encounter trade barriers that cut off current access avenues and that
Canada will faithfully implement its obligations. If Canada backtracks,
however, on even its current market access commitments under NAFTA, as
it is currently considering doing, dairy trade with Canada could
actually move backwards, rather than forward.
We look forward to working with USTR and Congress to ensure that
Canada does not impair existing NAFTA access out of an effort to
effectively ``exchange'' the new TPP dairy commitments with a removal
of current access opportunities. It's vital that the U.S. be clear that
this behavior cannot be tolerated and that we will not move forward
with an expanded agreement with Canada if they continue to erect these
unjustified barriers to our products.
______
Question Submitted by Hon. Bill Nelson
Question. In your testimony, you mention that Mexico continues to
ask for excessive documentation to verify the origin of U.S. dairy. In
Florida, we had similar trouble with South Korea after the U.S.-Korea
free trade agreement entered into force. Korean officials didn't agree
with the USDA's method of certifying country-of-origin for U.S. juice.
It stopped our citrus growers from gaining the benefits of the Korean
agreement until 2 years after the agreement went into force--all the
while Korean producers were enjoying open access to the U.S. market.
How can we avoid having this scenario happen again for the Trans-
Pacific Partnership agreement?
Answer. This is an important issue and one we too had experience
with in Korea for our dairy shipments. It is our understanding that
USTR and USDA took some of the lessons learned from the Korean country
of origin documentation experience and sought to improve the TPP text
in this area to aim to curtail future similar problems. Each FTA builds
on the past one. It's an unfortunate reality that sometimes we need to
learn the hard way where the gaps in the text of our agreements are.
What's vital is that we ensure--both in the text of the agreement
and through the process prior to implementation--that those types of
issues are not replicated moving forward.
This approach of learning from past experiences is a key part of
why we have been so insistent that the U.S. needs a heightened approach
to dealing with dairy trade with Canada. For too long our industry has
had to deal with Canada's active and creative efforts to hinder
legitimate U.S. dairy exports to that market when they begin to make
inroads after significant investments by U.S. companies under Canada's
existing regulations. Canada then regularly shifts the regulations to
change the rules of the game half way through, intentionally to disrupt
trade.
Just as we know that USTR and USDA's approach to COO issues has
been honed by the Korea ordeal, we expect that this long history of a
clear pattern of blocking dairy trade must inform a different path
forward for dealing with Canada as we prepare to move forward with TPP.
______
Prepared Statement of Sean P. Murphy, Vice President and Counsel,
International Government Affairs, Qualcomm Incorporated
Chairman Hatch, Ranking Member Wyden, and members of the committee,
I am pleased to be here today to examine the implementation of U.S.
free trade agreements and consider what lessons can be learned and
applied in the future.
My name is Sean Murphy, and I am Vice President and Counsel of
International Government Affairs at Qualcomm, based at the company's
headquarters in San Diego, California. I manage a range of
international public policy issues for Qualcomm, including intellectual
property, international trade, and innovation policy.
I applaud the Committee for convening this hearing on the important
topic of trade agreement implementation. I quite literally have been
thinking about ways to enhance trade agreement monitoring,
implementation and enforcement, and options for leverage, since the
1990s when I served in the Office of the U.S. Trade Representative
(USTR). So, it is a privilege for me and Qualcomm to be able to
contribute to this important dialogue.
Qualcomm has been and remains a strong supporter of international
trade agreements. As I have testified previously before the Trade
Subcommittee of this Committee, Qualcomm has been particularly
supportive of the U.S.-Korea Free Trade Agreement (KORUS), which
created an updated template for future trade agreement negotiations by
the United States. We also strongly supported the conclusion of the
Trans-Pacific Partnership (TPP) negotiations, which successfully builds
upon KORUS to not only open new markets in the Asia-Pacific region for
our sector but also to create new standards to advance market
opportunities in the 21st century economy. As one of the company co-
chairs of the U.S. Coalition for TPP, we look forward to its approval
by Congress at the earliest opportunity.
Qualcomm also strongly supported expansion of the World Trade
Organization International Technology Agreement (WTO ITA), which will
eliminate tariffs on 201 technology products that weren't even
conceived of when the ITA was first concluded in the late 1990s. And
finally, we also support the ongoing negotiations of the Trans-Atlantic
Trade and Investment Partnership (T-TIP). We believe that these
agreements, if faithfully implemented and enforced, all have the
potential to enable global innovation and connectivity, enhanced
productivity, research and development, and economic growth and job
creation.
As the United States and its trading partners work diligently to
secure ratification and then entry-into-force of the TPP, and to
conclude T-TIP, we very much appreciate this opportunity to share
lessons learned regarding the implementation and enforcement of prior
trade agreements. We recognize that in order to secure continued
political support for TPP and future trade agreements, it is important
that the U.S. Government demonstrate its commitment to ensuring that
America's trading partners are implementing and living up to their
existing trade obligations.
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Founded in 1985, Qualcomm is a world leader in 3G, 4G and next-
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First, we broadly license our global portfolio of more than 100,000
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mobile industry. Many of our patented technologies have been
incorporated into industry-wide technical standards. Qualcomm makes
available for licensing both its standardized and non-standardized
patented technologies. To help fuel cutting edge innovation, promote
interoperability, competition and expanded consumer choice, and enhance
widespread dissemination of new technologies, Qualcomm is active in
over 150 technology standards bodies around the world. Our innovation-
and patent-intensive business model has and continues to provide all
companies--big or small--opportunities to enter and compete in the
dynamic mobile ecosystem. International standardization is essential
for the global mobile industry to achieve scale, which helps drive down
prices, expands access, and improves performance. For example, 4G
mobile networks offer data speeds that are 12,000 times faster than
networks using 2G standards.
Second, we sell advanced semiconductor chipsets and software
implementing some of our innovations, which are incorporated into
mobile devices manufactured by our customers and then sold globally.
The diversity of supply and competition between these device
manufacturers translates into greater innovation, enhanced consumer
choice and lower prices.
Qualcomm led the development and commercialization of a pioneering
digital communications technology called Code Division Multiple Access
(CDMA), and we play a similar role for next-generation mobile
technologies known as 4G Long-Term Evolution (LTE). We take pride in
our contributions in helping to make mobile communications the biggest,
most pervasive information platform in history--with nearly 8 billion
mobile connections in a world of 7.3 billion people.
Today, we are the fourth largest semiconductor supplier by revenue
and the world's largest ``fabless'' semiconductor company--meaning that
we invest heavily in research and development, and design our chips in-
house, but do not own or operate our own semiconductor fabrication
facilities.
Since our founding just over 30 years ago, Qualcomm has evolved
into a global business that derives more than 90 percent of our
revenues outside the United States. Last year, our worldwide revenues
exceeded $25 billion, with roughly 60 percent resulting from the sale
of chipsets and more than 30 percent from patent licensing.
We license our global portfolio to smartphone and other device
manufacturers around the world--including in China, Europe, India,
Japan, Korea and Taiwan--and consistently invest more than 20 percent
of our total annual revenues in research and development. Since 1985,
Qualcomm has invested more than $38 billion in R&D, with the majority
spent here in the United States.
Qualcomm has made important contributions to the U.S. mobile
communications sector--which accounted for an estimated $548 billion or
about 3.2 percent of U.S. GDP and sustains more than 1 million American
jobs. While Qualcomm is a global company, approximately 60 percent of
our 30,000 employees (65 percent of whom are engineers) are based in
the United States. Thus, while Qualcomm drives billions of dollars into
a virtuous cycle of innovation and intellectual property creation
worldwide, we are also creating and sustaining a significant number of
high-skill, high-wage jobs for U.S. workers.
This is why Qualcomm urges government officials around the world to
think about international trade in terms of intangible exports in
addition to physical products. IP-intensive industries account for over
$8 trillion in value added, or over a third of U.S. gross domestic
product. America's most IP-intensive industries generated direct
employment of 27.1 million jobs in 2010 and an additional 12.9 million
jobs through indirect activities associated with these industries, for
a total of 40 million IP-supported jobs. These 40 million jobs
represent 27.7 percent of all jobs in the U.S. economy.
The growth in sales of mobile products has been enormous--in fact,
much greater than previous generations of products. Moreover, the
products offered to the consumer have evolved with new technologies at
an astounding pace. Consider the cell phone of ten years ago, compared
with today's most advanced smartphones. Continued innovation within the
United States and throughout the world depends on strong and
enforceable intellectual property rights, and viable technical
standards enabled by a voluntary private sector-driven technology
standard-setting environment, and access to open, competitive markets.
Qualcomm's Strong Support for High-Standard Trade Agreements
Given the importance of international markets to Qualcomm's growth,
it is no surprise that the company strongly supports the negotiation
and implementation of ambitious, high-standard U.S. free trade
agreements. Over the past 15 years that I have been at the company,
Qualcomm has actively supported each FTA concluded by the United
States, as well as Trade Promotion Authority (TPA) legislation, and
multilateral trade negotiations, including expansion of the
International Technology Agreement (ITA) and the Trade in Services
Agreement (TISA) and Environmental Goods Agreement (EGA). Qualcomm's
ability to continue innovating and drive a more competitive wireless
industry rests heavily on open markets for information and
communications technology goods and services, reliable protection and
enforcement of intellectual property rights, regulatory transparency
and due process protections.
The foundation of the international trading system is established
by the agreements of the World Trade Organization (WTO). Alongside the
WTO however, are a web of preferential trade agreements, many of which
exclude the United States. According to the WTO, there are more than
400 bilateral and regional trade agreements in force around the globe,
and another hundred are being negotiated. Of those, the United States
is a party to just 14 agreements in effect with 20 countries.
These U.S. trade agreements, however, are generally among, if not
the most comprehensive and high-standard trade agreements negotiated
between trading partners. Each FTA concluded by the United States
generally builds upon the agreements that precede it, raising the bar
and evolving to promote meaningful access to new markets and protect
U.S. investments in these markets. For example, the U.S.-Israel FTA did
not originally include rules on intellectual property protection. The
NAFTA included IPR provisions, but did not cover basic
telecommunications services. The Singapore FTA was the first to include
disciplines on government-linked corporations, what we would today
refer to as state-owned enterprises, which are the subject of an entire
chapter of the TPP.
Early U.S. FTAs, such as NAFTA, the Middle East agreements and the
Central American FTA (CAFTA), as well as the conclusion of the WTO's
ITA in 1996, played a key role in promoting the global competitiveness
and expansion of the U.S. information and communication technologies
industry. The fact that it took almost two decades to update the ITA
demonstrates the importance of the evolution of U.S. FTAs, which
continued to build upon existing WTO and other regional and bilateral
agreements, over that same time period.
These agreements also provide important opportunities for the
United States to influence and set the rules of the road. This is
critical now more than ever to combat a growing array of non-tariff
market barriers and ``behind the border'' impediments to trade,
including domestic policies that promote national champions, forced
technology transfers and similar protectionist goals.
Of the most recently concluded U.S. FTAs, KORUS and TPP are of the
greatest commercial significance to Qualcomm. For example, Korea is the
thirteenth largest economy, and the United States' sixth largest
trading partner. It is also one of the most advanced mobile
communications markets in the world. As a share of the Korean economy,
mobile accounts for an estimated 11 percent of GDP, and a significant
contributor to Korean jobs and 5 percent of exports. The mobile
sector's share of Korean GDP is expected to grow from $143 billion in
2015 to $187 billion by 2020. Qualcomm is proud of its contributions
and partnerships in Korea that have helped to propel the impressive
growth and success of Korea's mobile industry domestically and in
export markets. Given this month marks the fourth anniversary of
KORUS's entry into force, it is timely to consider Korea's
implementation track record.
The economies that make up TPP account for roughly 40 percent of
global GDP and approximately 825,000,000 consumers. The Asia-Pacific
region is a critical and growing market for ICT products and services.
It is estimated that by 2020, more than 56 percent of all smart phone
sales will be in the broader Asia-Pacific region. TPP includes an
ambitious range of disciplines that will advance new market access
opportunities for the ICT industry, while also promoting this
industry's research and development capabilities and competitiveness.
These include, among others, a requirement that all TPP parties must
join the WTO's ITA, innovative new regulatory cooperation provisions
concerning ICT products, strong IP protections, and due process
protections in competition proceedings.
Lessons Learned From Existing Free Trade Agreements
The value of an FTA commitment depends entirely on the extent to
which it is implemented and enforced. This includes not only the
commitments embodied in the agreements, but also any side accords,
exchanges of letters or related understandings. I think it is fair to
say that most of the time, countries abide by their FTA commitments.
But in those instances where a country is not living up to its
obligations, it is critical that the United States have an effective
enforcement strategy in place.
It is inevitable that implementation issues and differences of
opinion about interpretations will arise. Based on Qualcomm's
observations about the operation of various FTAs, I offer the following
recommendations for the Committee's consideration.
1. Create a Mechanism To Solicit More Extensive Input From U.S.
Stakeholders To Ensure Effective Implementation of All FTA Obligations
Before Entry-Into-Force
Before a trade agreement with the United States can enter into
force, the President must determine that the trading partner has taken
the necessary steps for implementation of all obligations that are to
take effect on day one of the Agreement.
I cannot emphasize enough how critical this certification process
is to ensuring that a trading partner has the necessary laws and
regulations in place to implement its obligations before an Agreement
enters into force. It is during this certification process when our
ability to secure any necessary protections in our trading partners'
laws, consistent with the Agreement, is at its greatest. Certification
may be the best opportunity the United States has to ensure that
trading partners have taken all necessary domestic steps to implement
and abide by their commitments.
In light of the enormous undertaking this exercise presents, the
U.S. Government should seek ways to improve effective analysis and
verification that FTA partners have transposed FTA obligations into
domestic law before presidential certification is made. Because the
U.S. private sector may have relevant insights as to whether domestic
measures have been sufficiently updated or changed consistent with FTA
obligations, I recommend that the U.S. Government engage in closer
consultation with the private sector before and during this analysis.
We should consider a mechanism that enables the private sector to
provide input, which may be technically complex and ``in the weeds,''
to be provided and considered as part of a pre-certification
``scorecard'' or ``check list.'' I recognize such a pre-
certification procedure of this nature adds another step to the
certification process. However, the importance of getting this
``right'' makes going this extra mile worthwhile. And since TPA
requires consultation between the administration and Congress before
instruments of ratification are exchanged and FTAs enter into force,
this committee has a critical role in ensuring a careful and considered
analysis of whether our partners have taken sufficient steps to
implement their FTA obligations.
To illustrate the importance of this sort of analysis, I would like
to discuss Qualcomm's recent experiences in Korea. As you may be aware,
many U.S. companies, including Qualcomm presently, have had the
experience of being involved in competition-related investigations
conducted by the Korea Fair Trade Commission (``KFTC''), the agency
responsible for applying Korea's competition law.
One of the benefits of KORUS, which I highlighted in my prior
testimony in July of 2014, is that it ``[e]xpanded existing procedures
to ensure fairness, transparency and due process in Korean competition
law investigations and enforcement actions.'' Indeed, the due process
provisions for competition law investigations in KORUS Chapter 16 were
important factors that contributed to Congressional and U.S. industry
support for KORUS. The U.S. Advisory Committee for Trade Policy and
Negotiations in 2007 endorsed KORUS in part due to the ``state of the
art due process provisions'' in Chapter 16, noting in particular that
KORUS ``clarifies that a [respondent in competition proceedings] should
be able to cross-examine witnesses and review all documents on which
the charges against it'' may be based.
In particular, under KORUS, Korea must provide respondents in
administrative competition hearings with the opportunity to ``review
and rebut the evidence and any other collected information on which the
determination may be based'' and ``to cross-examine any witnesses or
other persons.'' Korea, however, has not yet implemented a procedure to
provide the subject of an investigation access to all such materials,
and to the best of our knowledge, does not have plans to do so. The
KFTC appears to take the position that Chapter 16 does not require any
revisions to KFTC procedures, and therefore many of the protections
promised by KORUS, and the benefits that U.S. companies reasonably
expected from the commitment, have not materialized. But that cannot be
the right result. The Chapter 16 procedures were put into KORUS to
effect change in the KFTC process, not to maintain a status quo that
was of significant concern to U.S. companies.
A pre-certification check list exercise that enables the private
sector to provide input to the administration and Congress might have
identified this inadequacy and ensured that Korean authorities took the
requisite steps necessary to ensure that its antitrust regime was fully
compliant with KORUS obligations prior to presidential certification
and entry into force. Since KORUS took effect, the KFTC has stepped up
its enforcement activity involving foreign firms, including some 40
antitrust or consumer protection cases against U.S. companies. A pre-
certification process would also avoid any after-the-fact debate over
whether an important provisions require any change in in-country
policies or procedures. The question of whether Chapter 16 requires any
change in KFTC process, for example, should not have been left open to
debate after the fact.
It is critical that the U.S. administration carefully analyze
adherence to the TPP competition chapter's similar due process
provisions during the certification process and require any changes
needed to faithfully implement those provisions. Moreover, once TPP is
approved and has entered into force, we urge the U.S. Government to
scrutinize the antitrust procedures and practices of any parties that
would like to join the Agreement and ensure compliance with the minimum
transparency and procedural fairness standards set forth in the TPP
competition chapter before allowing any new Party to join the
agreement.
2. Provide Sufficient Resources To Enforce U.S. FTAs
As the number of U.S. FTA partners grows, so too will the
challenges of vigorously monitoring and enforcing existing FTA
commitments. If agreements such as KORUS and TPP, which include state-
of-the-art provisions in intellectual property, e-commerce, and other
important areas, are truly to establish new global standards, then the
U.S. government must rigorously enforce these commitments. A failure to
do so sends a negative message about the seriousness of these
commitments not only to current FTA partners but also to those Parties
that may seek to join TPP in the future.
Toward that end, Qualcomm applauds the enactment of the long-
awaited Trade Facilitation and Trade Enforcement Act (H.R. 644). We are
particularly pleased to see inclusion of a $15 million trade
enforcement trust fund, championed by Senator Cantwell, which
prioritizes the enforcement of intellectual property standards, along
with several other disciplines.
The United States' leadership and competitiveness in innovation
continues to be challenged in a number of foreign markets. Such
challenges include efforts to restrict market access, weaken patent
rights, displace imported technologies and foreign intellectual
property in favor of indigenous innovation and restrict technology
licensors' ability to freely contract with their customers. In many
cases, such actions are inconsistent with FTA obligations designed to
protect patent rights, combat forced technology transfer or technology
localization, and prohibit discriminatory treatment.
The Trade Enforcement Fund is a useful contribution to ensuring the
resources needed to identify and address failures to enforce existing
FTA commitments. We hope the necessary funds are appropriated
immediately and stand ready to work with Congressional appropriators to
that end.
3. Make Better Use of Existing Trade Tools
Dispute settlement is a critical element of U.S. FTAs by ensuring
the binding and enforceable nature of the obligations. But litigation
of disputes is not the only mechanism available to ensure compliance--
especially when one considers the time horizon and duration of formal
dispute settlement procedures.
Short of dispute settlement, U.S. trade officials have a number of
other options at their disposal to address FTA-inconsistent practices.
These include a range of tools--from consultations to FTA working
groups to statutorily mandated ``naming and shaming'' reports--to
mention a few.
Looking again at KORUS, as an example, the agreement contains
institutional provisions that create 19 separate permanent committees
or working groups to ensure ongoing and continuous dialogue about
implementation and compliance, and which provide a forum to have hard
conversations when problems arise. However, these committees do not
cover all chapters in the Agreement, nor do they appear to meet
frequently. For example, last year's Trade Policy Agenda report noted
that only three of the 19 committees met in 2014. It is worth exploring
whether these groups are fulfilling their existing mission and if not,
how best to improve the effectiveness of this forum for addressing
implementation concerns without needing to resort to dispute
settlement.
USTR also produces annual reports that shed light on trade barriers
in key markets, including in those of our U.S. FTA partners, such as
the National Trade Estimate Report on Foreign Trade Barriers, and the
Special 301 and Section 1377 reports, which cover intellectual property
and telecommunication challenges respectively. In many cases, these
reports provide useful leverage to encourage trading partners to live
up to their obligations. However, in a smaller number of instances, the
same markets are highlighted in these reports year-after-year without
any meaningful changes to the policies that landed them on those lists.
Qualcomm therefore supports the provisions in H.R. 644 that require
USTR to develop actions plans with appropriate benchmarks to gauge
progress for those countries listed on the Priority Watch List in
Special 301. These new provisions also authorize enforcement action if
it is determined that the country has not substantially met the
benchmarks set forth in the action plan. We are optimistic that
requirements like these can provide useful leverage to address new
concerns as well as intractable problems.
4. Expand the FTA Enforcement Tool Box
The United States must do whatever it takes to ensure effective
enforcement of U.S. trade agreements. While the United States should
continue to deploy all existing tools available to ensure compliance
with its FTAs, in some cases, these tools may just not be enough. We
therefore appreciate the interest of this Committee to have a renewed
conversation about enforcement. This should be part of an ongoing
dialogue about how to create new tools and make new forms of leverage
available to U.S. trade officials so that they can more meaningfully
engage their counterparts from FTA countries in results-oriented
consultations prior to or in parallel to formal dispute settlement. The
U.S. Government and should consider innovative ways to give
administration trade policy and trade enforcement officials additional
carrots and/or sticks to motivate or ensure implementation and
compliance. This is critical to ensuring political legitimacy for trade
on an enduring basis.
For example, KORUS introduced a new, expedited dispute settlement
process for auto-related measures that violate the FTA, whereby if
Korea does not uphold its commitments in this area, U.S. concessions in
the FTA can suspend benefits under the agreement, or in other words
``snap back'' to pre-KORUS terms. It may be worthwhile to consider
whether this policy tool could be utilized more broadly, particularly
in instances where traditional trade tools might not be sufficient.
Such a tool could be necessary to help motivate faster compliance than
the conventional approach under most other FTAs which do not envision
or authorize the withdrawal or suspension of benefits until after a
party has prevailed following lengthy dispute settlement proceedings
and possibly also an appeal. The harm to some companies and industries
associated with a prolonged period of non-compliance with FTA
obligations pending dispute settlement or appellate proceedings could
be significant or even irreparable.
Conclusion
For U.S. companies, innovators, employers and workers, the global
trading system presents both significant challenges and opportunities.
For Qualcomm, we believe there is no choice but to engage and compete
in the dynamic global marketplace. Likewise, we believe that the role
of the U.S. Government should also be to engage, and lead by example in
pushing for further market-opening, high-standard trade disciplines,
and creative solutions to the known and emerging trade barriers
confronting American interests in the 21st century economy.
Trade agreements are and will remain important vehicles to achieve
these objectives. No trade agreement is perfect, but full and faith
implementation and enforcement of these agreements are crucial to
ensuring that the expected benefits accrue to companies, workers and
consumers of the United States and also of our trading partners. And I
hope that some of the recommendations I offered here today about how to
get the most from our carefully negotiated agreements will help to
spark further thinking and discussion.
Thank you again for the opportunity to appear before this committee
and share Qualcomm's views on this critical topic. I look forward to
answering your questions.
______
Questions Submitted for the Record to Sean P. Murphy
Question Submitted by Hon. Orrin G. Hatch
ip enforcement and dispute settlement
Question. Mr. Murphy, your testimony emphatically noted the need
for the U.S. Government not only to establish high global standards but
also to rigorously enforce them. You basically stated that a failure to
do so sends a negative message about the seriousness of these
commitments, not only to current FTA partners, but also to those
parties that might join a trade agreement in the future. In his
testimony, Mr. Tepp points out that since 2000, USTR has not initiated
a single dispute under the IP chapter of any FTA, and that USTR has not
initiated an IP dispute under the TRIPS Agreement in 9 years.
As he said, it is certainly not for lack of candidates. In fact, my
office released an illustrative list of problems with our current FTA
partners this morning.
Do you agree that it is high time for the U.S. Government to
initiate a case to enforce intellectual property rights and that
failure to do so sends the wrong message to our trading partners?
Answer. Thank you, Chairman Hatch, for this important question and
for being a tireless champion of strong protections for U.S.
intellectual property rights.As you appreciate, strong IP protections
are crucial to American competitiveness, leadership in creative and
innovative industries, and the direct and indirect creation and
maintenance of U.S. jobs. Therefore, I agree that U.S. trade
enforcement officials should be particularly sensitive to the need to
ensure that the carefully negotiated and bargained for intellectual
property obligations under our trade agreements are adhered to by our
trading partners. As you suggest, failures to enforce these critical
protections could undermine the effectiveness of our trade agreements
and send an unhelpful message globally--both to our FTA and non-FTA
partners--about the importance and seriousness of these obligations.
I am not familiar enough with the specific examples in your
illustrative list to comment on the merits of these matters as
potential dispute settlement cases. However, given the significant
number of IP concerns highlighted by USTR in its annual Special 301
report, the statistics noted by Mr. Tepp demonstrate that a more
vigilant approach may be called for to ensure that our trading partners
are living up to their commitments. That is why Qualcomm supported the
passage of H.R. 644 (the Trade Facilitation and Trade Enforcement Act
of 2015), which requires USTR to develop action plans with specific
benchmarks to gauge progress by those countries listed on the Special
301 Priority Watch List. These new provisions also authorize
enforcement action if it is determined that the particular country at
issue has not substantially met the benchmarks set forth in the action
plan.
______
Questions Submitted by Hon. Ron Wyden
Question. Congress just passed a trade enforcement bill, which I
hope will significantly up the game for U.S. trade enforcement,
including by helping ensure that trade enforcers have the resources
they need to get the job done. Each of you has identified some areas
where trade agreement implementation has fallen short, yet you all seem
to agree on the importance of the implementation process and having the
right resources to get it done right. If more resources are dedicated
to trade capacity and enforcement in coming months and years, what
areas related to implementation are in your view in greatest need of
additional resources?
Answer. As I stated in my prepared statement, Qualcomm applauds
Congress for the recent enactment of H.R. 644 (the Trade Facilitation
and Trade Enforcement Act of 2015). We are particularly pleased with
the authorization of a $15 million trade enforcement trust fund that
prioritizes the enforcement of intellectual property rights. This fund
is a useful contribution toward ensuring the availability of resources
needed to identify and address FTA implementation concerns or new
problems. We hope the necessary funds are appropriated as soon as
possible, and we stand ready to work with Congressional appropriators
to that end.
Qualcomm supports the provisions in H.R. 644 that require USTR to
develop action plans with specific benchmarks to gauge progress by
those countries listed on the Special 301 Priority Watch List. These
new provisions also authorize enforcement action if it is determined
that the particular country at issue has not substantially met the
benchmarks set forth in the action plan. We are hopeful that
requirements like these can provide useful leverage to address the
identified problems.
In addition, as you note, Senator Wyden, there are other areas
where the commitment of additional resources would be helpful and
should be considered. These include funds for trade capacity building,
the hiring and training of additional U.S. trade enforcement staff, and
enforcement-related travel by government officials.
Question. For years I have fought to protect the free and open
Internet and ensure the free flow of data across borders. You mentioned
the U.S.-Korea trade agreement, which included the first commitment on
restrictions on cross border data flows. Some have raised concerns with
the effectiveness of that commitment in addressing restrictions on data
flows. This committee may in the future be considering the Trans-
Pacific Partnership agreement, which contains a broader set of new
commitments to promote an open Internet. How can we use the
implementation process to ensure that these new commitments are applied
in a way that protects the Internet and ensures that countries do not
adopt policies that would Balkanize the Internet and stop the flow of
information at the border? In what ways does TPP improve upon the U.S.-
Korea trade agreement?
Answer. Senator Wyden, the term ``Balkanization,'' that you use is
an apt description of the potential impact of numerous threats facing
the Internet. Obviously, there has to be an important balance, between,
on the one hand, privacy rights and the protection of personal
information, and, on theother hand, the free flow of information that
is essential to the Internet and electronic commerce in our borderless
global economy.
Implicit in your question is another important point, which is that
each U.S. trade agreement that is concluded stands on the shoulders of
the prior one. We learn lessons from the negotiation, implementation
and enforcement of prior trade agreements, and those experiences help
to inform subsequent negotiations and to shape the outcomes of
subsequent agreement negotiations. Over time, we have seen an evolution
in the substantive rules in U.S. trade agreements and a gradual raising
of the bar from one agreement to the next.
For example, you rightly point out that the U.S.-Korea FTA (KORUS)
was the first U.S. FTA to include rules on cross-border data flows. TPP
not only builds upon and strengthens the KORUS e-commerce disciplines,
but it also helps raise global standards in this area. For many
industries, including the ICT sector, this is one of the most important
achievements of TPP. That is why it is critical to ensure that these
provisions are implemented by our trading partners before TPP goes into
force, which, as I highlighted in my prepared statement, is when the
U.S. has the greatest ability to encourage our partners to meet their
existing obligations.
TPP requires parties to the agreement to allow cross-border data
flows. Without a basic obligation of this nature, we risk seeing a
proliferation of different rules and a patchwork effect across the
Asia-Pacific region.
TPP's e-commerce chapter also includes prohibitions on forced
localization and forced disclosure of source code, which is also of
critical importance. These obligations will increase confidence and the
ability for American companies to engage in business in the Asia-
Pacific region. In addition, the prohibition on data localization--that
is to say, requirements that servers be located in the territory of
each country and accompanying impediments on the free flow of
information--would help American companies stay competitive by reducing
costs while also protecting consumers with better information security.
Specifically, data localization unnecessarily forces companies to
replicate expensive data centers and undermines information security;
instead of a company with data centers in one country that need to be
protected, national rules requiring a company to locate servers in each
country in which it operates makes the company responsible for
maintaining multiple different secure data centers in multiple
different economies, which potentially increases the risk of cyber-
attacks, other malicious conduct, and inadvertent disclosure or other
breaches.
To be clear, the threat of data localization requirements is not
theoretical. Many countries are increasing restrictions on the
transmission of data outside of their borders, while others are
considering or passing outright bans. The cost of these actions to
American companies, and to the security and privacy of consumers around
the world, is real.
Chapter 14 of TPP ensures that there are no duties on electronic
transmissions, which is very important to helping promote vibrant
competition, innovation and consumer choice. It also includes a
requirement of non-discrimination and national treatment for digital
products. We understand that the financial services industry is
dissatisfied with where the TPP negotiations on this subject concluded.
But we also understand and are encouraged that industry representatives
are engaged with the administration and with the Congress to identify
creative solutions to address those concerns before the committees of
jurisdiction consider TPP.
______
Questions Submitted by Hon. Maria Cantwell
Question. Mr. Murphy, you discussed how Qualcomm has faced
antitrust investigation in South Korea in connection with its licensing
practices. What role should the U.S. Government play in ensuring U.S.
companies are being treated fairly under the laws of the host countries
where they do business?
Answer. Thank you, Senator Cantwell, for your sensitivity to the
challenges that Qualcomm and other American companies are confronting
concerning antitrust enforcement action in Korea on other
jurisdictions.
In response to your question how the U.S. Government can assist
American companies confronting antitrust investigations abroad, as a
threshold matter, it would be very helpful for the U.S. Government to
recognize that not all foreign antitrust cases are ordinary or
warranted examples of local law enforcement matters. In reality, if we
look more closely, some antitrust investigation priorities and
decisions reflect industrial policy goals or favoritism for domestic
companies. In some cases, the scope of the investigations and remedies
have the potential for effects that reach beyond local borders and
outside the territories of the countries at issue.
It is critical that the U.S. Government carefully ensures that the
due process and transparency obligations in our trade agreements
relating to competition and antitrust matters are upheld by our trading
partners. It would also be very helpful for the U.S. Government to
engage with foreign counterparts--and do so on a ``one-
government'' or a ``whole-government'' basis. There is a critical role
for U.S. antitrust officials and U.S. trade officials to come together,
look at some of these issues holistically, and examine antitrust
enforcement motives, trends and practices in key foreign markets.
With respect to Korea, as noted in my prepared statement, the KORUS
due process and transparency provisions are one of the reasons for our
original strong support for KORUS. We hope the U.S. administration will
work together across agencies and use all available means to ensure
that Korea adheres to its competition and transparency commitments.
Question. I know concerns have been raised about how the South
Korean government has acted in this case. What more should be done in
South Korea? I am concerned about what your company has faced there.
Answer. Thank you, again, Senator Cantwell, for your recognition of
and concern about Qualcomm's recent experiences before the Korean Fair
Trade Commission (KFTC). Qualcomm believes that its patent-licensing
business practices are lawful, pro-competitive, and consistent with
well-established, customary business norms in the mobile technology
industry. We have and will continue to work cooperatively with the KFTC
to further explain these points and defend our business.
As detailed in my prepared statement, we currently believe the
Korean government is not adhering to important bilateral FTA
obligations. KORUS Article 16.1 requires the parties to ensure that
companies that are the subject of antitrust investigations have the
benefit of certain minimum standards and due process safeguards. Yet
the KFTC has not adequately implemented these obligations. A number of
U.S. companies are impacted by the absence of these transparency and
due process safeguards, as Chairman Hatch noted in his March 2, 2016
letter to the Korean Ambassador concerning KORUS implementation
concerns.
More broadly, we believe this situation underscores the importance,
going forward, that the U.S. Government send a strong signal that it
will look closely at whether a country is satisfactorily in compliance
with the procedural, transparency and other obligations under an FTA or
similar agreement's competition chapter before entry into force of that
agreement. And, where a country already has existing trade agreements
with the United States that include competition policy obligations, a
careful assessment of how these agreements are being implemented also
should be one important benchmark to weigh before any U.S.
administration decides to enter into new negotiations. Furthermore, we
encourage U.S. Government officials to work collaboratively with
foreign counterparts to identify aspects of national regimes that need
to change to conform to the minimum standards that the United States
would expect under any new agreement. For example, since the conclusion
of TPP negotiations, a number of countries--including Indonesia, Korea,
the Philippines, Taiwan and Thailand--have expressed interest in
joining the TPP. In considering the readiness of these or other TPP
aspirants, U.S. officials should asses not only the candidate's trade,
investment, intellectual property, etc. regimes, but also the trade-
related aspects of its antitrust regime and practices.
Question. Your company and other U.S. companies have also faced
challenges with competition law in the European Union where we are
currently discussing the potential Transatlantic Trade and Investment
Partnership (TTIP) agreement. Does it seem to give the U.S. any more
leverage when a free trade agreement is in place?
Answer. An important aspect of the Transatlantic Trade and
Investment Partnership (TTIP) agreement could be a framework that
promotes regulatory conformity with common core principles, ideally one
that moves U.S. and European antitrust practices and procedures into
closer compatibility, while noting that both the United States and the
EU have different but strong rule of law traditions. Such an outcome
would not only enhance the already strong U.S.-EU economic
relationship, but would also hopefully promote coordinated leadership
by Brussels and Washington in encouraging other governments to emulate
this framework in their own national regimes and practices.
As I noted in my testimony, and as our experience in Korea has
shown, the U.S. Government has both the opportunity and influence to
ensure adherence to trade obligations is before Presidential
certification and entry-into-force. It is, of course, critical that the
U.S. and Europe enshrine at a minimum, if not build upon, the important
procedural fairness and transparency commitments found in KORUS and
TPP. TTIP negotiations also present an important opportunity for U.S.-
EU joint leadership in helping drive the development of new
international norms by adopting as trade agreement rules the currently
voluntary best practices for antitrust investigative and enforcement
proceedings enumerated by the OECD and International Competition
Network (ICN). Whatever the outcome of TTIP negotiations on trade-
related competition rules, once concluded, it will be important to
ensure that the trade agreement obligations are transposed into
appropriate law and regulation before TTIP enters into force.
The creation of obligations governing antitrust investigative and
enforcement procedures and safeguards was also a goal and anticipated
outcome of Chapter 16 of the U.S.-Korea (KORUS) FTA. Unfortunately, as
detailed in my prepared statement, this has not been the case in KORUS,
where key due process and transparency obligations and safeguards of
the KORUS competition chapter have not been adequately transposed into
domestic law and practice. For example, KORUS Article 16.1 requires the
parties to ensure that companies that are the subject of antitrust
investigations have the benefit of certain specific minimum due process
safeguards and procedural rights. Yet the KFTC has not sufficiently
implemented these obligations. As outlined in my prepared statement,
more intensive engagement and consultations between the U.S. Government
and industry stakeholders with experience operating in Korea as part of
the process of Presidential certification of Korean KORUS compliance
might have identified and enabled the U.S. Government to work with
Korea to address these deficiencies before that FTA entered into force.
The absence of procedures to enable a respondent company, for
example, (1) to receive access to the evidence and other information
collected by investigators at the Korean Fair Trade Commission, and (2)
to effectively cross-examine any witness testifying in a hearing, are
very problematic. We believe that these absences are, on their face,
violations of Article 16.1(3), which impose unequivocal obligations on
the Korean government. That provision states in full:Each Party shall
ensure that a respondent in an administrative hearing convened to
determine whether conduct violates its competition laws or what
administrative sanctions or remedies should be ordered for violation of
such laws is afforded the opportunity to present evidence in its
defense and to be heard in the hearing. In particular, each Party shall
ensure that the respondent has a reasonable opportunity to cross-
examine any witnesses or other persons who testify in the hearing and
to review and rebut the evidence and any other collected information on
which the determination may be based. (Emphasis added.)
In contrast, the Korean government has changed other aspects of its
antitrust regime and practices to transpose other KORUS Chapter 16
obligations into national law and practice. For example, prior to
KORUS, the KFTC did not have authority to enter into a voluntary
settlement with a company that is the subject of an investigation under
Korean antitrust law. As a result of KORUS Article 16.1(5), Korea's
antitrust statute was amended to authorize the KFTC to enter into what
in the United States is referred to as a consent decree.
The existence of antitrust obligations in trade agreement should be
helpful relative to situations where they are absent. Therefore, it
will be telling, depending on how the currently pending KFTC
investigation of Qualcomm is resolved, whether KORUS ultimately makes a
positive difference. Until then, Qualcomm will continue to cooperate
with the KFTC.
______
Questions Submitted by Hon. Bill Nelson
Question. In your testimony, you propose having a checklist to
ensure a country is in compliance with its obligations before a free
trade agreement enters into force. Would you support making the
completion of a detailed public checklist a prerequisite for a free
trade agreement to enter into force? Do you believe such a mechanism
should be added to implementing legislation? If so, why? If not, why
not?
Answer. While I believe that use of a pre-entry into force
consultations between the private sector and executive branch on the
basis of a detailed checklist could go far in terms of identifying and
addressing potential problems before they become after-the-fact
implementation issues, it may not be necessary to mandate this approach
through implementing legislation. Perhaps the proposed private/public
cooperation procedure described in my prepared statement could be
designed and tested administratively. This experience, and an analysis
of the benefits and burdens, could subsequently help to inform a future
decision whether this prerequisite should be adopted as a statutory
procedural requirement.
Question. Given the past difficulty we've seen in getting countries
to comply with our trade agreements, is it still worth pursuing these
agreements?
Answer. I believe that the majority of the time, the trade
agreements to which the United States is a party work well and
substantially deliver the intended benefits that U.S. stakeholders
expect. No trade agreement is perfect; but, in my opinion, we are
better off pursuing and having trade agreements than not doing so. And
where trade agreement implementation and compliance issues arise, they
should be addressed by the U.S. Government.
American engagement and leadership through trade agreements is
important to opening foreign markets and establishing the rules of the
road and high standards that govern international commerce. As I noted
in my prepared statement, according to the WTO, there are more than 400
bilateral and regional trade agreements in force around the globe;
another hundred are being negotiated. Of those, the United States is a
party to just 14 agreements in effect with 20 countries. The future
implementation and entry-into-force of the Trans-Pacific Partnership
(TPP) would increase that to 15 agreements with 25 trading partners.
Unless the United States engages in trade negotiations and concludes
high-standard agreements, others will set the norms and disadvantage
American interests.
______
Prepared Statement of Glenn Prickett, Chief External Affairs Officer,
The Nature Conservancy
Thank you, Mr. Chairman, Ranking Member Wyden, and members of the
committee, for the opportunity to present the views of The Nature
Conservancy on the implementation of international trade agreements
entered into by the United States. Our views will focus largely on the
environmental provisions of such agreements.
The Nature Conservancy is the world's largest conservation
organization with over 1 million members and on the ground programs in
over 35 countries that aim to conserve the lands and waters upon which
all life depends. In our work, we are continually faced with the
environmental challenges caused by illegal or unsustainable patterns of
trade and consumption, particularly around the illegal trade in
wildlife and timber, and illegal and unsustainable fishing practices.
Addressing these threats is essential if we are to secure the health of
the world's forest, wildlife and oceans and ocean fisheries so that
they can continue to provide their benefits to future generations.
With this objective in mind, The Nature Conservancy has strongly
supported and welcomed the increasing levels of environmental
protection incorporated in sequential trade agreements over time. The
Bush administration in 2007 agreed to a landmark agreement involving a
bipartisan Congress and the White House to incorporate a specific list
of multilateral environmental agreements (MEAs), including CITES, into
future FTAs. This has paved the way for successful inclusion of
environmental chapters in FTAs as well as stronger enforcement
mechanisms. Linking trade to improved environmental management gives us
valuable new leverage to encourage countries to deal with natural
resource issues, many of which can be exacerbated by increased
international trade--particularly in countries with important timber or
other natural resources to export.
While including environmental commitments as a core component of
FTAs unquestionably provides an important enforcement tool to ensure
compliance, it is also critical that we position countries to be able
to comply by providing the resources, tools and technical assistance
for them to do so. We commend Congress for its historically strong role
in supporting effective implementation of environmental components of
Free Trade Agreements--with over $177 million appropriated to support
environmental cooperation and capacity building under FTAs with 20
different trading partners over the past 10 years. This support has
been crucial to the environmental progress we have seen under the
agreements.
While challenges to implementing these obligations remain, TNC
believes these commitments have overall been successful and have
resulted in positive developments for the environment. The initial
effect of environmental FTA commitments has been to spur legislative
action to create at least the legal enabling framework for compliance.
Environmental provisions in past agreements have mobilized passage of
important new environmental laws in our trading partners. For example,
the Peru Forestry and Wildlife Law was in part a direct response to the
U.S.-Peru TPA, and laws and policies driven by the Central American
Free Trade Agreement (CAFTA) have been important to wildlife and
protected areas conservation in those member states. We believe that
FTAs have been an important contributor to the passage of these laws.
TNC was directly involved in CAFTA implementation in the Dominican
Republic through a USAID-funded project to improve environmental
regulations, streamline its review of Environmental Impact Statements,
build enforcement capacity of government regulatory agencies, and
support biodiversity conservation. We feel these advances continue to
play a role in enhancing environmental performance and outcomes in that
country. Other studies have concluded that provisions for transparency
and public engagement on environmental issues required by CAFTA were
advantageous for civil society seeking to ensure enforcement of
domestic wildlife conservation laws, specifically around sea turtle
protection, through this FTA.\1\
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\1\ A. Lurie and M. Kalinina, ``Protecting Animals in International
Trade: a Study of the Recent Successes at the WTO and in Free Trade
Agreements,'' Am U Int'l L Rev, 2015.
The Peru Trade Promotion Agreement included a groundbreaking
approach to address core environmental concerns, and it continues to
serve as a platform to support Peru's efforts to combat illegal
logging. The provisions in the Peru agreement also committed Parties to
biodiversity conservation, including non-consumptive use, and recognize
the link between illegal logging and illegal wildlife trade. TNC was
involved in an advisory role with many of the specifics around this
agreement, which included arrangements for U.S.-Peru environmental
---------------------------------------------------------------------------
cooperation to:
Strengthen the legal, policy, and institutional
framework governing the forest estate and the international trade in
forest products;
Build institutional capacity for forest law enforcement
and the international trade in forest products;
Improve the performance of the forest concession system
in meeting economic, social, and ecological objectives;
Increase public participation and improve transparency
in forest resource planning and management decision-making; and
Design and implement projects funded by USAID-Peru to
promote sustainable production in the indigenous territories as a way
to avoid deforestation and illegal logging.
TNC pushed for a great deal of specificity in the Forest Sector
Governance Annex with Peru, because we believe clear environmental
obligations spelled out in the agreements, coupled with follow-on
funding, technical assistance and capacity building to implement those
obligations, are the main ingredients for success.
However, the Peru case also illustrates the complex challenges
involved. The recent disturbances in Peru in response to the
independent forestry enforcement agency's (OSINFOR) attempts to enforce
the U.S.-Peru FTA Forestry Annex gives us some idea of the scale of the
problem. Even competent and honest officials are often no match for
powerful and corrupt elements in the timber sector.
What the U.S.-Peru FTA does create, however, is the transparency
and opportunity to begin to address this problem. The electronic timber
tracking system developed under the agreement has proven to be a very
positive tool. It has increased transparency and has thwarted the
ability of criminals to change source-origin documentation. We also now
have detailed information in a public database--also available to U.S.
importers trying to comply with the Lacey Act--about the concessions
and companies involved in the Peruvian illegal timber trade. The
systems created by the obligations in the Forestry Annex and built with
U.S. assistance are proving their mettle by identifying the illegal
actors and providing at least the means to hold these actors
accountable. Without the agreement, it is likely we would have little
to no information on the scope of the problem in Peru.
But there are still gaps in the supply chain--namely, problems of
documentation in the concession system that OSINFOR has brought to
light. Due to lack of resources and time constraints, all the pieces
have not yet fallen into place in Peru and work remains to be done both
on technical tools and certainly on the political will to enforce
violations.
The ongoing lessons we draw from the implementation of the U.S.-
Peru agreement include the need to reinforce creation of a strong,
independent agency to address legality issues in the forestry sector,
as well as ongoing political and material support for their efforts. We
also need to support robust training on enforcement for local
officials, coupled with continued monitoring and oversight by U.S.
officials. The transparency provisions embedded in these commitments
are another crucial component, and can help improve governance, rule of
law and public participation even beyond environmental matters.
On a related note, we urge that implementation arrangements provide
a significant role for civil society. Engaging NGOs can help provide
accountability, information and public support to reinforce trade and
environment measures, helping to reduce corruption in environmental
regulation. We recommend that programs to implement environmental
cooperation be public, subject to review and comment, and implemented
by a broad stakeholder partnership to promote a culture of positive
environmental engagement.
While this discussion is about our past experience on trade
implementation, I would just mention that the recently concluded Trans-
Pacific Partnership contains important new obligations for Parties to
address illegal and unsustainable fisheries practices, and to combat
illegal wildlife trade. The Nature Conservancy is very optimistic about
the power of these provisions to tackle what are often systemic
problems that are depleting ecosystems globally. We are also cognizant
that effective compliance will involve significant capacity building
and technical support among the partners. We look forward to working
with Congress and U.S. Government agencies to ensure the robust
implementation of TPP environmental commitments throughout the Pacific
region.
Thank you, Mr. Chairman, Members of the Committee.
______
Questions Submitted for the Record to Glenn Prickett
Questions Submitted by Hon. Ron Wyden
Question. Congress just passed a trade enforcement bill, which I
hope will significantly up the game for U.S. trade enforcement,
including by helping ensure that trade enforcers have the resources
they need to get the job done. Each of you has identified some areas
where trade agreement implementation has fallen short, yet you all seem
to agree on the importance of the implementation process and having the
right resources to get it done right. If more resources are dedicated
to trade capacity and enforcement in coming months and years, what
areas related to implementation are in your view in greatest need of
additional resources?
Answer. Within the environmental sphere, the fisheries provisions
in the Trans-Pacific Partnership are a new and significant achievement,
but also present unique challenges to implementation and enforcement.
Responsible ocean governance and management is really in its infancy,
and effective management even within countries' EEZs is beyond the
capacity of many governments in the region. On a purely technical
level, countries will need support to implement port state measures, to
build capacity for applying data poor stock assessment methods, and to
develop cost-effective management measures and monitoring that help
fisheries move towards sustainability. Good enforcement requires that
we have a high degree of confidence in the methods used to assess
fishery sustainability, so that TPP parties can agree on which
subsidies might still be permissible and which need to be eliminated
upon entry into force of the agreement. It would also be helpful to
provide technical assistance to partners to implement programs to
account for and reduce by-catch, and to develop and deploy innovative
technology to increase traceability in the supply chain as a tool for
combatting IUU fishing.
More generally, the government institutions responsible for
environmental enforcement on forestry, wildlife and parks management
tend to suffer from a lack of capacity--resources, trained staff, and
equipment--to enforce existing regulations. Targeted U.S. support can
vastly improve implementation and verification systems so that these
agencies can be more efficient and effective, and can understand and
follow international best practice. For timber legality assurance, for
example, countries need not only responsible managers and auditors, but
also mechanisms for broad stakeholder input, chain of custody systems,
and methods for public reporting and independent monitoring of these
systems and standards. In some cases, countries in Asia need to
establish a clear definition of what is legal timber. We have seen
valuable payoff from U.S.-supported capacity building of the Peruvian
forest service and the supervisory agency (OSINFOR) created as a result
of the Peru TPA; similar capacity building in some of the TPP countries
will be required.
Bolstering enforcement capacity of trade agreement environmental
provisions is in alignment with U.S. development assistant goals for
the environment, particularly seen through the lens of combatting
illegally harvested timber, wildlife and fisheries. The U.S. Congress
has ensured addressing these challenges to biodiversity will remain a
priority for USAID and other development agencies. Enhancing
enforcement capacity of our free trade agreements would complement
these priorities.
Question. Illegal logging doesn't just hurt the environment, it
hurts sawmill workers in Oregon and around the country who have to
compete with an influx of cheap stolen wood. Mr. Prickett, you
described some of the innovative commitments on forestry that were
included in the Peru agreement and how these commitments were used to
fight illegal logging and the criminal enterprises that profit from it,
but as you acknowledge, serious challenges remain when it comes to
stopping illegal logging in Peru. This committee may in the future be
considering the Trans-Pacific Partnership agreement, which also
contains new commitments on forestry, including a commitment to combat
and cooperate to prevent the trade of wildlife that was taken or traded
illegally. Can you describe the value you see in the new commitments?
What advice would you give Congress and the administration on what to
do in coming months to ensure that this and other environmental
commitments are fully implemented by TPP partners?
Answer. The new TPP commitments on combating wildlife trafficking
and trade in illegally taken wildlife are critical and complement well
the commitment toward effective implementation of obligations under the
Convention on International Trade in Endangered Species of Wild Fauna
and Flora (CITES). Effective CITES implementation is critical to
thwarting illegal wildlife trade. For example, ensuring that CITES
authorities issue proper permits and monitor exports to ensure
necessary permits accompany the wildlife products is one way to combat
illegal trade. In underdeveloped countries this is often underfunded.
Trade capacity building activities helps strengthen implementation of
the convention and can also address issues related to illegal wildlife
trade.
Furthermore, CITES Parties have a variety of requirements to ensure
that international trade is not detrimental to species, including
making science-based non-
detriment findings before issuing export permits and undertaking
enforcement action to prevent illegal trade. Congress and the
administration must encourage trade partners to improve their
compliance with these obligations. Article 20.17.2 of TPP requires the
Parties to adopt, maintain and implement laws, regulations and other
measures to fulfill its obligations under CITES, but only insofar as it
affects trade or investment between the Parties. Given that legal trade
in CITES Appendix 1 listed products among TPP Parties is very limited,
the requirement that a violation affect ``trade or investment between
the Parties'' may be a difficult threshold to meet. This possible
loophole makes countries' having strong prohibitions and measures
against illegal trade critically important. No country is currently
doing enough.
The TPP also includes a Lacey-type provision in the environment
chapter to facilitate a basic legal and enforcement framework to ensure
that trade liberalization does not encourage increased demand for, or
ease in trading of, illegally taken plants and wildlife. This provision
was critical because prior to TPP passage, if a wild animal was
captured illegally in one country and imported to another where that
species was not protected, the crime would remain unpunished (except in
a few TPP countries where a Lacey Act-type law existed). Now all TPP
parties are required to ``combat, and cooperate to prevent'' that type
of crime. Furthermore, this is an important provision because it
extends protections beyond CITES-listed species to all wildlife
captured in violation of a Party's law and regardless of level of
endangerment. These provisions establish an important new trade
precedent, but will require capacity building and vigilant
implementation and enforcement to be effective.
The task is enormous. Only 13% of natural production tropical
forests in Asia overall (not restricted to TPP countries) are
considered to be under sustainable management. An estimated 30 to 40%
of the total quantity and export value of wood-based products exported
from Asia-Pacific is derived from illegal sources, generating the
second largest volume of financial flows for transnational criminal
groups in the region. Forest conversions for oil palm and wood fiber
plantations continue at a rapid rate.
The foundation for responsible forestry and trade in the Asia-
Pacific region is legality. Beyond the benefits of increased compliance
with the wide range of laws that intersect with forestry operations
(annual allowable cut, allocation of management rights, taxation,
workplace safety, environmental protections, etc.) investing in the
standards and systems that allow for legality to be credibly,
independently verified along a complete supply chain represents an
enormous leap toward the ability to access high value markets demanding
full, independently certified sustainability for many companies.
Requirements for legal timber can also trigger dialogues and processes
aimed at strengthening governance in places where a lack of
transparency and stakeholder involvement in decisions about how land is
allocated and managed present an obstacle to credible legality
verification.
Part of what makes the continued trade in illegal timber possible
is a widespread lack of robust and transparent legality verification
schemes in exporting countries that can be used by buyers to verify
that the timber being consumed domestically or imported comes from
legal sources. There are also key consumer countries that lack
regulations to prohibit the trade in illegally sourced products. The
development of these schemes and regulations must be done on a case-by-
case basis to suit the conditions of each country and can take several
years. Once established, there are significant challenges to build the
capacity to operate the legality verification schemes, encourage all
participants to pay the transaction costs and comply with the
requirements, and to enforce the laws.
To date, the establishment of such systems has largely been driven
by timber import laws in markets outside of the Asia-Pacific region.
International demand for verified legal timber remains an important
incentive for continued development and implementation of credible
timber legality verification systems. As consumption of forest products
within regional and domestic markets continues to grow, there is also a
need to better understand the different roles these markets play in
driving deforestation and forest degradation and exploring additional
measures to target them.
______
Questions Submitted by Hon. Maria Cantwell
Question. Mr. Prickett, when it comes to trade enforcement, our
agencies are woefully underfunded and constrained on resources.
A 2014 GAO audit on the enforcement of labor provisions of our Free
Trade Agreements found that since 2008, the Department of Labor had
resolved only a single complaint out of five that had been filed, and
that the relevant agencies responsible for enforcing these provisions
suffered from consistent staffing and resource constraints.
And while the administration has vigorously sought to hold China to
its World Trade Organization commitments, China has still yet to meet
many of them, like requiring mandatory intellectual property transfers,
nearly 15 years after it first joined the organization.
And, Mr. Prickett, as you state in your testimony, the enforcement
of the environmental commitments in our Free Trade Agreements leads
much to be desired.
Specifically, you cite enforcement of the forestry provisions of
the U.S.-Peru Free Trade Agreement remains a challenge, due to, as you
put it, ``lack of resources,'' and needed ``robust training on
enforcement for local officials, coupled with continued monitoring and
oversight by U.S. officials.''
I firmly believe that our trade agreements aren't worth the paper
they are printed on--no pun intended--unless we adequately enforce
them.
To help address this problem, I was proud to work with both
Chairman Hatch and Ranking Member Wyden to include a provision in the
customs bill creating a brand new, dedicated $15 million fund for trade
enforcement and capacity building, and I look forward to continuing to
work with them to ensure we have adequate appropriations.
Mr. Prickett, can you cite some specific examples from your work
where lack of resources has hampered enforcement of the environmental
provisions of our Free Trade Agreements?
Answer. I suspect that we often don't even learn the full extent of
environmental transgressions when countries lack the resources to
implement their environmental obligations. As described in my
testimony, it is possible that Peru's recent forestry violations would
not have even come to light had we not invested in the systems to
uncover them. Perhaps the most significant outcome adequate resources
can promote is transparency and public engagement, because without
these, neither our trading partners nor the U.S. can hope to enforce
wildlife legality provisions. The Peruvian government's efforts to
enforce their forestry regulations will require ongoing political and
technical support from the U.S. given the challenges they are facing
from criminal elements in the forestry sector.
Since we have relatively few trade agreements with strictly
enforceable environmental provisions, it is challenging to cite
specific instances of lack of enforcement, but there have been several
averted problems addressed by timely intervention. Under the Dominican
Republic-CAFTA, USAID funds helped streamline the process for
permitting for Environmental Impact Statements, which had developed a
1.5 year backlog. Economic development can't proceed if environmental
permitting does not function, and long backlogs had created
opportunities for corruption. USAID funding to support DR-CAFTA
implementation revised the approval process and trained regulators in
the details of compliance, greatly reducing the time necessary to
obtain permits legally.
Similarly, USAID funding established in INTEC, a Dominican
technical university, allowed for independent training courses for
government regulators to obtain certification in their responsibilities
of ensuring environmental compliance. Enforcement would not be in place
had we not assisted in the development of the necessary staff capacity.
One example from the experience of Human Society International
(HSI)-Latin America relates to wildlife rescue center work in CAFTA
countries. The projects were implemented with funding provided from the
State Department, to improve standards for rescue centers working with
confiscated wild animals. Rescue centers are pivotal partners to CITES
implementation as they are focused on the rehabilitation and release of
illegally captured and/or traded animals. Unfortunately there has been
no funding to continue this work, although the rescue centers are
underfunded and collaborate strongly with national governments. In many
countries there is only one national or official rescue center, and
increased funding could help grow the number and capacity of rescue
center so that confiscated animals don't have to be euthanized or
placed with zoos, and may even have the potential to be released back
into the wild.
In another example, HSI Latin America was able to develop, with
funding from the State Department, training materials for customs
officials and police to help them identify and provide immediate care
to confiscated animals. The customs officials and police force
experiences a high rate of turnover and, although a sustainable method
of training was used, this training must be ongoing. Unfortunately,
continued trainings for new officials and staff were discontinued due
to lack of funding.
Question. In your testimony, you note that enforcing the new
environmental obligations in the Trans-Pacific Partnership will require
``significant capacity building and technical support among the
partners.'' Can you give some examples what that kind of effort that
entails? Would this new trust fund help ensure our trading partners
meet these obligations, and what specific steps are necessary to ensure
they are properly enforced?
Answer. Capacity building can take many forms, and should be
tailored to an assessment of the gaps and needs in each TPP country. In
some cases, the solutions are technical or technological--computerized
timber tracking systems or fisheries data assessments--but often it is
about getting systems and standards in place for everything from public
engagement to clarity of legal requirements. Training trainers in the
management of these systems is vital to ensure sustainability of our
efforts.
The TPP region includes some of the world's largest forest product
exporters, some of the largest wildlife trade markets (legal and
illegal), and major exporters and consumers of wild-caught fish. These
wildlife markets have long been plagued by corruption and other
failures of governance, as easily stolen natural resources often are.
We believe our capacity-building efforts should address both the
supply- and the demand-side of the trade in illegal and unsustainable
products to be fully effective, and that a regional approach can attend
to both sides of the problem most effectively. If there are many
suppliers and buyers who wish to trade in verifiably legal forest
products this will send powerful market signals for improvements in
forest governance across the region.
This is the logic behind TNC's Responsible Asian Forestry and Trade
Program (RAFT), which we are implementing with a wide range of partners
and support from the government of Australia. RAFT seeks to address
forest legality and sustainability issues across Asia and the Pacific.
Although on-the-ground forest management improvements are the focus of
much of RAFT's efforts in producer countries, we emphasize chain of
custody and traceability to country of origin systems in the countries
that manufacture and import wood products from the region as well.
Creating a market-driven approach for sustainable and legal timber
creates its own incentives and thereby eases the burden of police-type
enforcement. We are encouraged by the potential of TPP to accelerate
the move toward fully legal--and ultimately sustainable--timber
throughout the region.
______
Question Submitted by Hon. Bill Nelson
Question. According to your testimony, Peru has had some problems
in meeting the environmental obligations under the U.S.-Peru agreement.
Could you explain if you think an enforceable action plan to help
countries meet their environmental obligations--like TPP's labor action
plans for Vietnam, Malaysia, and Brunei--would help ensure a greater
level of compliance on the front-end? If so, please provide examples of
what could be included in such an action plan?
Answer. The Nature Conservancy would agree that both action plans
with clearly defined obligations, as well as strong environmental
cooperation work programs, as we have with Peru under the current TPA,
would be extremely useful for achieving TPP environmental
implementation and assisting with compliance. It is critical to have
clear goals, timelines, indicators and benchmarks defined in these
action plans to help us measure progress. As I expressed in my
testimony, clear obligations and the support to meet them are the key
ingredients for success. The action plans should also be completed
prior to the TPP's entry into force to maximize leverage, and should be
made public to enhance transparency and participation.
In the most recent U.S. free trade agreements, trade partner
technical agencies have met to develop an environmental cooperation
work program focusing on priority areas to aid in chapter
implementation. Once a work program has been developed, the trade
partners begin to implement concrete projects to support the objectives
in the program. These work programs are updated regularly to
incorporate new priorities or progress. In the case of the environment,
cooperative approaches are often the most effective way to achieve
results, so a cooperative work program coupled with clear goals,
timelines and indicators as you would have in an action plan, may be
the best overall approach.
Each TPP country will have unique needs, so work programs/action
plans should be tailored to national conditions as determined by a gap
analysis and an inventory of current capacity building on environment
obligations that is already happening in TPP countries related to
existing FTAs. This assessment should be public. Once the needs are
determined, gaps in the law analyzed, and enforcement weaknesses are
assessed, a plan should be developed to address what may be the most
critical impediments for that country.
In additional to the national level work programs, there may also
be opportunities to establish regional systems for wildlife, fish and
timber trade verification and monitoring that can be highly effective
in addressing issues in both importing and exporting countries for
these products. We would encourage the U.S. Government to explore
efforts to find regional approaches to build coherency and capacity
across the Pacific.
______
Prepared Statement of Steven Tepp, President and Founder,
Sentinel Worldwide
Mr. Chairman, Ranking Member Wyden, and members of the committee,
thank you for the opportunity to appear before you today to discuss the
implementation and enforcement of free trade agreements.
My name is Steven Tepp, and I am President and CEO and founder of
Sentinel Worldwide. Previously, I enjoyed a career of 15 years of
government service, beginning with you, Mr. Chairman, on your Judiciary
Committee staff, and then at the U.S. Copyright Office. I now provide
intellectual property counsel to companies and associations with
interests in protecting and enforcing intellectual property rights,
including the Global Intellectual Property Center of the U.S. Chamber
of Commerce. I am also a Professorial Lecturer in Law, teaching
international copyright law at the George Washington University Law
School. I have previously taught at the George Mason School of Law and
the Georgetown University Law Center.
During the nearly dozen years I spent with the Copyright Office I
had the opportunity to negotiate the text and/or implementation of
seven different free trade agreements (``FTA'') with countries around
the world. I was co-counsel for the U.S. litigation team in the
intellectual property (``IP'') dispute the United States brought
against China before the World Trade Organization (``WTO''). I also
participated in numerous bilateral trade talks, including sub-FTA
arrangements, such as Trade and Investment Framework Agreements
(``TIFA'') and Bilateral Investment Treaties (``BIT''). Additionally, I
participated in multilateral fora including the World Intellectual
Property Organization (``WIPO''), the Asia-Pacific Economic Cooperation
(``APEC''), and the Security and Prosperity Partnership of North
America (``SPP''). As will be discussed below, these experiences taught
me the incredible opportunity and power of FTAs and it is an honor and
privilege to have the opportunity to share those experiences with you
today.
I am here before you in my personal capacity as an expert in
intellectual property and a former trade negotiator. The views
expressed are my own and do not necessarily reflect the views of any
client or employer.
i. the importance of intellectual property to
the united states and every country
Intellectual property is a tremendous source of value for the
United States and a dominant part of our foreign trade. According to a
report of the U.S. Commerce Department, IP-intensive industries
directly account for over 27 million American jobs. IP-intensive
industries also indirectly support approximately 13 million additional
jobs, bringing the total to 40 million American jobs--over one quarter
of the U.S. workforce.\1\ IP-intensive industries account for over $5
trillion of value; over one-third of the U.S. gross domestic
product.\2\ And, perhaps most directly relevant to this hearing, almost
two-thirds of U.S. merchandise exports are from IP-intensive
industries.\3\
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\1\ ``Intellectual Property and the U.S. Economy: Industries in
Focus,'' Prepared by the Economics and Statistics Administration and
the U.S. Patent and Trademark Office (2012) (available at: http://
www.uspto.gov/sites/default/files/news/publications/
IP_Report_March_2012.pdf).
\2\ Id.
\3\ Id.
American intellectual property is the envy of the world. In
entertainment, computer hardware, life-saving medicines, literature,
software and videogames, again and again American industries lead the
world. The Internet grew up speaking English; not because we have the
most powerful military or the biggest economy, but because we invented
the computers and software on which it operates and we create the
content that people want to use and enjoy. All of these are undergirded
by intellectual property: patents, copyrights, trade secrets, and
trademarks. Thus, it should be no surprise that the United States seeks
to ensure fair and modern international standards for the protection of
intellectual property. Nor is it a surprise that there are those in the
world who seek to free ride on, or outright steal American intellectual
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property.
Here at home, the members of this committee and your colleagues
throughout the Senate and the House of Representatives make your best
efforts to keep our intellectual property system up to date and
functioning efficiently. In this regard, you join a legacy stretching
all the way back to the First Congress, which enacted a Patent Act and
a Copyright Act in 1790. And your efforts are rewarded with the
continuing bounty of economic growth, innovation and creativity, and
job creation.
Policy makers abroad are not always so diligent or dedicated. For
over a quarter century the U.S. Trade Representative's Office
(``USTR'') has annually issued the Special 301 Report, detailing the
shortcomings of foreign intellectual property systems. In last year's
report, over a dozen countries were assigned to the ``Priority Watch
List,'' the worst possible designation short of threatening trade
sanctions, and another two dozen were on the ``Watch List.''
Similarly, the Global IP Center of the U.S. Chamber of Commerce
recently published the fourth edition of the world's only cross-
sectoral index of countries' IP systems.\4\ As the index demonstrates,
many countries have a long way to go to reach a modern, effective IP
system, including some countries we usually think of as advanced. On
the other hand, those who choose to take a positive outlook can find in
both the Special 301 Report and the GIPC Index a roadmap to a more
prosperous future. Indeed, for the last 2 years, the GIPC Index has
included an annex identifying correlations between high IP standards
and the level of innovation, creative output and growth in high-value
jobs.
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\4\ ``Infinite Possibilities, U.S. Chamber International IP
Index,'' 4th Ed. (February 2016) (available at: http://
www.theglobalipcenter.com/gipcindex/).
Those who do not take a positive approach impose grave costs on
their citizens. The failure to provide adequate legal protection and
effective enforcement for IP has serious, negative consequences at many
levels. Domestically, a country that fails to act against IP theft
suppresses its own creative and innovative industries and endangers its
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own populace.
On my very first trade mission, we made a stop in Kuala Lumpur,
Malaysia to discuss their implementation of a new law designed to crack
down on music and movie piracy. While there, I read an article in the
local newspaper about a woman of indigenous Malay ancestry, who had
become a highly popular singer. A few years earlier, the article
reported, she had cut an album that sold about a quarter million
copies. Since then, the organized crime syndicates engaged in music
piracy had moved into the Malaysian market and the same singer's
current album had sold only 15,000 copies. It wasn't a flop; those were
sales lost to piracy. As a result, she had to take a job as a waitress.
This made a striking impact on me as a living example of how IP theft
can have devastating economic effect, fund criminal networks, and
perhaps most sadly, eat away at local culture. I am happy to report
that while Malaysia still has challenges ahead, it has worked hard to
address IP theft (in part through a motivation to work towards a U.S.
FTA) and is no longer on any Special 301 list.
In my travels I have also been to places where counterfeiting rates
were so high, that in some cities it was hard to find a legitimate
product. There is a degree of cynicism that creeps into one's mind when
you visit such a place and then listen to the government officials deny
they have an IP enforcement problem. And there is outrage as you walk
by shop after shop after shop offering a broad range of knock-offs of
American brands. But there is also empathy when one sees the local
citizens shopping at some of these places and realizes they aren't all
just looking for the cheapest deal, they are buying necessities for
their families and have nowhere to go to get legitimate, reputable
products. A report from the World Health Organization estimated that in
India, one in five drugs is counterfeit.\5\ In China, dozens of infants
starved to death on counterfeit baby formula that offered little or no
real nutritional value.\6\ And in Panama, at least 100 people were
poisoned and killed by counterfeit cough medicine that had been
unwittingly purchased by the government and distributed to indigent
people.\7\ These are just a few examples of the very real and severe
consequences of lax IP enforcement.
---------------------------------------------------------------------------
\5\ http://mobile.nytimes.com/2014/02/15/world/asia/medicines-made-
in-india-set-off-safety-worries.html?hpw&rref=world&_r=1&referrer=.
\6\ http://www.cbsnews.com/news/arrests-in-fake-baby-formula-case/.
\7\ http://www.nytimes.com/2007/05/06/world/americas/06poison.html.
Poor protection and enforcement of IP also has consequences beyond
the borders of any single country. We have watched over and over as
criminal networks engaged in organized IP theft move into a market and
rapidly devastate legitimate business. Then, in response to domestic
and external pressures, the government eventually takes action that
cuts into the illicit profits of the thieves, who then move over to a
neighboring market and begin the process all over again. Over time, an
entire region can fall ill to this disease. Countries with major ports
or other trading hubs must also be vigilant lest they become de facto
distribution points for dangerous fakes. FTAs, if properly constructed
---------------------------------------------------------------------------
and fully implemented, can inoculate a country and even a region.
But no market is completely immune from the effects of global IP
theft, not even the United States. While there is comparatively very
limited production of counterfeit products here, every day untold
numbers of foreign-made infringing products reach our shores. It is the
responsibility of the good people at Customs and Border Protection
(``CBP'') to try to protect American consumers by intercepting as many
of these as possible. In fiscal year 2014, CBP seized infringing
products with an aggregate value of over $1.2 billion.\8\ While that is
a large number, it is actually 30% less than the $1.7 billion worth of
infringing products seized in 2013.\9\ This drop coincides with a
marked decline in the previously successful Operation In Our Sites
campaign. Like many, I hope that the Customs Reauthorization
legislation this Committee worked so hard on enacting will help re-
energize our efforts to stop IP infringing products from entering our
country. I thank you for your work on that legislation and congratulate
you on it recently becoming law.
---------------------------------------------------------------------------
\8\ http://www.cbp.gov/sites/default/files/documents/
IPR%20FY14%20Seizure%20Statistics%
20Booklet_100515_spread_web.pdf.
\9\ http://www.cbp.gov/sites/default/files/documents/
ipr_annual_report_2013_072414%20
Final.pdf.
The threat from infringing products coming into our country goes
even beyond consumer health and safety. The Government Accountability
Office (``GAO'') made test purchases of microchips advertised as
military grade as part of a report prepared for the Senate Armed
Services Committee. The GAO report found that every single microchip it
purchased was bogus and substandard.\10\ These types of chips are used
in military equipment including B-2B stealth bombers, Los Angeles Class
nuclear-powered attack submarines, and even Peacekeeper inter-
continental ballistic nuclear missiles.\11\ We all cringe when we hear
a story on the news about a military aircraft that crashed in a
training exercise, seemingly not in harms way. But I always wonder if
the servicemen and women injured or killed in these accidents are
actually victims of substandard counterfeits.
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\10\ ``DOD Supply Chain: Suspect Counterfeit Electronic Parts Can
Be Found on Internet Purchasing Platforms,'' GAO-12-375 (February 2012)
(available at: http://www.gao.gov/assets/590/588736.pdf).
\11\ Id.
As the GAO report shows, foreign-based IP thieves have taken to the
Internet to promote and conduct their illicit business. They design
websites to look authentic and deceive American consumers into thinking
the products are legitimate and safe. Through these portals, criminals
generate massive profits at the expense of American consumers and IP
owners. And they do this all beyond the reach of U.S. law, in countries
---------------------------------------------------------------------------
with low standards of IP protection and/or ineffective enforcement.
There are many facets needed to address this global problem,
including consumer education and voluntary industry arrangements. FTAs
are a critical element as well, as they help bring more countries' IP
systems up to par, thereby scratching those countries off the
criminals' list of fertile fora for infringement.
Many of the countries on the Special 301 lists have been there for
years or even decades; some make incremental progress in one direction
only to allow new problems to arise, and the most intransigent seem to
respond only to the threat of trade sanctions. But there are also
success stories, and many of those are tied to the progress made
through FTAs.
ii. ip theft distorts the marketplace and ftas can help
As discussed above, IP theft imposes a range of harm from economic
to cultural to health and safety. Focusing in on the trade-related
aspects of this harm, it is readily apparent that IP theft distorts
marketplaces, which in turn distorts cross-border trade in some of our
most import export sectors.
When countries provide inadequate legal protection or ineffective
enforcement of IP, it allows free riders and thieves to enter the
market at artificially low costs, as they bear none of the burden or
risk of research, development, or creation. They also bear little or no
costs associated with commercially unsuccessful products. Legitimate
creators and innovators may and sometimes do find that a product is not
well received in the marketplace. This is simply part of the risk of
operating in an innovative sector. The infringers bear no such risks.
They target only those goods that already have a proven demand in the
marketplace--a demand that was created by marketing investments by the
legitimate company. Infringers never have a flop.
As a result, IP thieves and free riders have little or no cost
beyond their marginal costs of production and distribution. They turn a
handsome profit while easily undercutting the price of the legitimate
market. The legitimate creators and innovators are thereby forced into
competing with versions of their own products sold at a lower price, or
even given away for free. It is no wonder then, that international
trade in counterfeit and pirated products has been estimated to exceed
$250 billion.\12\ If anything, this estimate is likely low, as it does
not include infringing products produced and consumed entirely within a
market, nor does it cover digital piracy.\13\
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\12\ ``Magnitude of Counterfeiting and Piracy of Tangible Products:
An Update,'' Organisation for Economic Co-operation and Development
(2009) (available at: http://www.oecd.org/industry/ind/44088872.pdf).
\13\ A study of just the top thirty infringing storage sites found
they generate upwards of $100 million a year. ``Taking Credit:
Cyberlockers Make Millions on Others' Creations,'' NetNames and Digital
Citizens Alliance (available at: https://media.gractions.com/
314A5A5A9ABBBBC5
E3BD824CF47C46EF4B9D3A76/8854660c-1bbb-4166-aa20-2dd98289e80c.pdf).
The distortion effect of online piracy goes beyond displaced sales.
Online piracy minimizes royalties paid to creators, because licensed
services cannot compete on cost with the illegally free platforms. And
by the same token, right holders become resigned to accepting such
small royalties, because the other option is to receive nothing from
the pirates.\14\
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\14\ See ``Copyright Extremophiles: Do Creative Industries Thrive
or Just Survive in China's High-Piracy Environment,'' Eric Priest, 27
Harvard Journal of Law and Technology 467 (Spring 2014) (available at:
http://jolt.law.harvard.edu/articles/pdf/v27/27HarvJLTech467.pdf); see
also, ``Netflix Says Piracy is Still its Biggest Competitor,'' Lily Hay
Newman, Slate, (Jan. 23, 2015) (available at: http://www.slate.com/
blogs/future_tense/2015/01/23/piracy_is_biggest_
netflix_competitor_says_shareholder_letter.html).
Anti-IP policies can also be a front for industrial policy and
protectionism. Examples of trading partners' noncompliance with IP
provisions of the TRIPS Agreement \15\ of the WTO and our FTAs can be
found across the major IP disciplines.
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\15\ Agreement on Trade-Related Aspects of Intellectual Property
Rights (1994).
A. Patent
The global standard for patentability is well established. Article
27.1 of TRIPS sets forth the rule that patents must be available for
any inventions that are ``new, involve an inventive step, and are
capable of industrial application.'' This standard is dutifully
replicated in our FTAs. However, we have seen in a number of foreign
markets, including at least one FTA partner, the imposition of
additional criteria or conditions for patentability. These take
different forms; some involve requirements for ``enhanced efficacy,''
others interfere with the ability to demonstrate usefulness in
industrial application by myopically refusing to consider evidence
gleaned after the filing of the patent application, while still others
simply ban patents on an entire field of technology, such as software.
The use of these impermissible tools to deny patents is insidious.
The denial of such patents (which in many cases are recognized and
respected in TRIPS-compliant countries around the world), necessarily
denies the inventor the opportunity to utilize the domestic legal
system to prevent free riders. And the country can justify that lack of
remedies because of course there is no treaty obligation to provide
remedies where there is no patent. But the violation of international
obligations occurred up front, with the improper denial or revocation
of the patent.
Another way in which some countries have inappropriately undermined
patent rights is with the issuance of compulsory licenses, particularly
in the area of pharmaceutical patents. Compulsory licenses allow
domestic competitors of the innovator company to make and sell the
patented medicine without the permission of the patent owner and
usually for compensation well below market value. Article 31 of the
TRIPS Agreement does allow for the possibility of compulsory licenses,
but generally applies in dire cases such as national emergency or other
extreme urgency. Our FTA's contain similar provisions that reflect an
attitude at least as skeptical of this abrogation of property rights.
Nonetheless, some compulsory licenses imposed by our trading partners
do not appear to be justified by the requisite conditions, including
one that appears to have been granted at least in part because the
innovator company was not manufacturing the drug in that country. Such
a condition is clearly beyond what is permissible under international
standards and smacks of bald-faced protectionism.
Market distortion also occurs in the related area of disclosure of
proprietary marketing data. As this committee is well aware, in
addition to the process of applying for and obtaining a patent,
pharmaceutical and biologic companies must apply for marketing approval
in each country in which they seek to sell their products. During the
time it takes for regulatory approval, the patent term is running, with
the result that the innovator loses significant amounts of time of
market exclusivity to which they would other be entitled and which is
needed to offset the costs of research and development. As a way to
rebalance the scales, Article 39.3 of the TRIPS Agreement requires that
proprietary data submitted to obtain marketing approval for
pharmaceutical products be protected against unfair commercial use,
preventing would-be competitors from free-riding on that data and
entering the market with artificial speed. Our FTAs contain even more
explicit provisions, requiring at least 5 years protection for such
data in the case of pharmaceutical products. However, several of our
trading partners, including FTA partners, fail to comply with these
standards.
Moreover, the burgeoning field of biologics, which involve even
greater investments in research and development than chemical
compounds, call out for longer terms of regulatory data protection. You
and your colleagues in Congress have provided for 12 years of
regulatory data protection for biologics under U.S. law. But our
trading partners frequently provide significantly less, and in some
cases, no such protection.
B. Copyright
As in the field of patents, well-established international
standards exist related to copyright. For example, Article 11 the WIPO
Copyright Treaty (``WCT'') and Article 18 of the WIPO Performances and
Phonograms Treaty (``WPPT'') obligate member states to prohibit ``the
circumvention of effective technological measures'' that are used to
protect copyrighted works \16\ and that restrict unauthorized use of
those works. These protections have proven to be critical to fostering
a bevy of new, licensed, online offerings of copyrighted works. Our
FTAs include detailed provisions on the subject, which dutifully
replicate the manner in which Congress implemented the obligations of
the WCT and WPPT. However, many countries fall short of full
implementation, including at least one FTA partner that has provided no
such protection.
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\16\ Here and throughout my testimony, unless otherwise noted, I
use the term ``works'' to include phonorecords and all copyrightable
subject matter under the U.S. Copyright Act.
As discussed above, inadequate enforcement efforts are a
longstanding problem for copyright owners doing business overseas.
Article 41 of TRIPS requires enforcement procedures to be available
against any act of infringement, and Article 61 requires criminal
procedures and penalties to be available against willful trademark
counterfeiting and copyright piracy on a commercial scale. Our FTAs
build on those to elaborate on the standard for criminal infringement
and to provide greater specificity on the remedies and penalties that
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must be available.
But nothing can remedy a lack of political will of a local
government to enforce IP rights. In some of the most egregious cases,
we have seen a trading partner defund the entire department of the lone
effective enforcement official in that country, we have seen the
infringing commercial sale of copyrighted works by an arm of a national
government, and we have seen the chief law enforcement official of an
FTA partner publicly declare that no copyright infringement prosecution
would ever be brought. Even when the right holder prevails in court, in
some foreign countries damages and fines are commonly minor, in some
cases not even covering the costs of the litigation, much less
compensating for and deterring future infringement.
Our trade agreements have always given latitude for countries to
adopt reasonable copyright exceptions. The TRIPS Agreement, the WCT,
the WPPT, and all of our FTAs all provide a wide degree of discretion
to countries to adopt exceptions to copyright, subject to the
discipline of the globally accepted three-step test.\17\ Unfortunately,
experience has shown that some of our trading partners, including FTA
partners, abuse this discretion by enacting overbroad exceptions that
do not comply with the three-step test and leave American right holders
without recourse against market-damaging uses. In one country, courts
have applied the law to allow commercial copy shops to make unlicensed
copies of academic materials, the exact opposite result of how U.S.
courts have addressed the issue. Another country enacted an exception
that would permit almost any use of a copyrighted work that claimed to
be for scientific research, education, or several other purposes but
which omits the nuances and safeguards found in U.S. law. And one
trading partner went so far as to exempt reproduction and distribution
online that purported to be for noncommercial purposes, but which could
easily cause commercial scale harm to the market.
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\17\ Exceptions are permitted for certain special cases that do not
conflict with a normal exploitation of the work and do not unreasonably
prejudice the legitimate interests of the right holder.
A further problem arises from the fact that the United States does
not provide a full public performance right for sound recordings. As a
direct result, many of our trading partners that provide fuller rights
in this area and collect royalties to be distributed to performing
artists refuse to pay American performers on the grounds of
reciprocity. They are wrong to do so and it is worth noting that the
United States Copyright Act provides full national treatment, never
imposing reciprocity.
C. Trademark
While the basic structure and operation of trademark systems is
often more harmonized and subject to fewer policy disputes than other
areas of IP, it is far from immune to problems. Perhaps more than other
forms of IP, trademark is subject to violation in markets in which the
legitimate owner does not even do business. Many brand owners are thus
unprepared to try to enforce their rights in far-flung reaches of the
globe. A related and particularly persistent problem is the bad faith
registration of marks, which some trading partner's legal systems make
very difficult to reverse. But most of all, trademark owners are
subject to the same type of enforcement difficulties described above in
the copyright context, both in terms of criminals' abuse of online
platforms and with regard to the lack of political will to enforce the
law. All of these combine to pose a form of harm unique to brand
owners; counterfeits undermine the hard-earned reputation of American
companies.
D. Market Access
While conceptually tangential to IP protection, countries have
learned that market access affords them substantial opportunity to
compel the disclosure or transfer of valuable IP. We have seen trading
partners require the disclosure of trade secrets as a condition of
entering their market, and similarly we have seen requirements to
license IP to domestic entities as a precondition of market access.
Some countries place quotas on the import of IP-intensive products,
such as limits to the number of American movies that can be shown in
their theaters or quotas on U.S. television shows. In other cases, we
have seen countries deny rights to IP owners who do not manufacture
their products in that market, and there is an ongoing concern with
countries that may seek to require online services to locate servers in
that market.
By providing baseline IP protection and enforcement, as well as
fair rules of market access, our FTAs seek to create and preserve a
level playing field for the international trade in IP-intensive
products and services. The past 15 years of U.S. FTAs with modern IP
chapters have proven very successful at achieving those goals. To be
sure, a variety of implementation shortcomings in various countries
remain, and I will discuss ways to try to address that further down in
my testimony. Notwithstanding those, there ought be no mistaking the
fact that the IP provisions of our FTAs deliver extraordinary benefits.
iii. the benefits of the ip chapter of u.s. ftas
The IP chapter of our FTAs can be a tremendous force for good.
Perhaps some people imagine that all our FTA partners are modern, free
democracies. The reality is that our FTA partners include countries
with a range of approaches to government and society, countries that
still bear deep scars of the Cold War, and countries beset by crime and
violence. To these lands the IP provisions of our FTAs bring some of
the basic building blocks of liberty and freedom: rule of law, respect
for property rights, and transparency and accountability in
government.\18\ And IP enforcement removes a funding source from
criminal and terrorist networks. I am fiercely proud of the
contributions I have made in this regard.
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\18\ Although one FTA partner has failed to implement its
obligations to provide transparency to its drug reimbursement decision
making process.
The IP chapter of our FTAs is also a tool for the advancement of
global policy and norm setting. Marketplace and technological
advancements generate new policy imperatives and global norms need to
keep pace. FTAs have proven the most effective (if not only) way to do
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that over the past 15 years.
FTAs also provide an opportunity to address bilateral issues that
have been met with intransigence for years. The prospect of enhanced
access to the U.S. market provides an incentive to our trading
partners, which facilitates resolution of longstanding problems in our
trading partners' IP systems. The largely successful line of FTA
negotiations over the past 15 years is proof of it. This is also a
reason to be steadfast in our negotiations; we can only sell this
enhanced access once, and we would be wise to make the most of it.
iv. negotiation and implementation of ftas
Bismarck famously quipped, ``the two things you never want to see
being made are sausages and legislation.'' Bismarck never saw an FTA.
In fact, an FTA is not just one negotiation; it's four. First there
is the domestic stakeholder consultation process and interagency
clearance as the U.S. proposal is assembled. Second, there is the
negotiation with our trading partners of the text of the agreement.
Third is the negotiation of the implementation of the text in the
partner countries. Fourth is ongoing consultation over continued
compliance.
A. Assembling the U.S. Text
The IP chapter of our modern FTAs took shape with the Singapore and
Chile FTA negotiations, respectively. Since then, the DNA of the IP
chapter remains the same, and a perusal of the existing agreements on
the website of the U.S. Trade Representative gives anyone a clear
picture of what the United States seeks from this chapter.
That is not to say that the text is written in stone. On the
contrary, with each FTA there is broad opportunity for stakeholder
comment as the text is reviewed, policies reconfirmed (or not), and
updates made to reflect recent developments. The text is reviewed by
the government's subject matter experts and cleared through the inter-
agency process before it is presented as the U.S. proposal.
B. Negotiating the Text of the Agreement
Our trading partners know what we want in the IP chapter very early
on in the process. The negotiations are frequently intense and
grueling. Ultimately, the hard issues are decided by two factors:
political salability and leverage.
While the negotiation of the text is neither the beginning nor the
end of the process, it is the most important stage. The text defines
the obligations for the participating countries. Once this phase is
over, any issues not resolved will meet with a predictable return to
intransigence. Getting it done right means specific obligations that
cannot easily be avoided. Beyond the direct effect of the text on the
participating countries, each FTA text has the potential to set a
precedent for future FTA negotiations. A strong final text can make
everything that comes after it that much easier.
C. Implementation
After the negotiations on the text of the agreement are concluded
and the respective national governments have signed the deal,
implementation becomes critical. The FTA does not enter into force
unless and until USTR certifies that the participating countries have
implemented the obligations they undertook in the agreement. The
implementation of the agreement is where the rubber meets the road--do
our trading partners change their laws and regulations to meet the
negotiated standards? Do U.S. companies actually obtain the fair
treatment demanded by the text?
I can tell you from personal experience that the negotiation over
implementation can be every bit as intense as the negotiation over the
text itself. The good news is that the leverage of the FTA continues
through this implementation process. Until USTR certifies compliance,
our trading partners are not enjoying the improved access to the U.S.
market promised by the FTA. So, there are strong incentives to
implement the agreement fully.
After certification and entry into force, the final word on
compliance evaluation and remedial action for noncompliance is in the
hands of third-party dispute panels. But transition periods are a
distorting force in the implementation process.
D. Continued Compliance
In their ideal form, transition periods allow less developed
countries with less sophisticated governing authorities to gain the
capacity and expertise to appreciate and properly implement modern
trade rules. This committee and the Congress anticipated that and
provided ways to help meet legitimate needs by authorizing capacity
building and technical assistance to our trading partners in the
Bipartisan Congressional Trade Priorities and Accountability Act of
2015.\19\
---------------------------------------------------------------------------
\19\ Public Law 114-26, 129 Stat. 320 (June 29, 2015),
Sec. 102(c)(1).
Transition periods are also a valuable negotiating tool that, if
properly employed, can help our trading partners agree to a better
level of protection than they otherwise might. I believe that our
trading partners enter into negotiations and treaties with us in good
faith; the large majority of obligations are implemented reasonably,
---------------------------------------------------------------------------
including those subject to transition periods.
Unfortunately, a trading partner can also misuse transition periods
as a delay tactic. And there should be no mistake--in the IP sector,
free trade rules mean reducing unfair competition, free riders, and
outright theft of our most innovative and creative products.
Our trading partners are shrewd negotiators. They have figured out
that when it comes time for USTR to certify compliance, it will do so
when obligations subject to transition periods have not been
implemented. While this is technically appropriate--the trading partner
is in compliance with the terms of the FTA if it has not implemented
items still within their agreed transition period--it also means that
we have given away our critical negotiating leverage. Once the FTA is
certified by USTR and thus enters into force, the trading partner is
enjoying the full benefits of the improved access to the U.S. market
and has a significantly reduced incentive to implement fully the
remaining terms of the agreement. After that, our leverage to compel
action is ultimately dependent on initiating and prevailing in a
dispute process.
One approach to this problem could be requesting or requiring our
FTA partners to provide an action plan for the timely implementation of
the obligations subject to transition periods. A similar tool is to
write into the agreement a requirement for our partners to provide
periodic updates on their progress towards timely implementation. The
primary benefit of these would be to highlight instances in which a
trading partner is falling behind a reasonable schedule geared towards
timely implementation. In that regard, they have a role to play.
However, neither of these addresses the loss of negotiating leverage.
Rather than forsaking key negotiating leverage, I believe it is worth
considering a mechanism to suspend the benefits of the FTA in a field
of particular importance to that country if its transition periods
expire without compliance.
v. dispute resolution--a political decision
The final and ongoing phase of FTA compliance is the availability
of a dispute resolution process. Even in cases of clear-cut
noncompliance, the decision to initiate a dispute is at least as much
political as it is substantive.
To be sure, it is not necessary to initiate a formal dispute
process every time there is a disagreement over implementation. The
clearer the textual obligation, the more likely it is that direct
negotiation will lead to an acceptable outcome. And even the threat of
a dispute can have substantial persuasive power. It is to our credit
that we do not initiate disputes lightly or frivolously. But there is a
line between compassion and complacency.
Since 2000, Congress has held 30 hearings addressing the
shortcomings of foreign IP protection.\20\ But over that same time
span, the United States has not initiated a single dispute under the IP
chapter of any FTA. And we have not initiated an IP dispute under the
TRIPS Agreement in 9 years. It certainly is not for lack of candidates.
---------------------------------------------------------------------------
\20\ Senate Appropriations Committee
April 29, 2004: Subcommittee Hearing on ``International and
Domestic Intellectual Property Enforcement''
Senate Banking, House, and Urban Affairs Committee
April 12, 2007: Subcommittee on Security and International Trade
and Finance hearing on ``Pirating the American Dream: Intellectual
Property Theft's Impact on America's Place in the Global Economy and
Strategies for Improving Enforcement''
Senate Commerce, Science, and Transportation Committee
March 8, 2006: Subcommittee on Trade, Tourism, and Economic
Development Hearing on ``Impacts of Piracy and Counterfeiting of
American Goods and Intellectual Property in China''
Senate Foreign Relations Committee
February 2, 2002: Full Committee Hearing on ``Examining the Theft
of American Intellectual Property at Home and Abroad''
June 9, 2004: Full Committee Hearing on ``Evaluating International
Intellectual Property Piracy''
Senate Governmental Affairs Committee
April 20, 2004: Full Committee Hearing on ``Pirates of the 21st
Century: The Curse of the Black Market''
Senate Homeland Security Commitee
July 26, 2006: Stop!: Oversight of Government Management, The
Federal Workforce, and the District of Columbia Subcommittee Hearing on
``A Progress Report on Protecting and Enforcing Intellectual Property
Rights Here and Abroad''
June 14, 2005: Financial Management, Government Information, and
the District of Columbia Subcommittee Hearing on ``Finding and Fighting
Fakes: Reviewing the Strategy of Targetting Organized Piracy''
November 21, 2005: Financial Management, Government Information,
and the District of Columbia Subcommittee Hearing on ``Ensuring
Protection of American Intellectual Property Rights for American
Industries in China''
Senate Judiciary Committee
March 23, 2004: Full Committee Hearing on ``Counterfeiting and
Theft of Tangible Intellectual Property: Challenges and Solutions''
May 25, 2005: Subcommittee on Intellectual Property Hearing on
``Piracy of Intellectual Property''
November 7, 2007: Full Committee Hearing on ``Examining U.S.
Government Enforcement of Intellectual Property Rights''
June 17, 2008: Full Committee Hearing on ``Protecting Consumers by
Protecting Intellectual Property''
June 22, 2011: Full Committee Hearing on ``Oversight of
Intellectual Property Law Enforcement Efforts''
House Energy and Commerce Committee
June 25, 2005: Subcommittee Hearing on ``Product Counterfeiting:
How fakes are undermining U.S. jobs, innovation, and consumer safety''
July 9, 2013: Subcommittee Hearing on ``Cyber Espionage and the
Theft of U.S. Intellectual Property and Technology''
House Foreign Affairs Committee
April 6, 2009: Full Committee Hearing on ``Sinking the Copyright
Pirates: Global Protection of Intellectual Property''
July 21, 2010: Full Committee Hearing on ``Protecting U.S.
Intellectual Property Overseas: the Joint Strategic Plan and Beyond''
July 19, 2012: Full Committee Hearing on ``Unfair Trading Practices
Against the U.S.: Intellectual Property Rights Infringement, Property
Expropriation, and Other Barriers''
House Government Reform Committee
September 23, 2004: Full Committee Hearing on ``Intellectual
Property Piracy: Are We Doing Enough to Protect U.S. Innovation
Abroad?''
December 9, 2009: Subcommittee Hearing on ``Protecting Intellectual
Property Rights in a Global Economy: Current Trends and Future
Challenges''
House Judiciary Committee
March 17, 2005: Subcommittee Hearing on ``Responding to Organized
Crimes against Manufacturers and Retailers''
May 17, 2005: Subcommittee Hearing on ``Intellectual Property Theft
in China and Russia''
December 7, 2005: Subcommittee Hearing on ``International IPR
Report Card--Assessing U.S. Government and Industry Efforts to Enhance
Chinese and Russian Enforcement of IP rights''
April 26, 2012: Subcommittee Hearing on ``International Patent
Issues: Promoting a Level Playing Field for American Industry Abroad''
June 27, 2012: Subcommittee Hearing on ``International IP
Enforcement: Protecting Patents, Trade Secrets, and Market Access''
September 20, 2012: Subcommittee Hearing on ``International IP
Enforcement: Opening Markets Abroad and Protecting Innovation''
June 4, 2014: Subcommittee Hearing on ``Trade Secrets: Promoting
and Protecting American Innovation, Competitiveness, and Market Access
in Foreign Markets''
Congressional-Executive Commission on China
April 2, 2004: ``Influencing China's WTO compliance and commercial
legal reform: Beyond Monitoring''
September 22, 2010: ``Will China Protect Intellectual Property? New
Developments in Counterfeiting, Piracy, and Forced Tech. Transfer''
American innovators and creators face continuing challenges in the
markets of our trading partners who have not properly implemented their
IP obligations, but those trading partners are enjoying the benefits of
improved access to the U.S. market. This is not the equity we achieved
in the negotiations and we should not settle for it now. Moreover, the
apparent hesitancy to initiate IP disputes does not go unnoticed by our
trading partners and invites them to test our resolve further. Simply
put: we need to do a better job of holding our trading partners to the
obligations they agreed to.
vi. conclusion
Intellectual property is a major element of the U.S. economy and
balance of trade. Even more, it is at the heart of our culture and the
spirit of American innovation. When foreign countries fail to provide
adequate legal protection and effective remedies against IP violations,
they undermine their own economy, endanger their citizens, harm U.S.
businesses and consumers, and distort the flow of legitimate
international trade. Modern intellectual property provisions are a
critical element of our FTAs. In addition to the benefits associated
with improved IP protection, these provisions help spread the
fundamental elements of liberty.
FTA negotiations are hard-fought and like the IP rights they
purport to secure, they are without meaning if they are never enforced.
By the time we get to the final stage of compliance monitoring, we have
already negotiated against ourselves once and with our trading partners
twice. Along the way, we are making concessions away from our ideal
outcome. If we will not hold our trading partners to their obligations,
we must eventually ask what is the value of running around the world
getting people to sign pieces of paper? But we are not there yet. Even
for all the trials and tribulations of the process, the IP provisions
of U.S. FTAs are the top standard in the world. With an energetic
effort to hold our trading partners to their commitments, we can all
enjoy the benefits of progressively improved IP protection around the
world.
I again thank the committee for this opportunity to present my
views, and I stand ready to provide any assistance I can.
______
Questions Submitted for the Record to Steven Tepp
Questions Submitted by Hon. Ron Wyden
Question. Congress just passed a trade enforcement bill, which I
hope will significantly up the game for U.S. trade enforcement,
including by helping ensure that trade enforcers have the resources
they need to get the job done. Each of you has identified some areas
where trade agreement implementation has fallen short, yet you all seem
to agree on the importance of the implementation process and having the
right resources to get it done right. If more resources are dedicated
to trade capacity and enforcement in coming months and years, what
areas related to implementation are in your view in greatest need of
additional resources?
You highlighted many of the challenges that the United States faces
in realizing the benefits of the intellectual property (``IP'')
provisions in its free trade agreements. As you have pointed out,
certain of these provisions are important for consumer health and
safety, because they help prevent the importation into the U.S. of fake
drugs and other deceptive products.
Answer. In the field of intellectual property, the Office of the
U.S. Trade Representative, the U.S. Copyright Office, and the U.S.
Patent and Trademark Office, including its IP Attaches, are the central
and critical agencies involved in training, capacity building, and
implementation and enforcement of free trade agreements. I also
highlight the role of the Department of Justice and its regional IP
Enforcement Coordinators (IPLECs). Increasing the resources available
to these agencies to assist our trading partners and work towards full
implementation of free trade agreement commitments will provide the
best and most efficient results for the United States and the $5
trillion its IP industries generate.
Full implementation of IP provisions by our trading partners will
also improve the safety of products available to American consumers, as
you note.
Question. Given the radical changes in technology over the past 20
years, many think that aspects of the U.S. copyright system should be
reformed--and I am one of them. However, to the extent that one
believes the U.S. copyright system has worked to date, it is due in
large part to its flexibility and balance. Specifically, the doctrine
of fair use is critical to maintaining a free and open press and to
promoting education and research. In your written testimony, you
describe problems when countries maintain overly broad exceptions. Do
you agree that there is also a danger of overly narrow exceptions? In
other words, when the United States works with other countries on the
implementation of the copyright provisions in our FTAs, should we
ensure that such implementation promotes free and open societies as it
does in the United States and does not create tools that could be used
to suppress free speech?
Answer. Anything is possible, but history demonstrates that the
danger of overly narrow exceptions is extremely low. Trade agreements
address practical realities and my experience is consistent with what
is demonstrated in USTR's Special 301 Report year after year. That is,
a lack of adequate legal protection and effective enforcement of
copyright continues to be a major problem that distorts markets,
undermines American prosperity, and harms American consumers. As we
evaluate the copyright systems in foreign markets going forward, we
should continue to consider international obligations and global
standards, the adequacy of legal protection (including appropriate
exceptions within the framework of the globally accepted three-step
test), the effectiveness of enforcement, and all the other factors that
make up a complete copyright system.
I agree that copyright promotes free and open societies. As the
Supreme Court held in the Eldred case, Copyright is an ``engine of free
speech.'' Indeed, creators make their living exercising free
expression.
As I noted in my written testimony, I had the opportunity to serve
as co-counsel on the U.S. litigation team when the United States took
China to the WTO over noncompliance with its TRIPS obligations. The
first complaint in that case was that China improperly denied copyright
to works it censored. In its decision, the WTO Panel recited, ``China
argues that such copyright protection is a `legal and material
nullity,' as economic rights pre-empted by public prohibition. It also
argues that copyright enforcement is meaningless in this context.'' WT/
DS362/R, p. 32, para. 7.134 (2009). The Panel went on to find China in
violation of its TRIPS obligations on this point, and China has since
deleted the offending provision from its law. I am proud to have been
part of this effort to strike a blow for creators and against
censorship.
That case illustrates the diametrically opposed purposes of each
law: copyright is designed to promote the creation and distribution of
expression; censorship is designed to suppress it.
______
Questions Submitted by Hon. Bill Nelson
Question. Given the past difficulty we've seen in getting countries
to comply with our trade agreements, is it still worth pursuing these
agreements?
Answer. Absolutely. As I wrote in my prepared testimony:
``The IP chapter of our FTAs can be a tremendous force for good.
Perhaps some people imagine that all our FTA partners are modern, free
democracies. The reality is that our FTA partners include countries
with a range of approaches to government and society, countries that
still bear deep scars of the Cold War, and countries beset by crime and
violence. To these lands the IP provisions of our FTAs bring some of
the basic building blocks of liberty and freedom: rule of law, respect
for property rights, and transparency and accountability in government.
And IP enforcement removes a funding source from criminal and terrorist
networks. I am fiercely proud of the contributions I have made in this
regard.
The IP chapter of our FTAs is also a tool for the advancement of
global policy and norm setting. Marketplace and technological
advancements generate new policy imperatives and global norms need to
keep pace. FTAs have proven the most effective (if not only) way to do
that over the past 15 years.
FTAs also provide an opportunity to address bilateral issues that
have been met with intransigence for years. The prospect of enhanced
access to the U.S. market provides an incentive to our trading
partners, which facilitates resolution of longstanding problems in our
trading partners' IP systems. The largely successful line of FTA
negotiations over the past 15 years is proof of it.''
Question. Once a free trade agreement has entered into force, what
is the best strategy for the U.S. to pursue to get our trade partners
to comply with their obligations? Is it trade sanctions, consultation,
in-kind retaliation, or some other mechanism? Please also provide an
example of how the U.S. previously used the strategy to achieve a
successful result.
Answer. I believe in using all available tools to achieve full
compliance and fair treatment for American's doing business overseas.
In the field of IP, these may include the Special 301 Report, bilateral
negotiations/consultation, senior political-level pressure,
coordinating with other governments aggrieved by the lack of proper
protection, TRIPS Council (including the periodic review of countries'
laws), marshaling aggrieved industries in the trading partner's
domestic market, dispute resolution, and, if needed, trade sanctions
and/or revocation of benefits under the Generalized System of
Preferences. As I noted in my testimony, I also support suspension of
benefits in the case of unimplemented obligations previously subject to
a transition period. In my experience, I have seen various combinations
of these tools utilized to resolve a variety of IP issues in Oman,
Peru, Singapore, and South Korea just to name a few.
The case of Oman may be particularly instructive. In October 2008,
I participated in a delegation to Muscat led by then-U.S. Trade
Representative Susan Schwab for the purpose of securing full Omani
implementation of the U.S.-Oman free trade agreement. We began with a
list of 75 shortcomings in Omani legislation and regulations on IP.
Ambassador Schwab engaged directly and successfully with Sultan Qaboos,
who in turn instructed his bureaucracy to engage constructively with us
at the expert level. Over the following 72 hours of intense and nearly
round-the-clock negotiations, we were able to use the combination of
the political direction Ambassador Schwab secured and the clear
obligations of the IP Chapter of the free trade agreement to sustain
and reinforce our positions on full implementation and reach agreement
on all of the outstanding issues. After a few more weeks of follow-up
exchanges on IP and other areas, Ambassador Schwab was able to certify
Omani compliance and the agreement entered into force on January 1,
2009.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
I believe deeply in the benefits of trade. In America, trade-
related jobs often pay better than non-trade jobs. And there are going
to be a billion middle-class consumers in the developing world in 2025
with money to spend on American-made goods. So it's my view that we
have to make things here, add value to them here, and ship them around
the world.
Now, my heart breaks when I hear news like what's going on in
Indiana, where Carrier Corporation and a United Technologies Electronic
Controls have announced they're shuttering plants and heading to
Mexico. I talked with my friend Senator Donnelly about this just
yesterday. These are factories that have been around for decades,
supporting the livelihoods of a lot of working families. When you're a
worker caught up in an awful situation like this, it's got to curdle
your blood when you hear some callous line from an executive about how
it's only business, and the company's going to ``synergize its inputs
and maximize efficiencies.'' It must feel like you and your family were
just a little cog in a big machine.
My number one goal, when it comes to the cutthroat global economy,
is to fight for American workers. I believe our trade policies must
spur the creation of red-white-and-blue jobs that can support a middle-
class family in Oregon and around the country. I want to make sure
American workers and American businesses are in the economic winner's
circle when they compete with foreign firms.
You do that by enforcing the rules here at home, stopping unfair
trade before it hurts American workers and families. And you do it by
writing new rules overseas. That means engaging with other countries,
hammering out commitments in trade agreements that countries will drop
unfair barriers to products made in the United States. You get
commitments to raise the bar on issues such as labor rights, so that
companies aren't lured away from the U.S. by opportunities to kick
around cheap foreign workers. You get commitments on environmental
protections, so that countries don't turn a blind eye to practices like
illegal fishing or the sale of stolen timber that often undercut
American producers and do harm to the environment. You prevent a race
to the bottom, you close loopholes and end outdated policies, and you
bring the world up to our standards.
Then you have to enforce those agreements. The landmark package of
enforcement measures put together by this committee--and very recently
signed into law--is a major step forward. In the past, trade policies
were often too old, too slow, or too weak to fight back when bad actors
overseas found ways to rip off American jobs. Our tough, new game plan
on enforcement will help change that.
You're already seeing this new approach to trade policy pay off.
Last year, Senator Brown and I worked together to close an egregious,
old loophole in our trade laws that allowed for certain products made
by slave or child labor to be imported to this country if there was no
producer here at home. Under the loophole, economics trumped human
rights, and Senator Brown and I said that was absolutely, 100 percent
wrong. So we wrote a provision that closed it. And yesterday, the
Portland Business Journal ran a story about how our crackdown on
imports made with slave labor has the potential to make big
improvements in the chocolate industry.
One company featured in the story, Tony's Chocolonely, just set up
its U.S. headquarters in Portland, and it's leading the way when it
comes to sourcing cocoa without exploiting slave labor or child
workers. One of the company's leaders said in the story, ``The impact
of this law will depend greatly on how it will be executed and
enforced.''
Not only is that true when it comes to ending slave labor--it's
true in all our trade laws and agreements. Enforcement is absolutely
vital. And the first step in the enforcement of a trade agreement is
getting implementation done right. The U.S. cannot allow countries to
backslide on their promises before a trade agreement even goes into
effect. Our trading partners have to take the commitments they've made
at the negotiating table and turn them into action before they see
benefits. That means writing or updating laws and regulations, and
dropping unfair barriers so that American workers get the fair shake
they've been promised.
Now that the President has signed the Trans-Pacific Partnership
agreement, I expect consultations on its implementation to pick up
steam. Confidence that TPP is going to be implemented the right way is
a prerequisite for the agreement to win the support it would need to
pass the Congress.
I see this hearing as an opportunity to identify many of the
pitfalls and opportunities in the implementation process. And it will
be extremely helpful down the road when it comes time to implement the
TPP or any other trade deal. So I want to thank our witnesses for being
here today. And I look forward to working on a bipartisan basis with
this committee, the current administration and the next one to see that
implementation is done right.
______
Communication
----------
National Association of Manufacturers (NAM)
733 10th Street, NW, Suite 700
Washington, DC 20001
Statement for the Record
Senate Committee on Finance
Free Trade Agreement Implementation: Lessons From the Past
March 23, 2016
The National Association of Manufacturers (NAM) is pleased to
provide the following statement to the Senate Committee on Finance on
``Free Trade Agreement Implementation: Lessons from the Past.''
The NAM is the nation's largest industrial association and voice
for more than 12 million women and men who make things in America.
Manufacturing in the U.S. supports more than 17 million jobs, and in
2015, U.S. manufacturing output reached a record of $2.17 trillion. It
is the engine that drives the U.S. economy by creating jobs,
opportunity and prosperity. The NAM is committed to achieving a policy
agenda that helps manufacturers grow and create jobs. Manufacturing has
the biggest multiplier effect of any industry and manufacturers in the
United States perform more than three-quarters of all private-sector
R&D in the nation--driving more innovation than any other sector.
The interconnected global economy presents both substantial
opportunities and challenges for manufacturers whether they sell their
products across town, throughout the country or around the world.
Advances in technology and transportation over the past few decades, as
well as economic growth and rising incomes globally, have accelerated
the growing interconnection and expanded the U.S. trading relationship
with the rest of the world. Goods and services are exchanged around the
world with an ever-increasing frequency, and manufacturing supply
chains have become more complex. As shown in Figure 1, the most recent
data from the World Trade Organization shows the massive growth in
world trade in manufactured products, reaching a high of over $12
trillion in 2014.
The manufacturing sector in the United States has benefitted in
many ways from the growth of the global economy. Manufacturers in the
United States have been able to expand their customer base in growing
overseas markets, obtain inputs from around the world to become more
competitive, and have been able to develop new and better products
through innovation and ingenuity. In doing so, manufacturers are
supporting millions of high-paying jobs domestically. At the same time,
the growing global economy has posed major challenges to manufacturers.
Tariff and non-tariff barriers to accessing overseas markets are on the
rise in many countries and unfair foreign government policies and
actions have grown as well.
As discussed in depth below, U.S. trade agreements have had a
substantially positive impact on manufacturers in the United States,
particularly when the agreements are high-quality, enforceable and
enforced, result in a level playing field and contain high-standard
protections for innovation and property. These agreements have been
successful in reducing and in some case eliminating foreign barriers
and opening up new markets, which has spurred new manufacturing exports
for U.S. industries and workers. At the same time, manufacturers
recognize that trade agreements alone cannot address all of the issues
that manufacturers face globally, and the NAM continues to work on
ensuring that manufacturers in the United States have the tools they
need to be as competitive as possible and that all countries abide by
the rules of the global trading system.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
I. The Impact of Trade Agreements on Manufacturing in the United States
As the United States has opened foreign markets through enactment
of new trade agreements, manufacturing output in the United States has
grown and manufacturers in the United States have experienced
particularly high levels of success in markets that have been opened by
these agreements.
As shown in Figure 2, overall U.S. manufacturing output has
quadrupled since 1980, reaching a record high of $2.17 trillion in
2015. America's manufacturing growth has been fueled in significant
part by the quadrupling of U.S. manufactured goods exports since 1980
to $1.32 trillion in 2015 that has been supported by
market-opening trade agreements. Manufacturing output and exports have
continued to increase after major trade agreements, such as the North
American Free Trade Agreement (NAFTA), China's accession to the World
Trade Organization (WTO) and the most-recent U.S. trade agreement with
Korea.
a. Impact of WTO Agreements on Manufacturing in the United States
The negotiation of the post-World War II General Agreement on
Tariffs and Trade (GATT) in 1947 and the Uruguay Round Agreements
creating the WTO in 1995 set the baseline rules for most global trade,
now covering 161 members. The Uruguay Round Agreements, implemented by
the United States under Trade Promotion Authority in 1994, expanded the
basic rules of the global trading system and increased the coverage of
those rules.
The core rules of the WTO have been ones that are critical to
manufacturers in the United States seeking a more level playing field
overseas and include commitments by WTO members:
To limit import tariffs to negotiated levels;
Not to discriminate against foreign goods or impose technical
barriers to trade;
Not to provide unfair subsidies and advantages to their local
producers;
To respect and enforce basic intellectual property rights; and
To pay penalties or be subjected to trade sanctions if they
refuse to keep their promises.
Efforts to expand these rules for all WTO members and eliminate
tariffs and other barriers in the ``Doha'' negotiations initiated in
2001 have unfortunately stalled.
The binding WTO rules lowered tariffs for manufacturers in the U.S.
substantially, helping to fuel huge growth in U.S. manufactured exports
from 1995 onward. In addition, these rules have eliminated many unfair
foreign barriers to trade. Additionally, when countries have failed to
live up to their commitments, the WTO has provided strong dispute
settlement procedures. As discussed in more depth below, the United
States has brought more than 100 WTO dispute settlement cases and has
won or successfully negotiated many of them. Notably, the WTO has
continued to bring new countries into the rules-based trading system,
with the accession of China in 2001, Saudi Arabia in 2005 and Vietnam
in 2007.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
b. Impact of FTAs on Manufacturing in the United States
While global agreements with WTO partners set baseline rules that
limit some barriers, the United States' 14 Free Trade Agreements (FTAs)
\1\ with a total of 20 countries require our partner countries to meet
higher standards, including to:
---------------------------------------------------------------------------
\1\ The United States has two multi-country FTAs: the North
American Free Trade Agreement (NAFTA) with Canada and Mexico, and the
Central American-Dominican Republic-U.S. Free Trade Agreement with
Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and
Nicaragua. The United States also has 12 FTAs with: Australia, Bahrain,
Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore
and South Korea.
Eliminate all manufactured good import tariffs within a certain
time period (with most such tariffs are eliminated immediately);
Open up markets to all services such as distribution and express
shipments that are critical for manufacturers to get products to
foreign consumers;
Provide stronger protections for intellectual property to ensure
that innovative manufacturers in the U.S. are able to combat piracy,
intellectual property theft and other unfair actions;
Maintain more transparent regulatory systems that allow
manufacturers in the U.S. to provide input into the development of new
standards and regulations; and
Protect foreign investors' property that is a critical part of
many companies' ability to export to foreign markets.
Like the basic WTO rules, FTAs also include binding enforcement
rules to guarantee that each country's promises are kept or that
penalties or trade sanctions are imposed.
By eliminating barriers overseas and ensuring our manufacturers and
their products are treated fairly, FTAs have propelled substantial
quantities of manufacturing exports because manufacturers in the United
States succeed when markets are open. As shown in Figure 3, the United
States has a cumulative manufacturing trade surplus of $12.7 billion
with its FTA partners, and a nearly $640 billion deficit with those
countries with which the United States doesn't have such agreements.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
For example:
U.S. manufactured goods exports to Canada and Mexico have more
than doubled since the North American Free Trade Agreement (NAFTA)
entered into force in 1994, from $200 billion in 1993 to $460 billion
in 2015;
U.S. manufactured goods exports to Chile have grown nearly six-
fold since the U.S.-Chile Free Trade Agreement entered into force in
2004, from $2.5 billion in 2003 to $14.6 billion in 2015;
U.S. manufactured goods exports to Australia increased nearly 80
percent since the U.S.-Australia Free Trade Agreement entered into
force in 2005, from $13 billion in 2004 to $23.3 billion in 2015;
U.S. manufactured goods exports to Central America and the
Dominican Republic grew from $14.6 billion in 2005 to $21 billion in
three years, reaching $24 billion in 2015; and
U.S. manufactured exports to Peru increased 58 percent since the
U.S.-Peru Trade Promotion Agreement entered into force in 2009, from
$5.6 billion in 2008 to nearly $8 billion in 2015.
Taken together, America's 20 existing trade agreement partners buy
nearly half (48 percent) of all manufactured goods from the United
States, while they only account for 6 percent of the world's consumers
and less than 10 percent of the global economy. Overall, manufacturing
in the United States has grown as new trade agreements have been
implemented and opened markets and set in place high-standard rules
that improve the competitiveness of the U.S. manufacturing sector.
II. New Market-Opening and High-Standard Trade Agreements Are Needed to
Combat Unfair Barriers Overseas
Despite the growth in trade and U.S. manufactured goods exports,
there remain severe challenges in overseas markets, particularly in
those countries where the United States has not negotiated FTAs. Trade
barriers are on the rise around the world, costing jobs, growth and
economic opportunity for manufacturers and other U.S. industries.
Manufacturers in the United States face not only traditional tariff and
non-tariff barriers, but also face serious and growing challenges of
forced localization, intellectual property theft, and export bans by
other countries. They also face higher effective barriers as other
countries negotiate trade agreements from which manufacturers in the
U.S. are excluded.
On tariffs, the U.S. market is very open to international trade
with an average applied tariff on manufactured goods imports into the
United States of 3.2 percent in 2014. Moreover, approximately two-
thirds of all imports into the United States enter tariff-free already
as a result of preference programs and trade agreements already
negotiated. Indeed, according to the WTO, the United States has the
lowest applied tariff of any other G20 country.
U.S. exporters, however, face much higher tariffs overseas. Tariffs
remain a substantial barrier to U.S. manufactured exports. Major
emerging economies such as Brazil and India maintain overall tariffs
three or four times higher than U.S. tariffs and have the ability to
raise tariffs even higher whenever they choose. These and many other
economies have prohibitively high tariffs on many top U.S. manufactured
goods exports, from up to 100 percent tariffs in India on transport
equipment to 47 percent Chinese tariffs on some chemicals to 35 percent
Brazilian tariffs on some manufactured goods.
As other countries negotiate trade agreements that exclude the
United States, manufacturers in the United States are also losing
ground in foreign markets as competitors overseas benefit from lower
tariffs and the elimination of barriers that our manufacturers still
must face. There are over 270 free trade and similar agreements
negotiated worldwide, of which the United States is only party to 14.
On tariffs, U.S. exporters now face higher tariffs than our competitors
in most major trading countries as they have been able to negotiate
trade agreements that have eliminated tariffs for their producers,
creating an even greater disadvantage to our own exporters, as shown in
Figure 4.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Similarly, as China, the European Union, Canada and Mexico and
others negotiate new agreements without the United States, their
producers will face substantially greater access and lower barriers,
while U.S. manufacturers will be increasingly shut out.
Beyond tariffs, of course, there are a wide range of
discriminatory, unfair and distortive barriers that foreign governments
put in place to limit access to their markets. The Office of the United
States Trade Representative (USTR) releases annual reports on the wide
variety of barriers and foreign distortions, including its National
Trade Estimate Report on trade barriers generally, its Special 301
Report on intellectual property rights protection and enforcement
overseas, as well reports on technical barriers to trade. The NAM
annually provides overviews of the major barriers our companies face
overseas and identified most recently a wide range of unfair import
policies, investment barriers, forced localization barriers, export
restrictions and other challenges in the global economy, as well as the
foreign countries that deny adequate and effective protection of
intellectual property rights and emerging cross-cutting intellectual
property rights concerns that impact manufacturers in a number of
markets.\2\, \3\
---------------------------------------------------------------------------
\2\ NAM, Comments on 2016 National Trade Estimate Report on Foreign
Trade Barriers (Oct. 28, 2015), accessed at http://documents.nam.org/
IEA/Final_NAM_NTE_Comments_2015.pdf.
\3\ NAM, Comments on 2016 Special 301 Review (February 5, 2016),
accessed at http://documents.nam.org/IEA/
NAM_2016_Special_301_Comments.pdf.
Yet, the baseline rules of the WTO do not address the wide variety
and growing trade barriers and unfair trade practices that
manufacturers face in overseas markets. For example, while China
entered the WTO in 2001 agreeing to much lower tariffs than countries
like Brazil and India, the WTO rules have not addressed a wide variety
of other barriers that have grown in the Chinese market, from
indigenous innovation rules to discriminatory procurement barriers.
Manufacturers are pleased to see that China has grown from the sixth
largest U.S. manufactured goods export market in 2002 to the third
largest in 2015, but further work and more rigorous market-opening and
other disciplines are needed. Countries like India, Brazil, South
Africa and others continue to impose barriers or are adopting forced
localization policies that negatively impact manufacturers in the
---------------------------------------------------------------------------
United States.
As other countries negotiate trade agreements that exclude the
United States, manufacturers in the United States are also losing
ground in foreign markets as overseas competitors benefit from lower
tariffs and the elimination of barriers that our manufacturers still
must face. There are over 270 \4\ free trade and similar agreements
negotiated worldwide, of which the United States is only party to 14.
On tariffs, U.S. exporters now face higher tariffs than our competitors
in most major trading countries as they have been able to negotiate
trade agreements that have eliminated tariffs for their producers,
creating an even greater disadvantage to our own exporters. Similarly,
as China, the European Union, Canada and Mexico and others negotiate
new agreements without the United States, their producers will face
substantially greater access and lower barriers, while U.S.
manufacturers will be increasingly shut out.
---------------------------------------------------------------------------
\4\ WTO, Regional Trade Agreements, accessed at http://wto.org/
english/tratop_e/region_e/region_e.htm.
Given these continued barriers and despite the trade agreements
already negotiated, manufacturers in the United States are looking for
new and stronger FTAs that create a more level playing field overseas
---------------------------------------------------------------------------
and for that reason strongly supported the passage of TPA in 2015.
The NAM supports the Trans-Pacific Partnership (TPP) as an
agreement which will open markets and put manufacturers in the United
States in a much stronger position to compete in an important and
growing region of the world. TPP will substantially improve
opportunities for the export and sale of U.S. manufactured goods, which
means more economic opportunities for manufacturers and their 12
million workers here in the United States. The NAM also urges the
Administration and Congress to work together to address key issues,
including on stronger intellectual property protection and
comprehensive enforcement rules, to ensure that this agreement
addresses industry concerns and can set an appropriate template going
forward.
The NAM is also strongly supportive of ongoing FTA negotiations
with the European Union as part of the Transatlantic Trade and
Investment Partnership (TTIP) talks, as well as WTO sectoral
negotiations to eliminate tariffs on environmental goods as part of the
Environmental Goods Agreement (EGA) talks. The NAM is also reviewing
other potential trade agreements that would open markets and create
greater opportunities for growing manufacturing in the United States,
including other WTO sectoral negotiations.
III. Enforcement of Trade Agreements and Trade Rules Is Also Critical
Enforcement of trade rules, both domestic and those contained in
international agreements, is also critical.
a. Trade Agreements Require Stronger U.S. Enforcement
For U.S. trade agreements to be successful, it is vital to ensure
effective enforcement of the commitments contained in those agreements
by our trading partners and the United States to create a more level
playing field.
The United States has worked actively through successive
administrations to address market access barriers and other unfair
treatment of U.S. exports and products. Before agreements first enter
into force, the Office of the United States Trade Representative (USTR)
works vigorously to ensure the full implementation of commitments. In
most cases, commitments are implemented fully. In cases where they are
not, USTR works through the consultation and ultimately the dispute
settlement provisions provided in trade agreements to ensure full
implementation. Indeed, since the WTO was established nearly two
decades ago in 1995, the United States has brought over 100 claims and
successfully resolved 70 of the 74 cases that have been concluded.\5\
Notably, the United States has brought about 20 percent of the
approximately 500 requests for consultation made overall in the WTO.\6\
These cases have an important impact on growing manufacturing in the
United States. For example, the United States has used the WTO dispute
settlement mechanism to make sure that:
---------------------------------------------------------------------------
\5\ Office of the United States Trade Representative, Snapshot of
WTO Cases Involving the United States (May 22, 2014), accessed at
http://www.ustr.gov/sites/default/files/Snapshot
%20May.pdf.
\6\ Id.; World Trade Organization, Chronological List of Dispute
Cases, accessed at http://www.wto.org/english/tratop_e/dispu_e/
dispu_status_e.htm. As USTR's snapshot explains, the United States has
filed 103 requests for consultation.
China stopped discriminating against U.S. automobile parts,
eliminated additional tariffs on U.S. steel exports and eliminated
export bans on raw materials and rare earths;
Argentina's onerous and discriminatory import licensing is
addressed;
South Korea stopped imposing non-scientific barriers to certain
food products; and
A wide number of countries, from Portugal, Pakistan and Sweden
to Brazil, Greece and Denmark, provide better protection for U.S.
intellectual property.
India's national solar energy policy violated WTO international
trade rules in discriminating against importers' solar cells and
modules.
The United States has pursued cases with regard to actions by many
of our major trading partners, from the European Union, Canada and
Mexico to Brazil and India. Without the underlying agreements, such
strong dispute settlement outcomes that open markets and ensure fair
treatment would not be possible.
Sustained attention is needed to address other governments' failure
to implement their trade and investment commitments fully, including
where appropriate through the use of WTO and FTA dispute settlement
mechanisms. Whether it is a newer agreement, such as the Korea-U.S.
(KORUS) FTA or one that has been in force for decades, the United
States should not hesitate to ensure that all trade agreement
obligations are enforced. With respect to Korea, implementation of the
KORUS FTA has been slow in several areas since it entered into force in
2012:
While manufacturers are pleased that many of the border problems
that impeded many U.S. manufactured goods exports were resolved in
2014, it took far too long to address these excessive tariff
certification and verification demands that Korean customs was placing
on U.S. exporters and Korea's failure to implement quickly and fully de
minimis rules to eliminate red-tape for small-value shipments.
Manufacturers' access to Korea has continued to be impeded
substantially by a range of proposed, new and modified non-tariff
barriers to imports of automobiles and motorcycles made in the United
States. These include discriminatory emissions regulations that
improperly penalize U.S. auto exports to Korea and new noise standards
for motorcycles that limit the use of large motorcycles on Korean
highways.
These and other barriers must be addressed urgently to ensure the
KORUS FTA delivers fully on its promise for manufacturers in the United
States and it will be important to monitor Korea's full implementation
of the KORUS FTA.
Similarly with Colombia, despite growing manufactured goods
exports, manufacturers across several industries in the United States
are facing major market access and regulatory barriers in the Colombian
market that appear inconsistent with Colombia's existing international
commitments, including the U.S.-Colombia Trade Promotion Agreement.
Substantial concerns have been raised in three sectors in particular:
U.S. distilled spirits producers face a discriminatory tax and
Colombia imposes spirit monopoly restrictions on the ability of
imported spirits companies to do business in the country.
Colombia's scrappage program has long been a barrier to full
access to trucks manufactured in the United States, requiring that an
old truck be scrapped before the purchase of a new truck (a unique
``one for one'' rule) or, formerly, a hefty fee be paid, and in April
2013, the Colombian government eliminated the fee option, creating a
situation where new trucks could not typically be purchased.
Pharmaceutical manufacturers in the United States face a myriad
of growing barriers in Colombia's market, including insufficient and
unreasonable timeframes for comment, modifications to approval
processes for innovative pharmaceutical products to look beyond
efficacy and scientific data to require a consideration of price, and
an unprecedented ``abbreviated'' regulatory review to allow the sale of
biosimilar products.
The NAM looks forward to working closely with the U.S. government
to ensure the full enforcement of U.S. trade agreements in ways that
enhance manufacturers' competitiveness.
b. Upholding the United States' International Obligations at Home
Similarly, the United States should uphold its obligations under
international agreements and honor remedies imposed when U.S. actions
are found to be out of compliance with those obligations. Just as we
expect our trading partners to meet the letter of their international
obligations, so should the United States.
c. Enforcement Through Investor-State Dispute Settlement (ISDS)
With regard to the enforcement of trade and investment agreements,
the NAM also strongly supports the continued inclusion and use as
appropriate of ISDS contained in U.S. FTAs and investment treaties.
ISDS is a vital enforcement tool that allows individual investors
(whether business or non-profit) to seek enforcement of basic
principles--such as non-discrimination, compensation for expropriatory
action (i.e., takings) and fair treatment--before a neutral arbitration
panel. ISDS is in essence an enforcement mechanism and those seeking a
more level playing field for manufacturers in the global economy should
support the inclusion of this mechanism in existing and future
agreements, including the TPP and TTIP agreements, as well as bilateral
investment treaties (BITs), such as currently being negotiated with
China.
Such provisions should be broadly available for all industries with
respect to breaches of the core investment rules of the underlying
agreements, but also with respect to contracts and other investment
agreements signed by investors with the foreign government. Proposals
to eliminate or modify these core enforcement rules should be rejected
as such outcomes undermine rather than strengthen a strong enforcement
agenda.
d. Full and Timely Enforcement of Domestic Trade Rules Is Essential
Domestically, the NAM continues to be a strong supporter of the
full and fair enforcement of our trade remedy laws that help
manufacturers address government-subsidized and other unfair
competition. These rules too are an essential part of a robust pro-
growth and pro-manufacturing trade policy. U.S. trade remedy laws have
long been part of the U.S. legal system and are internationally
respected mechanisms, authorized by the WTO.
It is vital that both the Department of Commerce and U.S.
International Trade Commission exercise their authority to counteract
unfair practices overseas. Full, effective, timely and consistent
enforcement by the U.S. government of these globally recognized rules
is essential to ensure manufacturers get a fair shake in the global
economy.
Enforcement of U.S. trade rules must occur during the investigatory
and review stages, but these trade rules must also be enforced fully at
our border. Too often, we hear stories of manufacturers that have spent
significant time and money to utilize the trade remedy rules only to
find importers that are evading these orders. Manufacturers strongly
supported the Enforcing Orders and Reducing Customs Evasion (ENFORCE)
Act that was spearheaded by members of this Committee to address
longstanding failures of Customs and Border Protection (CBP) to enforce
fully and adequately trade remedy orders at the order in cases of
evasion. This legislation was recently enacted as part of the Trade
Facilitation and Trade Enforcement Act, which the NAM strongly
supported. The NAM will be working with the Committee, Congress and CBP
to ensure that these provisions are fully implemented on a timely
basis.
Conclusion
For manufacturers in the United States, trade agreements,
particularly those that comprehensively open markets and set in place
high standards, have boosted manufacturing output and the
competitiveness of manufacturing in the United States. Future growth
opportunities for the U.S. manufacturing sector will hinge
disproportionately on the ability to increase overseas sales and the
NAM supports the continued negotiation of comprehensive, high-standard
and market-opening new trade agreements, and the vigorous enforcement
of these agreements to ensure that countries are upholding their
commitments.
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