House Report 108-627 - UNITED STATES-MOROCCO FREE TRADE AGREEMENT IMPLEMENTATION ACT

[House Report 108-627]
[From the U.S. Government Publishing Office]

108th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 108-627
======================================================================

UNITED STATES-MOROCCO FREE TRADE AGREEMENT IMPLEMENTATION ACT

_______

July 21, 2004.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Thomas, from the Committee on Ways and Means, submitted the
following

R E P O R T

together with

ADDITIONAL VIEWS

[To accompany H.R. 4842]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 4842) to implement the United States-Morocco Free
Trade Agreement, having considered the same, report favorably
thereon without amendment and recommend that the bill do pass.

CONTENTS

Page
I. Introduction.....................................................2
A. Purpose and Summary................................. 2
B. Background.......................................... 2
C. Legislative History................................. 5
II. Section-by-Section Summary.......................................5
A. Title I: Approval and General Provisions............ 5
B. Title II: Customs Provisions........................ 8
C. Title III: Relief from Imports...................... 11
III. Vote of the Committee...........................................13
IV. Budget Effects of the Bill......................................14
A. Committee Estimate of Budgetary Effects............. 14
B. Budget Authority and Tax Expenditures............... 14
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 14
V. Other Matters to be Discussed Under the Rules of the House......16
A. Committee Oversight Findings and Recommendations.... 16
B. Statement of General Performance Goals and
Objectives......................................... 16
C. Constitutional Authority Statement.................. 16
D. Information Relating to Unfunded Mandates........... 16
VI. Changes in Existing Law Made by the Bill, as Reported...........17
VII. Views...........................................................18

I. INTRODUCTION

A. Purpose and Summary

H.R. 4842 would implement the June 15, 2004 Agreement
establishing a free trade area between the United States and
Morocco.

B. Background

The United States-Morocco Free Trade Agreement (FTA) is the
fourth trade agreement considered by the Congress under the
Trade Promotion Authority (TPA) procedures outlined in the
Bipartisan Trade Promotion Authority Act of 2002 signed into
law in August 2002 (P.L. 107-210). The United States and
Morocco have a strong bilateral relationship. This free trade
agreement forms part of the Administration's initiative to
establish a Middle East Free Trade Area by 2013. Morocco is a
progressive Arab state in terms of democracy and rule of law.
The Moroccan government has also undertaken a strong economic
and labor reform program.
The United States-Morocco FTA is a 21st century agreement
that reflects the modern globalized economy, opens markets, and
provides mutual benefits in intellectual property, services,
government procurement, and e-commerce.
The Committee believes that the Agreement meets the
objectives and priorities set forth in the Bipartisan Trade
Promotion Authority Act of 2002. More than 95 percent of
bilateral trade in consumer and industrial products will become
duty-free immediately upon entry into force of the Agreement,
with all remaining tariffs to be eliminated within nine years.
According to the Office of the United States Trade
Representative (USTR), this is the best market access package
of any U.S. free trade agreement that has been signed to date
with a developing country. Currently, U.S. exports to Morocco
face an average tariff of 20 percent versus a 4 percent average
tariff that Moroccan exports face in the U.S. market. U.S.
export sectors such as information technology products,
construction equipment, and chemicals stand to benefit from the
Agreement.
Notwithstanding the outstanding provisions on industrial
market access noted above, one sector that warrants special
discussion is textiles and apparel. Unlike the practice in most
previous FTAs, duties on textile and apparel products
satisfying the rule of origin in this FTA are not eliminated
upon entry into force of the Agreement. Instead, duties on
originating textile and apparel products are phased out over a
ten-year period. Ambassador Peter Allgeier, Deputy United
States Trade Representative, testified at the Committee's
hearing on implementation of the FTA on July 7, 2004, that
these provisions were included to respond to a unique situation
in which Morocco raised concerns about increased imports from
the European Union and that it is not USTR's intention to
replicate these provisions in future agreements. The Committee
expects that the immediate liberalization for qualifying goods
included in these other agreements will be the model for future
agreements.
In addition, the Committee believes that maintaining a
current short supply list under the FTA is integral to the
effective functioning of the rule of origin for textiles and
apparel. The Committee expects the President to seek to
incorporate all existing and future affirmative short supply
determinations from other trade agreements and trade preference
programs into the textile and apparel rule of origin for this
FTA. Moreover, given that prior short supply designations have
already undergone public comment and consultation with domestic
parties, the President should apply those designations to this
FTA without further public investigation. Finally, the
Committee clarifies that the short supply provision included in
this FTA, as well as previous FTAs and trade preference
programs enacted by Congress, contemplates items only being
added to the list of short supply items. In other words, once
an item is designated as being in short supply under this FTA,
other FTAs, and trade preference programs, the item is
permanently designated as such unless otherwise provided for by
the statute implementing the FTA or trade preference program.
On agriculture market access, tariffs on most U.S.
agricultural exports to Morocco are phased out over the
following periods: immediate, five years, eight years, ten
years, 12 years, 15 years, and 18 years. Certain sensitive
products will have phase out periods of as long as 25 years.
U.S. tariffs will be phased out over the following periods:
immediate, five years, eight years, ten years, 12 years, 15
years, and 18 years. The Committee notes with particular
approval that all agricultural products are included in the FTA
and expects that this comprehensiveness will be reflected in
future FTAs brought before the Committee. The American Farm
Bureau Federation estimates that for every $1 in increased
imports from Morocco, U.S. farmers can expect $10 in increased
exports to Morocco, tripling our current exports. Because
comprehensive liberalization of agricultural trade is included
in this FTA and not in the European Union-Morocco Association
Agreement, new commercial opportunities for U.S. exporters are
very likely.
In services, the Committee is pleased that the Agreement
utilizes a trade-enhancing ``negative list'' approach to ensure
maximum market access for services providers. Morocco will
accord substantial market access across its entire services
regime, offering access in sectors such as audiovisual, express
delivery, telecommunications, computer and related services,
distribution, and construction and engineering.
The FTA calls for higher standards for protecting
intellectual property rights such as copyrights, patents,
trademarks, and trade secrets, as well as enhanced means for
enforcing those rights. The FTA also requires both Parties to
ratify or accede to the World Intellectual Property
Organization (WIPO) Copyright Treaty and WIPO Performances and
Phonograms Treaty. The Committee also notes that the
intellectual property provisions will not affect Morocco's
ability to take measures necessary to protect public health. In
fact, a side letter to the agreement makes this assurance
explicit.
For covered procurements above certain contract values
(i.e., thresholds), the FTA ensures that Moroccan government
purchasers cannot discriminate against U.S. firms or in favor
of Moroccan firms. Strong and transparent disciplines on
procurement procedures, such as requiring advance public notice
of purchases, as well as timely and effective bid review
procedures, provide U.S. suppliers with not only greater market
access opportunity but also increased certainty in the bidding
and contracting process. The FTA provides access to
procurements by thirty Moroccan central government entities,
including the Ministries of Defense, Foreign Affairs, Interior,
and the Prime Minister. The FTA also covers procurement by
Morocco's provinces and prefectures.
The Committee notes with particular approval that the FTA
includes an investor-state dispute resolution mechanism, which
has been included in every FTA signed by the United States in
the last 15 years with the exception of the recently signed
agreement with Australia. The investor-state dispute mechanism
provides protection for investment agreements concluded after
the FTA goes into effect, although it does not provide
protection for existing investment agreements (defined as
agreements relating to natural resources or other assets
controlled by the foreign government).
The Agreement also contains obligations under which each
government commits to enforce its domestic labor and
environmental laws, as required by TPA. The Committee
understands that the prospect of an FTA with the United States
spurred Morocco to update and upgrade its labor law. The
Committee notes that Moroccan labor laws comply with core labor
standards set forth by the International Labor Organization
(ILO). Accordingly, requiring that each government enforce its
labor laws is tantamount to an enforceable ILO standard.
Similarly, Morocco's environmental laws set a high level of
protection.
The Committee notes that the FTA will cover trade with and
investment in the territory of Morocco as recognized by the
United States, which does not currently include the Western
Sahara.
As noted above, this legislation is being considered by
Congress under TPA procedures. As such, the Agreement has been
negotiated by the President in close consultation with
Congress, and it can be approved and implemented through
legislation using streamlined procedures. Pursuant to TPA
requirements, the President is required to provide written
notice to Congress of the President's intention to enter into
the negotiations. Throughout the negotiating process and prior
to entering into an agreement, the President is required to
consult with Congress regarding the ongoing negotiations.
The President must notify the Congress of his intent to
enter into a trade agreement at least 90 calendar days before
the agreement is signed. Within 60 days after entering into the
Agreement, the President must submit to the Congress a
description of those changes to existing laws that the
President considers would be required in order to bring the
United States into compliance with the Agreement. After
entering into the Agreement, the President must also submit to
the Congress the formal legal text of the agreement, draft
implementing legislation, a statement of administrative action
proposed to implement the Agreement, and other related
supporting information as required under section 2105(a) of
TPA. Following submission of these documents, the implementing
bill is introduced, by request, by the Majority Leader in each
chamber. The House then has up to 60 days to consider
implementing legislation for the Agreement (the Senate has up
to an additional 30 days). No amendments to the legislation are
allowed under TPA requirements.

C. Legislative History

On October 1, 2002, the President first notified Congress
of his intent to negotiate an FTA with Morocco. FTA
negotiations between the United States and Morocco began in
January 2003 and concluded in March 2004. During and after the
negotiations, the President continued his consultations with
Congress pursuant to the letter and spirit of the TPA
requirements. On March 8, 2004, the President notified Congress
of his intent to enter into the United States-Morocco FTA. The
text of the United States-Morocco FTA was released to the
public on April 2, 2004. Under TPA procedures, the President is
able to sign an FTA ninety calendar days after he has notified
Congress. Accordingly, the FTA was signed on June 15, 2004, by
U.S. Trade Representative Robert B. Zoellick and Moroccan
Minister-Delegate of Foreign Affairs and Cooperation Taib
Fassi-Fihri.
On July 7, 2004, the Committee on Ways and Means held a
hearing on the United States-Morocco FTA. The Committee
received testimony supporting the Agreement from the
Administration and numerous U.S. private sector companies and
organizations. On July 14, 2004, the Committee on Ways and
Means considered in an informal markup session draft
implementing legislation for the Morocco FTA. The Committee
approved the draft implementing legislation by a recorded vote
of 23 yeas to 1 nay, with one Member voting present, without
amendment.
In accordance with TPA requirements, President Bush
submitted to Congress on July 9, 2004 a description of the
changes to existing U.S. laws that would be required to bring
the United States into compliance with the Agreement.
On July 15, 2004, President Bush formally transmitted to
Congress the formal legal text of the United States-Morocco
FTA, implementing legislation, a statement of administrative
action proposed to implement the Agreement, and other related
supporting information as required under section 2105(a) of
TPA. Following this transmittal, on July 15, 2004, Majority
Leader DeLay introduced, by request, H.R. 4842 to implement the
United States-Morocco FTA. The bill was referred to the
Committee on Ways and Means.
On July 19, 2004, the Committee on Ways and Means formally
met to consider H.R. 4842. The Committee ordered H.R. 4842
favorably reported to the House of Representatives by a
recorded vote of 26 yeas to 0 nays, without amendment; under
the requirements of TPA, amendments were not permitted.

II. SECTION-BY-SECTION SUMMARY

TITLE I: APPROVAL AND GENERAL PROVISIONS

SECTION 101: APPROVAL AND ENTRY INTO FORCE

Current law

No provision.

Explanation of provision

Section 101 states that Congress approves the Agreement and
the Statement of Administrative Action and provides that the
Agreement enters into force when the President determines that
Morocco is in compliance and has exchanged notes, on or after
January 1, 2005.

Reason for change

Approval of the Agreement and the Statement of
Administrative Action is required under the procedures of
section 2103(b)(3) of the Bipartisan Trade Promotion Authority
Act of 2002. The remainder of section 101 provides for entry
into force of the Agreement.

SECTION 102: RELATIONSHIP OF THE AGREEMENT TO U.S. AND STATE LAW

Current law

No provision.

Explanation of provision

Section 102 provides that U.S. law is to prevail in a
conflict and states that the Agreement does not preempt state
rules that do not comply with the Agreement. Only the United
States is entitled to bring a court action to resolve a
conflict between a state law and the Agreement.

Reason for change

Section 102 is necessary to make clear the relationship
between the Agreement and federal and state law, respectively.

SECTION 103: IMPLEMENTING ACTIONS IN ANTICIPATION OF ENTRY INTO FORCE
AND INITIAL REGULATIONS

Current law

No provision.

Explanation of provision

Section 103(a) provides that after the date of enactment,
the President may proclaim actions and issue regulations as
necessary to ensure that any provision of this Act that takes
effect on the date that the Agreement is entered into force is
appropriately implemented, but not before the date the
Agreement enters into force.
Section 103(b) establishes that regulations necessary or
appropriate to carrying out the actions proposed in the
Statement of Administrative Action shall, to the maximum extent
feasible, be issued within one year of entry into force or the
effective date of the provision.

Reason for change

Section 103 provides for the issuance of regulations. The
Committee strongly believes that regulations should be issued
in a timely manner in order to provide maximum clarity to
parties claiming benefits under the Agreement. As noted in the
Statement of Administrative Action, the regulation-issuing
agency will provide a report to Congress not later than thirty
days before one year elapses on any regulation that is going to
be issued later than one year.

SECTION 104: CONSULTATION AND LAYOVER FOR PROCLAIMED ACTIONS

Current law

No provision.

Explanation of provision

Section 104 provides that where the President is given
proclamation authority subject to consultation and layover, he
may proclaim action only after he has: obtained advice from the
International Trade Commission and the appropriate private
sector advisory committees; submitted a report to the House
Ways and Means and Senate Finance Committees concerning the
reasons for the action; and consulted with the Committees. The
President may proclaim the proposed action after 60 days have
elapsed.

Reason for change

The bill gives the President certain proclamation authority
but requires extensive consultation with Congress before such
authority may be exercised. The Committeebelieves that such
consultation is an essential component of the delegation of authority
to the President and expects that such consultations will be conducted
in a thorough manner.

SECTION 105: ADMINISTRATION OF DISPUTE SETTLEMENT PROCEEDINGS

Current law

No provision.

Explanation of provision

Section 105 authorizes the President to establish an office
within the Commerce Department responsible for providing
administrative assistance to any panels that may be established
under the Agreement and authorizes appropriations for the
office and for payment of the U.S. share of expenses.

Reason for change

The Committee believes that the Commerce Department is the
appropriate agency to provide administrative assistance to
panels.

SECTION 106: ARBITRATION OF CLAIMS

Current law

No provision.

Explanation of provision

Section 106 authorizes the United States to resolve certain
claims covered by the Investor-State Dispute Settlement
procedures set forth in the Agreement.

Reason for change

This provision is necessary to meet U.S. obligations under
Section B of Chapter 10 of the Agreement.

SECTION 107: EFFECTIVE DATES; EFFECT OF TERMINATION

Current law

No provision.

Explanation of provision

The effective date of this Act is date the Agreement enters
into force with respect to the United States except sections 1-
3 and Title I take effect upon the date of enactment. The
provisions of the Act terminate on the date on which the
Agreement terminates.

Reason for change

Section 107 implements U.S. obligations under the
Agreement.

TITLE II: CUSTOMS PROVISIONS

SECTION 201: TARIFF MODIFICATIONS

Current law

No provision.

Explanation of provision

Section 201(a) provides the President with the authority to
proclaim tariff modifications to carry out the Agreement and
requires the President to terminate Morocco's designation as a
beneficiary developing country for the purposes of the
Generalized System of Preferences program.
Section 201(b) gives the President the authority to
proclaim further tariff modifications, subject to consultation
and layover, as the President determines to be necessary or
appropriate to maintain the general level of reciprocal and
mutually advantageous concessions with respect to Morocco
provided for by the Agreement.
Section 201(c) allows the President, for any goods for
which the base rate is a specific or compound rate of duty, to
substitute for the base rate an ad valorem rate to carry out
the tariff modifications in subsections (a) and (b).

Reason for change

Section 201(a) is necessary to put the United States in
compliance with the market access provisions of the Agreement.
Section 201(b) gives the President flexibility to maintain the
trade liberalizing nature of the Agreement. The Committee
expects the President to comply with the letter and spirit of
the consultation and layover provisions of this Act in carrying
out this subsection. Section 201(c) allows the President to
convert tariffs to ad valorem rates to carry out the tariff
modifications in the Agreement.

SECTION 202: ADDITIONAL DUTIES ON CERTAIN AGRICULTURAL GOODS

Current law

No provision.

Explanation of provision

Section 202 of the bill implements the agricultural
safeguard provisions of article 3.5 and Annex 3-A of the
Agreement. Article 3.5 permits the United States to impose an
agricultural safeguard measure, in the form of additional
duties, on imports from Morocco of certain horticultural goods
listed in the U.S. schedule to Annex 3-A of the Agreement.
No additional duty may be applied under section 202 if, at
the time of entry, the good is subject to import relief under
subtitle A of title III of this bill (the general safeguard) or
chapter 1 of title II of the Trade Act of 1974 (``section 201''
relief). The assessment of an additional duty shall cease to
apply to a good on the date on which duty-free treatment must
be provided to that good. If an agricultural good is subject to
a tariff-rate quota under the Agreement, any additional duty
assessed under this section shall be applied only to over-quota
imports of the good. The sum of the duties assessed under an
agricultural safeguard and the applicable rate of duty in the
U.S. schedule may not exceed the lesser of the existing normal
trade relation (NTR)/most favored nation (MFN) rate or the NTR/
MFN rate imposed when the Agreement entered into force.

Reason for change

Section 202 implements the agriculture safeguard provisions
of article 3.5 and Annex 3-A of the Agreement and provides
important security to U.S. farmers.

SECTION 203: RULES OF ORIGIN

Current law

No provision.

Explanation of provision

Section 203 codifies the rules of origin set out in chapter
5 of the Agreement. Under the general rules, there are four
basic ways for a good of Morocco to qualify as an ``originating
good'' and therefore be eligible for preferential tariff
treatment when it is imported into the United States. A good is
an originating good if it is imported directly from the
territory of Morocco into the territory of the United States
and: (1) it is ``wholly the growth, product, or manufacture of
Morocco, the United States, or both''; (2) it is a new or
different good that has been ``grown, produced, or manufactured
in Morocco, the United States, or both'' and the value of the
materials produced and the direct cost of processing operations
performed in Morocco, the United States, or both is not less
than 35 percent of the appraised value of the good; (3) it
satisfies certain rules of origin for textile or apparel goods
specified in Annex 4-A of the Agreement; or (4) it satisfies
certain product-specific rules of origin specified in Annex 5-A
of the Agreement.
Under the rules in Article 4.3 and Annex 4-A of the
Agreement, an apparel product must generally meet a tariff
shift rule that implicitly imposes a ``yarn forward''
requirement. Thus, to qualify as an originating good imported
into the United States from Morocco, an apparel product must
have been cut (or knit to shape) and sewn or otherwise
assembled in Morocco from yarn, or fabric made from yarn, that
originates in Morocco or the United States, or both. However,
Article 4.3.11 provides a limited exception to this general
rule allowing access for 30 million square meter equivalents of
apparel that does not meet the yarn forward rule of origin in
the first year of the Agreement, phasing down over a ten-year
period. Section 203 also includes a de minimis exemption
providing that in most cases a textile or apparel good will be
considered originating if the total weight of all
nonoriginating fibers or yarns is not more than 7 percent of
the total weight of the good.
The remainder of section 203 addresses valuation of
materials and special definitions.

Reason for change

Rules of origin are needed in order to confine Agreement
benefits, such as tariff cuts, to Moroccan goods and to prevent
third-country goods from being transshipped through Morocco and
claiming benefits under the Agreement. Section 203 puts the
United States in compliance with the rules of origin provisions
of the agreement. The Committee notes that the exception to the
textile and apparel yarn forward rule of origin is phased down
over ten years and covers approximately 0.08 percent of U.S.
textile and apparel imports by volume.

SECTION 204: ENFORCEMENT RELATING TO TRADE IN TEXTILE AND APPAREL GOODS

Current law

No provision.

Explanation of provision

Section 204 implements the verification provisions of the
Agreement at article 4.4 and authorizes the President to take
appropriate action while the verification is being conducted.
Such appropriate action includes suspending liquidation of the
textile or apparel good for which a claim of origin has been
made or, in a case where the request for verification was based
on a reasonable suspicion of unlawful activity related to such
goods, for textile or apparel goods exported or produced by the
person subject to a verification. If the Secretary determines
that the information obtained from verification is insufficient
to make a determination, the President may take appropriate
action described in section 204(d), including publishing the
name and address of the person subject to the verification and
denial of preferential treatment and denial of entry to certain
textile and apparel goods produced or exported by the person
subject to the verification.

Reason for change

In order to ensure that only qualifying textile and apparel
goods receive preferential treatment under the Agreement,
special textile enforcement provisions are included in the
Agreement. Section 204 is necessary to authorize these
enforcement mechanisms for use by U.S. authorities.

SECTION 205: REGULATIONS

Current law

No provision.

Explanation of provision

Section 205 provides that the Secretary of the Treasury
shall issue regulations to carry out provisions of this bill
related to rules of origin and Customs user fees.

Reason for change

Because the implementing bill involves lengthy and complex
implementation procedures by customs officials, section 205 is
necessary in order to authorize the Secretary of the Treasury
to carry out provisions of the implementing bill through
regulations.

TITLE III: RELIEF FROM IMPORTS

Subtitle A: Relief From Imports Benefiting From the Agreement (Sections
311-316)

Current law

No provision.

Explanation of provision

Sections 311-316 authorize the President, after an
investigation and affirmative determination by the U.S.
International Trade Commission (ITC), to impose specified
import relief when, as a result of the reduction or elimination
of a duty under the Agreement, a Moroccan product is being
imported into the United States in such increased quantities
and under such conditions as to be a substantial cause of
serious injury or threat of serious injury to the domestic
industry.
Section 311(c) defines ``substantial cause'' and applies
factors in making determinations in the same manner as section
201 of the Trade Act of 1974.
Section 311(d) exempts from investigation under this
section Moroccan articles for which import relief has been
provided under this safeguard since the Agreement entered into
force.
Under sections 312(b) and (c), if the ITC makes an
affirmative determination, it must find and recommend to the
President the amount of import relief that is necessary to
remedy or prevent serious injury and to facilitate the efforts
of the domestic industry to make a positive adjustment to
import competition.
Under section 313(a), the President shall provide import
relief to the extent that the President determines is necessary
to remedy or prevent the injury found by the ITC and to
facilitate the efforts of the domestic industry to make a
positive adjustment to import competition.
Under section 313(b), the President is not required to
provide import relief if the President determines that the
relief will not provide greater economic and social benefits
than costs.
Section 313(c) sets forth the nature of the relief that the
President may provide as: a suspension of further reductions
for the article; or an increase to a level that does not exceed
the lesser of the existing NTR/MFN rate or the NTR/MFN rate
imposed when the Agreement entered into force. Section
313(c)(1)(C) specifies that if a duty is applied on a seasonal
basis, then the NTR/MFN rate corresponds to the immediately
preceding season. Section 313(c)(2) states that if the
President provides relief for greater than one year, it must be
subject to progressive liberalization at regular intervals over
the course of its application.
Section 313(d) states that the import relief that the
President is authorized to provide may not exceed three years.
If the President determines that import relief continues to be
necessary and there is evidence that the industry is making
positive adjustment to import competition, then he may extend
the relief, but the aggregate period of relief, including
extensions, may not exceed five years.
Section 314 provides that no relief may be provided under
this subtitle after five years from the date on which the
United States must eliminate duties on the good at issue under
the Agreement.
Section 315 authorizes the President to provide
compensation to Morocco consistent with article 8.5 of the
Agreement.
Section 316 provides for the treatment of confidential
business information.

Reason for change

The Committee believes that it is important to have in
place a temporary, extraordinary mechanism if a U.S. industry
experiences injury by reason of increasedimport competition
from Morocco in the future, with the understanding that the President
is not required to provide relief if the relief will not provide
greater economic or social benefits than costs. The Committee intends
that administration of this safeguard be consistent with U.S.
obligations under Chapter Eight (Safeguards) of the Agreement.

Subtitle B: Textile and Apparel Safeguard (Sections 321-328)

Current law

No provision.

Explanation of provision

Reason for change

The Committee intends that the provisions of subtitle B be
administered in a manner that is in compliance with U.S.
obligations under Article 4.2 of the Agreement. In particular,
the Committee expects that the President will implement a
transparent process that will serve as an example to our
trading partners. For example, in addition to publishing a
summary of the request for safeguard relief, the Committee
notes that the President plans to make available the full text
of the request, subject to the protection of business
confidential data, on the Department of Commerce, International
Trade Administration's website. In addition, the Committee
encourages the President to issue regulations on procedures for
requesting such safeguard measures, for making its
determinations under section 322(a), and for providing relief
under section 322(b).

III. VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the vote of the Committee on Ways and Means in its
consideration of the bill, H.R. 4842.

MOTION TO REPORT THE BILL

The bill, H.R. 4842 was ordered favorably reported by a
rollcall vote of 26 yeas to 0 nays (with a quorum being
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ ......... Mr. Rangel....... ........ .........
Mr. Crane...................... ........ ......... Mr. Stark........ ........ ........ .........
Mr. Shaw....................... ........ ......... Mr. Matsui....... ........ ........ .........
Mrs. Johnson................... ........ ......... Mr. Levin........ ........ .........
Mr. Houghton................... ........ ........ ......... Mr. Cardin....... ........ ........ .........
Mr. Herger..................... ........ ......... Mr. McDermott.... ........ ........ .........
Mr. McCrery.................... ........ ........ ......... Mr. Kleczka...... ........ ........ .........
Mr. Camp....................... ........ ......... Mr. Lewis (GA)... ........ .........
Mr. Ramstad.................... ........ ......... Mr. Neal......... ........ .........
Mr. Nussle..................... ........ ......... Mr. McNulty...... ........ ........ .........
Mr. Johnson.................... ........ ......... Mr. Jefferson.... ........ ........ .........
Ms. Dunn....................... ........ ......... Mr. Tanner....... ........ ........ .........
Mr. Collins.................... ........ ........ ......... Mr. Becerra...... ........ .........
Mr. Portman.................... ........ ......... Mr. Doggett...... ........ ........ .........
Mr. English.................... ........ ......... Mr. Pomeroy...... ........ .........
Mr. Hayworth................... ........ ......... Mr. Sandlin...... ........ ........ .........
Mr. Weller..................... ........ ......... Ms. Tubbs Jones.. ........ .........
Mr. Hulshof....................
Mr. McInnis.................... ........ ........ .........
Mr. Lewis (KY).................
Mr. Foley......................
Mr. Brady......................
Mr. Ryan....................... ........ ........ .........
Mr. Cantor.....................
----------------------------------------------------------------------------------------------------------------

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of this bill, H.R.
4842, as reported: The Committee agrees with the estimate
prepared by CBO which is included below.

B. Statement Regarding New Budget Authority and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that
enactment of H.R. 4842 would reduce customs duty receipts due
to lower tariffs imposed on goods from Morocco.

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office, the following
report prepared by CBO is provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, July 21, 2004.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4842, a bill to
implement the United States-Morocco Free Trade Agreement.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Annabelle
Bartsch.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.

H.R. 4842--A bill to implement the United States-Morocco Free Trade
Agreement

Summary: H.R. 4842 would approve the free trade agreement
between the government of the United States and the government
of Morocco that was entered into on June 15, 2004. It would
provide for tariff reductions and other changes in law related
to implementation of the agreement.
The Congressional Budget Office estimates that enacting the
bill would reduce revenues by $5 million in 2005, by $52
million over the 2005-2009 period, and by $144 million over the
2005-2014 period, net of income and payroll tax offsets. The
bill would not affect federal spending.
CBO has determined that H.R. 4842 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would not affect the
budgets of state, local, or tribal governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 4842 over the 2005-2014 period is
shown in the following table.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----------------------------------------------------------------------------------------------------------------
Changes in receipts............... -5 -9 -11 -13 -15 -16 -18 -19 -19 -20
----------------------------------------------------------------------------------------------------------------

Basis of estimate: Under the United States-Morocco
agreements, tariffs on U.S. imports from Morocco would be
phased out over time. The tariffs would be phased out for
individual products at varying rates according to one of
several different timetables ranging from immediate elimination
on January 1, 2005, to gradual elimination over 18 years.
According to the U.S. International Trade Commission, the
United States collected $15 million in customs duties in 2003
and $396 million of imports from Morocco. Those imports consist
mostly of various types of apparel articles and produce. Based
on these data, CBO estimates that phasing out tariff rates as
outlined in the U.S.-Morocco agreement would reduce revenues by
$5 million in 2005, by $52 million over the 2005-2009 period,
and by $144 million over the 2005-2014 period, net of income
and payroll tax offsets.
This estimate includes the effects of increased imports
from Morocco that would result from the reduced prices of
imported products in the United States, reflecting the lower
tariff rates. It is likely that some of the increase in U.S.
imports from Morocco would displace imports from other
countries. In the absence of specific data on the extent of
this substitution effect, CBO assumes that an amount equal to
one-half of the increase in U.S. imports from Morocco would
displace imports from other countries.
Intergovernmental and private-sector impact: The bill
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal Revenues: Annabelle Bartsch;
Impact on State, Local, and Tribal Governments: Melissa
Merrell; and Impact on the Private Sector: Crystal Taylor.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee, based on public hearing testimony and
information from the Administration, concluded that it is
appropriate and timely to consider the bill as reported. In
addition, the legislation is governed by procedures of the
Bipartisan Trade Promotion Authority Act of 2002.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives, relating to Constitutional
Authority, the Committee states that the Committee's action in
reporting the bill is derived from Article 1 of the
Constitution, Section 8 (``The Congress shall have power to lay
and collect taxes, duties, imposts and excises, to pay the
debts and to provide for * * * the general Welfare of the
United States.'')

D. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

SECTION 202 OF THE TRADE ACT OF 1974

SEC. 202. INVESTIGATIONS, DETERMINATIONS, AND RECOMMENDATIONS BY
COMMISSION.

(a) Petitions and Adjustment Plans.--
(1) * * *

* * * * * * *

(8) The procedures concerning the release of
confidential business information set forth in section
332(g) of the Tariff Act of 1930 shall apply with
respect to information received by the Commission in
the course of investigations conducted under this
chapter, part 1 of title III of the North American Free
Trade Agreement Implementation Act, title II of the
United States-Jordan Free Trade Area Implementation
Act, title III of the United States-Chile Free Trade
Agreement Implementation Act, [and] title III of the
United States-Singapore Free Trade Agreement
Implementation Act, and title III of the United States-
Morocco Free Trade Agreement Implementation Act. The
Commission may request that parties providing
confidential business information furnish
nonconfidential summaries thereof or, if such parties
indicate that the information in the submission cannot
be summarized, the reasons why a summary cannot be
provided. If the Commission finds that a request for
confidentiality is not warranted and if the party
concerned is either unwilling to make the information
public or to authorize its disclosure in generalized or
summarized form, the Commission may disregard the
submission.

* * * * * * *

VII. VIEWS

----------

ADDITIONAL VIEWS

I. LABOR

Had this agreement contained a fully enforceable provision
requiring both countries to implement and enforce the five
basic International Labor Organization labor standards (rights
to associate and bargain collectively, prohibitions on forced
labor, discrimination, and child labor), then it would have
sailed through both chambers of Congress easily and without
delay. Instead, the agreement includes simply an obligation for
each country to enforce its own domestic law, regardless of
what that law happens to say.
It is ironic that, as the U.S. aggressively pursues
provisions on intellectual property rights and other areas
reflecting U.S. law--which is among the most stringent in the
world on those often contentious issues--that USTR will not
seek provisions on labor reflecting even the basic norms that
have been endorsed by virtually every country in the world.
The ``enforce domestic law'' standard continues to be the
wrong one. And, when a country's labor laws do not meet the
basic international standards, then this approach will be
unacceptable.
Unfortunately, the Bush Administration continues to
negotiate trade agreements including the ``enforce your own
law'' standard, and we are forced to take an up-or-down vote on
what the Bush Administration has negotiated.
While the Bush Administration has shown an ideological
rigidity, pursuing the same model regardless of the realities
in each country with which it negotiates, it does not make
sense for us to take the same cookie-cutter approach. We need
to look at the facts on the ground in each country to examine
how the provisions in each agreement will operate in practice
and to ensure that the trade agreement will not force U.S.
workers, farmers and businesses to compete with firms whose
competitive advantage is the suppression of labor.
As a result, we were left with the difficult task of
closely scrutinizing Morocco's labor laws to see how they match
up against the basic ILO standards, and of examining Morocco's
commitment to respect the basic rights of its workers. This
scrutiny was made more complex by the fact that Morocco just
adopted major reforms in July 2003, which went into effect only
in June of this year.
We note the following facts:
There is an active union movement in Morocco, with
five major national union federations. Additionally, there is a
tradition in Morocco of sector-level collective bargaining.
These aspects of Morocco's labor situation are
attributable in part to the fact thatMorocco inherited a
socialist-leaning labor law and industrial structure from France. They
are also attributable in part to the fact that Morocco's unions played
an important role in Morocco's independence movement.
Prior to July 2003, Moroccan law had notable
deficiencies in its law relative to the five basic ILO
standards.
In 2003, Morocco undertook a major ``social
dialogue'' involving the Government of Morocco, representatives
from the business community, and representatives from the major
Moroccan union federations.
This ``social dialogue'' resulted in the adoption
of major labor law reforms in July 2003, which reflected a
common agreement of and were endorsed by all three groups--
government, business and labor. The law came into effect in
June 2004.
There was also a ``tripartite agreement'' in July
2003, which included a commitment for additional reforms
related to the right to strike (also following the government-
business labor structure of the ``social dialogue'').
The July 2003 reforms constitute a major, not
cosmetic, change in Morocco's laws. Many of the reforms were
aimed specifically at correcting previously-existing
inconsistencies between Morocco's labor laws and the basic ILO
standards. Morocco received support from the ILO in crafting
these reforms.
Among numerous other reforms, Morocco made anti-
union and other forms of discrimination illegal; provided
strong penalties against such conduct; created a legal
obligation to engage in collective bargaining; prohibited
interference in union activities; eliminated a rule requiring
mandatory arbitration that had limited the ability to strike;
disciplined the use of temporary contracts, which had
previously been used to evade worker rights; and prohibited
retaliation by employers against workers engaged in legitimate
strikes.
Morocco's labor ministry and judicial system have
played a fairly active and generally constructive role in
resolving labor disputes in Morocco.
Morocco has worked with the ILO on various issues
(particularly child labor) for several years now, and has
expressed a willingness to work with the ILO on implementation
and enforcement of its new labor laws.
Morocco's independent union movement has come out
in support of the FTA.
In the past, Morocco has been criticized for using criminal
sanctions (under Article 288 of its Penal Code) against
legitimate strikers. We note that Morocco is still working on
reforms to the right to strike. The Government of Morocco has
committed to reforming Article 288 and to using the same
``social dialogue'' model on the negotiations over new rules on
the right to strike,meaning any changes will receive the
endorsement of the labor unions in Morocco. In response to our
inquiries, the Government of Morocco also committed in a letter dated
July 14, 2004 as follows:

The government of Morocco is committed to protecting
the right to strike in conformance with the
International Labor Organization's core principles. In
particular, the government will not use Article 288 of
our penal code against lawful strikers.

The Government of Morocco, to its credit, has shown an up
front openness and honesty about the situation in its country
and a willingness to work with us to address our concerns. The
letter provided by Morocco (which was made a part of the record
of the Committee's mark-up proceedings and is attached to these
Additional Views) committed to implement provisions of its law
consistent with the ILO core labor standards and to seek the
ILO's assistance in this regard:

On the ILO involvement, Morocco has always worked
with the ILO. For instance, the ILO assisted Morocco to
write the Labor Code of 2003 and the new law on child
labor. Morocco, as in the past, will continue to ask
the support of ILO and work with this organization in
all labor issues such as new laws and will ask its help
in providing assistance for the implementation of the
current rules.

In light of the major reforms of July 2003--which addressed
flaws in Morocco's labor laws relative to the ILO standards,
which were negotiated with the full participation and ultimate
endorsement of Morocco's independent labor movement, and which
were based in many cases on the advice of the ILO; in light of
the history and situation in Morocco; in light of Morocco's
commitment to implement its laws consistent with ILO core labor
standards; we believe that the situation with respect to labor
rights in Morocco appears strong enough to implement and assure
the internationally-recognized labor standards, leading to fair
competition and the steady development of a substantial middle
class for the benefit of Morocco and as a market for U.S. goods
and services.

II. ACCESS TO MEDICINES

While we support this Agreement, we were concerned about
sections of this Agreement (as well as other recently-
negotiated U.S. free trade agreements (FTAs)) that affect the
availability of affordable drugs in developing countries. In
particular, we were concerned about the impact of restrictions
on parallel imports and about test data requirements for
pharmaceuticals included in the Morocco FTA. At stake are the
health needs of Morocco's citizens, and we were determined to
explore and clarify whether some of the provisions could
undermine, both explicitly and in spirit, commitments made by
the United States in the World Trade Organization in both the
November 2001 Declaration on the TRIPS Agreement and Public
Health (the Doha Declaration) and the September 2003
Implementation of Paragraph 6 of the Doha Declaration on the
TRIPS Agreement and Public Health (the Paragraph 6 Decision).
The Doha Declaration re-affirmed that the TRIPS Agreement does
not prevent WTO Members from taking measures to protect public
health, including measures aimed at promoting the availability
of medicines, and identified specific provisions within the
TRIPS Agreement that provideflexibility for that purpose. Among
the flexibilities identified were the right of countries to issue
compulsory licenses to increase access to medicines (and to decide for
themselves the grounds on which such licenses could be issued), and the
right of countries to decide whether to allow parallel importation of
medicines. Section 2102(b)(4)(C) of the Trade Act of 2002 (Trade
Promotion Authority or TPA) directs the Administration to ``respect
[the Doha Declaration],'' necessarily including subsequent agreements
related to that Declaration.
We raised concerns in this area with USTR at both the
Committee's mock mark-up and official mark-up, as well as in a
July 15, 2004 letter to Ambassador Zoellick (the July 15 letter
is attached to these Additional Views). USTR's verbal
responses, and the July 19 written response to the July 15
letter from four Members (the July 19 USTR letter is attached
to these Additional Views), as well as clarifications from the
Embassy of the Kingdom of Morocco (the letter from Morocco
dated July 19 is attached to these Additional Views), provide
helpful clarification on some of the issues raised. For
example, in its July 19 response, USTR makes clear that Article
15.9.6 (the ``Bolar exception'') does not preclude Morocco from
exporting generic versions of patented drugs to least developed
countries and certain other countries under the Paragraph 6
Decision. USTR also makes clear in its July 19 response that
the United States ``has no intention'' of bringing a dispute
settlement case against countries that act in accordance with
the Paragraph 6 Decision.
That said, and as discussed in greater detail below, USTR
needs to make explicit in future trade agreements with
developing countries like Morocco that intellectual property
protections for pharmaceutical products (including protections
in the investment chapter of such FTAs) can be waived, so long
as a country acts to effectuate its right to protect public
health. USTR's July 19 letter and answers at both mark-ups seem
to suggest that the Morocco Agreement's side letters on public
health create such an exception. That clarification is helpful
in considering whether to support the Morocco FTA; however, the
exception needs to be explicit from the outset and in the basic
content of future trade agreements with developing countries.

Remaining Concerns

(1) Restrictions on Parallel Imports
Article 15.9.4 of the U.S.-Morocco FTA requires both
countries to recognize the exclusive right of a patent holder
to import a patented product, at least where the patent holder
has restricted the right to import by contractual means. In
practical terms, this provision means that neither Morocco, nor
for that matter, the United States, may allow parallel imports
of patented pharmaceutical products from the other country, or
where a national of the other country owns the patent. (We note
that parallel imports are not imports of counterfeit products.
These are products marketed by the patent owner or with the
patent owner's permission in one country and imported into
another country without the approval of the patent owner.)
With respect to Morocco, the provision appears to limit one
of the flexibilities identified in the Doha Declaration, which
left it up to each country to determine for itself what policy
on parallel imports to adopt. Accordingly, one could argue that
this provision in an FTA with adeveloping country contradicts
the direction in section 2102(b)(4)(c) of TPA to respect the Doha
Declaration.
We note that Morocco's domestic law already prohibited
parallel imports prior to negotiation of the FTA (as does U.S.
law). That fact, however, is not dispositive of whether it is
appropriate to include an absolute restriction on parallel
importation in an FTA with a developing country. Given that the
Doha Declaration recognized parallel imports as potential way
for a developing country to address a public health problem,
USTR should have allowed Morocco to preserve its flexibility on
this point.
The Ambassador of Morocco, in the July 19 letter to
Committee Members, indicates that the Government of Morocco
believes that it retains sufficient flexibility to address
public health issues, even absent recourse to parallel imports.
In particular, the Ambassador notes that Morocco has a well
developed pharmaceutical industry, and that domestic demand for
medicines could be satisfied through compulsory licensing. With
this explanation from the Embassy, we believe that the impact
of the parallel import restriction, in the case of Morocco, is
likely to be minimal. Moreover, we assume that the exception
created by the side letters for ``necessary measures to protect
public health'' apply to this restriction as well. (More on
this point below.)
That said, we remain concerned about inclusion of such
provisions in future trade agreements. In this regard, it is
important that in its July 19 letter, USTR indicates that it
would not seek such provisions with developing countries that
do not already prohibit parallel imports.
(2) Test Data Provisions
Articles 15.10.1, 15.10.2. and 15.10.03 of the FTA require
the United States and Morocco to protect certain test data
submitted to obtain regulatory marketing approval of a drug.
The provisions operate as follows: if a government requires
submission of test data in order to obtain marketing approval
for a drug (e.g., FDA approval), the government may not allow
any other company to use these test data as the basis of
obtaining marketing approval for a similar drug for a period of
5 years. The company first submitting the data has the right to
prevent anyone else from using those data to enter the market
for that period. Test data rights are separate and distinct
from patent rights, and can exist for drugs not covered by a
patent.
The key issue raised by the test data requirements in the
Agreement is whether they can be waived if Morocco wants to
approve a producer other than the test data owner to produce
and sell a drug in Morocco during the test data protection
period. An example may be helpful to illustrate the issue.

Assume Morocco decides that it needs to increase the
supply of HIV/AIDS Drug X in its market. Drug Company A
owns the patent on Drug X, and also is the only
producer to have obtained marketing approval for Drug X
in the Moroccan market. If Morocco is unable to
convince Drug Company A to produce more of Drug X at a
reasonable price, Morocco could issue a compulsory
license to another drug manufacturer, Drug Company B.
However, the compulsory license, which is allowed under
the FTA, is an exceptiononly for the patent rights
related to Drug X. The compulsory license does not affect Drug Company
A's right to prevent any other company from receiving marketing
approval for Drug X based on the data it submitted.

(The above analysis applies if Drug X is not covered
by a patent. The only difference is that Morocco would
not need to issue a compulsory license.)

The Intellectual Property Chapter of the Agreement (Chapter
15) does not include any specific exceptions that would allow
Morocco to waive the test data requirements to address a public
health need. As such, our concern was that the test data
requirements could effectively undermine Morocco's ability to
use compulsory licenses. (Morocco could license the drug for
production, but not for sale.) As such, we believed that
language in the FTA violated at least the spirit of the Doha
Declaration, because the key flexibility identified in that
Declaration was the ability of developing countries to use
compulsory licensing to ``protect public health'' and ``promote
access to medicines for all.''
In its July 19 letter, USTR responded to our concerns in a
way that provides some comfort. Specifically, in its July 19
letter, USTR stated that ``if circumstances ever arise in which
a drug is produced under a compulsory license, and it is
necessary to approve that drug to protect public health or
effectively utilize the TRIPS/health solution, the data
protection provisions in the FTA would not stand in the way.''
USTR stated that it based this conclusion on side letters to
the FTA. USTR does not explicitly say that the side letters
should be read as a blanket exception to the obligations in the
Intellectual Property Chapter. That said, their response--``the
FTA would not stand in the way''--suggests that it is such an
exception. (USTR provides a similar answer where the drug in
question is not covered by a patent.) USTR confirmed the view
that the side letters create an exception in an answer to a
question at the official Committee mark-up. This means that
Morocco can waive test data requirements in certain
circumstances, based on the side letters.
The portion of the side letters on which USTR relies for
this interpretation state, in relevant part, that ``[t]he
obligations of [the Intellectual Property Chapter] do not
affect the ability of either Party to take necessary measures
to protect public health by promoting access to medicines for
all * * * .'' We appreciate USTR's clarification as to how this
language in the side letters should be interpreted. That said,
we continue to believe that the side letters are not
sufficiently clear as to whether they provide an exception. To
the contrary, absent USTR's July 19 clarification and USTR's
answer at the mark-up, the language could have been
misinterpreted as a description of the chapter, rather than an
exception to the chapter.
To eliminate any ambiguity in the future, USTR must make
the exception explicit in the text itself of future agreements.
(3) Test Data Provisions and Investment
We also remain concerned that other provisions in the
Agreement appear to make it more complicated and costly for
Morocco to waive the test data requirements. In particular,
theInvestment Chapter of the FTA (Chapter 10) treats intellectual
property, including potentially test data, as an ``investment.'' This
means that if Morocco were found to have ``expropriated'' the
intellectual property of a U.S. company, including potentially by
waiving test data protections, the U.S. company might be entitled to
compensation for the ``expropriation.'' This would significantly
increase the cost to Morocco of taking such actions.
In its July 19 response, USTR states that the Investment
Chapter has a broad exception for measures related to
intellectual property rights that are consistent with the
intellectual property provisions of the Agreement. USTR goes on
to state that ``a determination concerning the consistency of
an action with [the intellectual property provisions] would be
informed by the side letter.'' This suggests that waiver of the
test data requirements to meet a public health need would fall
within that exception.
We believe that the exception in the Investment Chapter
should be more explicit for three reasons. First, the
Government of Morocco likely faces more ``exposure'' to
potential causes of action under the Investment Chapter than
under the Intellectual Property Chapter. Unlike the
Intellectual Property Chapter, the Investment Chapter gives
private companies the ability to sue the Government of Morocco
directly for compensation (i.e., investor-state arbitration).
Private cases tend to be more easily brought than cases by a
government. Second, investor-state arbitration decisions cannot
be appealed (despite direction in TPA for an appellate
mechanism). Therefore, if an arbitration panel decided that the
side letters do not create a clear exception for measures to
protect the public health, and the panel required Morocco to
provide compensation for waiver of test data requirements
related a drug, nothing could be done to appeal that decision.
Third, this threat of liability for compensation could have a
chilling impact on Morocco taking action to promote access to
medicines.
USTR's clarification that the side letter exception should
apply to defend a claim of expropriation of test data
consistent with the side letter exception, however, does
provide sufficient clarity in the context of this Agreement.
That said, the clarification should be explicit in future
agreements.

III. WESTERN SAHARA ISSUE

In 1975, Morocco annexed Western Sahara, which it now
claims as its own territory. This claim is not considered
legitimate by the United Nations or the United States, although
the United States recognizes Morocco's administrative control
over Western Sahara. The United States is supportive of a 2003
United Nations plan to allow a referendum in Western Sahara,
which would allow its inhabitants (the Saharawis) to vote on
whether to become part of the sovereign Kingdom of Morocco or
become an independent, sovereign state. The Saharawis have
agreed to the United Nations proposal but the Moroccan
government has not; as such progress on resolving the status of
this disputed territory has halted. Although the U.S.-Moroccan
Free Trade Agreement does not apply to trade and investment in
Western Sahara, we encourage the President to use opportunities
created by the Agreement to expeditiously pursue a settlement
of the issue of sovereignty in Western Sahara. In no way should
this agreement be used to advance Morocco's legal claim to
Western Sahara or deepen its economic engagement in this
disputed territory.
Sander Levin.
Xavier Becerra.
Max Sandlin.
Stephanie Tubbs Jones.
John Lewis.
Charles B. Rangel.
Robert T. Matsui.
Jim McDermott.
Richard Neal.
Earl Pomeroy.

Embassy of the Kingdom of Morocco,
Washington, DC, July 14, 2004.
Hon. Sandy Levin,
Rayburn House Office Building,
Washington, DC.
Dear Congressman Levin: I have deeply appreciated the
continuing opportunity to work with you on the U.S. Morocco
Free Trade Agreement. In particular, I welcome your interest in
our nation's labor law, specifically the comprehensive reforms,
passed last year.
I want to address through this letter some of the issues
that have been highlighted in conversations with you and your
staff. Under Moroccan law, it is illegal to fire an individual
because they are a member of a labor organization or have
engaged in labor organizing. To fire someone on these grounds
would be arbitrary under the 2003 law and would make available
the full remedies provided under that law.
Under Moroccan law, it is illegal to refuse to hire an
individual because they are a member of a labor organization or
have engaged in labor organizing It is also illegal to refuse
to rehire or extend the contract of an individual for these
reasons.
Section 473 is a provision is the 2003 Labor Law and the
provision's intent is to ensure that labor representatives do
not undermine the traditional labor organizations. The
government intends to implement this provision to achieve that
goal consistent with the core provisions of the ILO.
The right to strike is protected in the Moroccan
constitution. Further clarification of these rights is
underway. The government of Morocco is committed to protecting
the right to strike in conformance with the International Labor
Organization's core principles. In particular, the government
of Morocco will not use Article 288 of our penal code against
lawful strikers.
Concerning the questions regarding Labor Representatives,
employers have the obligation to organize the elections for the
labor representatives. Employers cannot vote in these elections
and are not able to choose labor representatives. Only
employees can vote and elect freely the labor representatives.
Employees can join freely the Union of their own choice.
Unions designate their representatives within the companies.
On the ILO involvement, Morocco has always worked with ILO.
For instance, ILO assisted Morocco to write the Labor Code of
2003 and the new law on child labor. Morocco, as in the past,
will continue to ask the support of ILO and work with this
organization in all labor issues such as new laws and will ask
its help in providing assistance for the implementation of the
current rules.
I look forward to continuing to work with you on these
issues and any others of potential concern. Nevertheless, I
wanted to get back to you in a timely manner on the key issues
addressed in this letter.
Sincerely,
Aziz Mekouar,
Ambassador.
------

Congress of the United States,
House of Representatives,
Washington, DC, July 15, 2004.
Hon. Robert B. Zoellick,
U.S. Trade Representative,
Washington, DC.
Dear Ambassador Zoellick: We are writing to express our
ongoing concern about sections of recently negotiated U.S. free
trade agreements (FTAs) that could affect the availability of
affordable drugs in developing countries. In particular, we are
concerned about the impact of restrictions on parallel imports
and about marketing exclusivity requirements for
pharmaceuticals included in the Morocco FTA. Our concern
relates to two points.
First, it appears that some of the provisions contradict,
both explicitly and in spirit, commitments made by the United
States in the World Trade Organization in both the November
2001 Declaration on the TRIPS Agreement and Public Health (the
Doha Declaration) and the September 2003 Implementation of
Paragraph 6 of the Doha Declaration on the TRIPS Agreement and
Public Health (the Paragraph 6 Decision). Section 2101(b)(4)(C)
of the Trade Act of 2002 (Trade Promotion Authority or TPA)
directs the Administration to respect the Doha Declaration,
necessarily including subsequent agreements related to that
Declaration.
Second, we are concerned that the FTA's restrictions on
obtaining regulatory approval for drugs, including drugs that
are already off-patent, are likely to increase prices in the
Moroccan market. These restrictions, described below, could
undermine the availability of generic versions of drugs to
treat serious health problems, including HIV/ADS, that are
widespread in many, if not most, developing countries.
Moreover, any increase in the price of drugs in a developing
country like Morocco will be borne by consumers because most
developing countries have large rural, uninsured, and poor
populations who pay out-of-pocket for drugs.
In discussions with your staff and in recent testimony
before the Committee on Ways and Means, we understand that your
office is of the view that the FTA does not interfere with a
country's efforts to ensure broader access to medicines. We
request that you explain that view to us in writing, and in
particular, by responding to the questions outlined below. We
have focused on Chapter 15 of the U.S.-Morocco FTA, because it
may be considered by Congress in the coming weeks.

RESTRICTIONS ON PARALLEL IMPORTATION

Article 15.9.4 of the U.S.-Morocco FTA requires both
countries to recognize the exclusive right of a patent holder
to import a patented product, at least where the patent holder
has restricted the right to import by contractual means. In
practical terms, this provision means that neither Morocco, nor
for that matter, the United States, may allow parallel imports
of patented pharmaceutical products from the other country, or
where a national of the other country owns the patent.\1\
---------------------------------------------------------------------------
\1\ Parallel imports are not imports of counterfeit products. These
are products marketed by the patent owner or with the patent owner's
permission in one country and imported into another country without the
approval of the patent owner.
---------------------------------------------------------------------------
With respect to Morocco, which is a developing country,
this provision appears to limit one of the flexibilities
identified in the Doha Declaration for increasing access to
medicines, and accordingly, it appears to contradict the
direction in section 2102(b)(4)(c) of TPA. Specifically, the
Doha Declaration reaffirmed that the TRIPS Agreement provides
flexibility for WTO Members to take measures to protect public
health, including ``promot[ing] access to medicines for all.''
One of the key flexibilities identified in the Doha Declaration
is the right of each country to determine for itself whether to
allow parallel imports.
Does Article 15.9.4 of the Morocco FTA prevent
Morocco from allowing parallel imports of a patented
pharmaceutical product?
Given that the Doha Declaration explicitly
confirms the right of each country to retain flexibility in
allowing parallel imports of drugs as one way of meeting the
public health needs of its citizens, please explain why the
provision was included given that TPA directs the
Administration to respect the Doha Declaration?
Which country sought inclusion of this provision?
If Morocco or the United States eliminated the
exclusive right of a patent holder to import a patented
product, would either be in violation of Article 15.9.4?

MARKET EXCLUSIVITY AND RELATED PROVISIONS

Article 15.10.1 of the U.S.-Morocco FTA requires that both
countries prevent the use of data submitted to support an
application for marketing approval (e.g., approval from the
Food and Drug Administration (FDA)) for a new pharmaceutical
chemical product without the consentof the person submitting
such data, for a period of five years from the date of approval.\2\
layman's terms, this means that if a company submits data to meet FDA-
type safety and efficacy standards, and obtains marketing approval
based on that data, other companies cannot obtain regulatory approval
based on those data for five years. Given the cost of generating such
data, this provision operates effectively as a grant of market
exclusivity in virtually all cases, including in cases where the drug
is off patent. Article 15.10.2 appears to allow an additional three
years of marketing exclusivity for new uses of an already-approved
pharmaceutical product. Article 15.10.3 requires both countries to
extend patents where there is a delay in the marketing approval
process.
---------------------------------------------------------------------------
\2\ The FTA requires similar protection for agricultural chemical
products (fertilizers).
---------------------------------------------------------------------------
The provisions described above appear to be based on 1984
amendments to U.S. law known as the Hatch-Waxman Act. The
objectives of the Hatch-Waxman Act were to accelerate and
increase the availability of generic drugs in the United States
while balancing the need for continued investment in new drugs.
As you are aware, the Hatch-Waxman Act was necessary because
prior to 1984, U.S. law made it extremely difficult and
expensive to bring a generic version of a pharmaceutical
product to market, even after a patent expired. This was
because prior to the 1984 changes, a company seeking marketing
approval for a copy of an already approved drug had to generate
its own data to support its FDA application. The cost of
generating those data effectively precluded second entrants
from entering the market. (First entrants were able to offset
the cost for generation of the data because they enjoyed patent
protection.) The Hatch-Waxman Act allowed second entrants to
rely on data submitted by first entrants, thereby reducing
costs and speeding introduction of generic versions of drugs to
the U.S. market. In exchange for allowing second entrants to
``piggy-back'' off first entrants, first entrants were given a
period of market exclusivity, even for drugs that are off-
patent.
The Hatch-Waxman Act's provisions on market
exclusivity were part of a compromise necessary to ensure that
the U.S. regulatory structure was updated to facilitate the
entry of generic drugs into the U.S. market. Most developing
countries already have robust generic markets, in large part
because they already allow producers of generic versions of
drugs to obtain regulatory approval based on data submitted by
first applicants or based on prior approval. In light of that
fact, and given that innovative drug companies largely develop
drugs for developed country markets and conduct the necessary
tests to get marketing approval in those markets regardless of
whether they are given market exclusivity in low-income
developing countries, what is the rationale for including these
provisions?
Please describe the circumstances under which the
three additional years of marketing exclusivity described in
Article 15.10.2 would apply.
Neither Article 15.10.1 or 15.10.2 on marketing
exclusivity appear to allow for reliance on previously
submitted data or prior approval during the period of market
exclusivity absent consent of the first applicant. The Doha
Declaration reaffirmed the right of countries to use
flexibilities under the TRIPS Agreement, such as compulsory
licenses. A compulsory license allows someone other than the
patent holder to produce and sell a drug under patent. It is
not clear to us why the grant of a compulsory license would
override a grant of market exclusivity, as provided in Articles
15.10.1 and 15.10.02. (We note that there is no exception to
protect the public.) Please describe how the market exclusivity
provisions in Article 15.10.1 and Article 15.10.2 relate to
Morocco's ability to issue a compulsory license.
Where a compulsory license has been issued, may a
Party automatically deem that the first applicant has consented
to reliance on the data or prior approval for the drug produced
under the compulsory license?
If the patent and test-data were owned by
different entities, does a compulsory license result in legal
``consent'' by both the patent holder and the data owner for
use of the patented material and the test data?
When the drug is off patent, and a Party wishes to
permit marketing for a second entrant, what mechanism exists in
the FTA to allow for an exception to the provisions on market
exclusivity?
Is a grant of market exclusivity pursuant to
Articles 15.10.1 and 15.10.2 considered an ``investment'' with
respect to Chapter 10 of the agreement? If so, would an
abridgement of the period of market exclusivity constitute a
compensable expropriation under Chapter 10?
Article 10. 6.5 of the FTA appears to clam that
any act of patent infringement carried out by a Party in the
issuance of a compulsory license in accordance with the TRIPS
does not constitute a compensable expropriation. Issuance of a
compulsory license, however, is only one aspect of the process
of getting a drug to market. Does the clarification in Article
10.6.5 also ensure that other measures taken by a government to
ensure that a drug on which a compulsory license has been
issued can be lawfully marketed (e.g., a grant of marketing
approval to ageneric or second producer before the period of
marketing exclusivity has expired) will not constitute compensable
expropriations? If not, is there another provision in the agreement
that would ensure that such measures do not constitute expropriations?
Article 15.10.3 requires that a patent term be
extended where there is a delay in the regulatory approval
process. The provision does not state whether delays
attributable to the applicant (e.g., failure to provide
adequate data) mitigate against extension. Article 15.9.8, the
comparable provision for extension of a patent term because of
a delay in the patent approval process, makes clear that delays
attributable to the patent applicant should not be considered
in determining whether there is a delay that gives rise to the
need for an extension. Why was similar language not included in
Article 15.10.3?
Is Morocco, or for that matter the United States,
required by the FTA to extend a patent term where there is a
delay in the regulatory approval that is attributable to the
applicant?

BOLAR-TYPE PROVISIONS THAT LIMIT EXPORT \3\
---------------------------------------------------------------------------

\3\ The ability of a generic manufacturer to use a patented
pharmaceutical product to obtain marketing approval is known in U.S.
law as the Bolar provision, after the court case that gave rise to the
need for the amendment.
---------------------------------------------------------------------------
Article 15.9.6 of the U.S.-Morocco FTA appears to allow a
person other than a patent holder to make use of a patent in
order to generate data in support of an application for
marketing approval of a pharmaceutical product (e.g., approval
from the FDA). However, Article 15.9.6 also states that if
exportation of the product using the patent is allowed,
exportation must be limited to ``purposes of meeting marketing
approval requirements.'' This provision appears to preclude
Morocco from exporting generic versions of patented
pharmaceutical products for any reason other than use in
obtaining marketing approval because that is the only exception
noted.
If that is the case, the provision would seem to curtail
Morocco's ability to act as an exporter of pharmaceutical
products to least-developed and other countries under the
Paragraph 6 Decision. Specifically, the Paragraph 6 Decision
allows countries to export drugs produced under a compulsory
license to least-developed countries or to countries that lack
pharmaceutical manufacturing capabilities. Were the provisions
to constrain Morocco's ability to export under the Paragraph 6
Decision, the United States could be accused of backtracking on
commitments that have been made.
Please explain whether this Article prohibits
Morocco from allowing the export of generic versions of
patented pharmaceutical products for purposes other than
``meeting market approval requirements.'' If it does not,
please explain in detail how you came to that conclusion.
If this provision does in fact limit Morocco's
ability to allow the export of generic versions of patented
pharmaceutical products, please explain how Morocco could serve
as an exporting country to help least-developed and other
countries address public health needs under the Paragraph 6
Decision. (Exporters under the Paragraph 6 Decision are
exporting to meet the health needs of an importing country, not
merely to obtain marketing approval.)
Does Article 15.9.6 allow export of a generic
version of a patented drug to get marketing approval in a third
country (i.e., other than the United States or Morocco)?
(Article 15.9.6 states that ``the Party shall provide that the
product shall only be exported outside its territory for
purposes of meeting marketing approval requirements of that
Party.'')

SIDE LETTER TO THE AGREEMENT

The Morocco FTA includes an exchange of letters dated June
15, 2004, between the Governments of Morocco and the United
States. The letters appear intended to clarify the relationship
between the intellectual property provisions of the FTA and the
ability of Morocco and the United States to take measures to
protect the public health.
The letters address two issues. First, the letters state
that the intellectual property provisions in the FTA ``do not
prevent the effective utilization'' of the Paragraph 6
Decision. Second, the letters state that if the TRIPS Agreement
is amended on issues related to promotion of access to
medicines, and that either the United States or Morocco takes
action in conformity with such amendments, both countries will
``immediately consult in order to adapt [the intellectual
property provisions of the FTA] as appropriate in light of the
amendment.''
On the Paragraph 6 Decision, please explain how
the statement that the FTA does not ``prevent the effective
utilization'' is not merely rhetorical. Please be specific as
to why you believe the provisions in the FTA do not preclude
Morocco from acting as an importer or exporter of drugs under
the Paragraph 6 Decision, including how the FTA's provisions
related to market exclusivity can be waived if Morocco acts in
either capacity.
On the issue of consultation, do the letters mean
that both Parties agree to amend the FTA as soon as possible to
reflect access to medicines amendments to the TRIPS Agreement?
Will the United States refrain from enforcing provisions of the
FTA that contravene the TRIPS Agreement amendments while the
FTA is being amended? Is USTR willing to engage in an exchange
of letters with the Government of Morocco memorializing such an
understanding?
We appreciate your prompt response to these questions.
Sincerely,
Charles B. Rangel,
Ranking Democrat, Committee
on Ways and Means.
Jim McDermott,
Member, Committee on Ways
and Means.
Sander Levin
Ranking Democrat,
Subcommittee on Trade,
Committee on Ways and
Means.
Henry A. Waxman,
Ranking Democrat, Committee
on Government Reform.
------

Executive Office of the President,
Office of the United States Trade Representative,
Washington, DC, July 19, 2004.
Hon. Sander M. Levin,
House of Representatives,
Washington, DC.
Dear Congressman Levin: Thank you for your letter of July
15, 2004, regarding certain provisions of the intellectual
property chapter of the U.S.-Morocco Free Trade Agreement
(FTA).
I have addressed each of your specific questions below. As
a general matter, for the reasons also set forth below, the FTA
does not conflict with the Doha Declaration on the TRIPS
Agreement and Public Health or otherwise adversely, affect
access to medicines in Morocco. The FTA does not require
Morocco to change its policies with respect to any of the
flexibilities noted in the Doha Declaration. Furthermore, we
believe that this FTA can advance Morocco's ability to address
public health problems, both by putting in place incentives to
develop and bring new medicines to market quickly and by
raising standards of living more broadly.
The experience of Jordan under the U.S.-Jordan FTA is
illuminating. The United States and Jordan signed the FTA in
2000, during the prior Administration, and we worked with
Congress to enact that agreement in 2001. The U.S.-Jordan FTA
contains a strong intellectual property chapter that covers,
for example, data protection, one of the issues highlighted in
your letter. Jordan has witnessed a substantial increase in
pharmaceutical investment, creating new jobs and opportunities.
In addition, Jordan has approved 32 new innovative medicines
since 2000--a substantial increase in the rate of approval of
innovative drugs, helping facilitate Jordanian consumers'
access to medicines. The Jordanian drug industry has even begun
to develop its own innovative medicines. This is an example of
how strong intellectual property protection can bring
substantial benefits to developing and developed countries
together.
Your specific questions with respect to the U.S.-Morocco
FTA are addressed below.

PARALLEL IMPORTATION

1. Does Article 15.9.4 of the Morocco FTA prevent Morocco
from allowing parallel imports of a patented pharmaceutical
product?
Article 15.9.4 of the FTA reflects current Moroccan law and
therefore does not require Morocco to do anything it does not
already do. The FTA also reflects existing U.S. law. Both
Morocco and the United States already provide patent owners
with an exclusive right to import patented products, including
pharmaceuticals but also all other types of patented products.
Many innovative industries and their employees in the United
States--from the high tech and pharmaceuticals sectors to
sectors covering chemicals and agricultural inputs, and on to
engineering and manufacturing--benefit from this long-standing
protection in U.S. patent law.
2. Given that the Doha Declaration explicitly confirms the
right of each country to retain flexibility in allowing
parallel imports of drugs as one way of meeting the public
health needs of its citizens, please explain why the provision
was included given that TPA directs the Administration to
respect the Doha Declaration?
Providing patent owners with an exclusive import right is
consistent with Article 28.1 of the TRIPS Agreement, which
states that patent owners have the exclusive right to make,
use, sell, offer for sale, and import products covered by their
patents. U.S. law, developed through a long line of Supreme
Court and lower court cases, has recognized this right for over
a hundred years. The TRIPS Agreement more precisely articulated
the exclusive import right, and, when implementing TRIPS in the
Uruguay Round Agreements Act, Congress amended the patent law
by providing for such a right expressly in the statute.
At the same time, however, the TRIPS Agreement also allows
countries to choose to permit ``international exhaustion''
without challenge under WTO dispute settlement. International
exhaustion would allow parallel imports. The Doha Declaration
affirms this approach, and states that ``[t]he effect of the
provisions in the TRIPS Agreement that are relevant to the
exhaustion of intellectual property rights is to leave each
member free to establish its own regime for such exhaustion
without challenge, subject to the MFN and national treatment
provisions of Articles 3 and 4.''
Importantly, neither the TRIPS Agreement nor the Doha
Declaration require WTO members to adopt an international
exhaustion rule; they merely recognize that countries may do so
without challenge. WTO members are free to exercise their
sovereign right to choose an alternative policy. As noted, the
United States does not permit parallel imports. Morocco also
decided in 2000, well before the FTA negotiations, not to
permit parallel imports. The fact that the FTA reflects
principles already present in both Parties' laws does not in
any way lessen our commitment to the Doha Declaration. In fact,
in previous FTA negotiations with developing countries that do
not have parallel import restrictions in their domestic law
(e.g., Central America, Chile, and Bahrain), the final
negotiated texts do not contain provisions on parallel
importation.
3. Which country sought inclusion of this provision?
This provision is a standard component of the U.S. draft
text, which USTR staff has presented to Congress for review and
comment on numerous occasions. Morocco readily accepted the
proposal, without objection, and noted during the negotiations
that Moroccan patent law, like U.S. law, already provided
patentees with an exclusive importation right.
4. If Morocco or the United States eliminated the exclusive
right of a patent holder to import a patented product, would
either be in violation of Article 15.9.4?
It would depend on the details of the particular
legislation. A change in U.S. law would, however, affect many
other innovative sectors that rely on patents besides the
pharmaceuticalsector. Many U.S. technology, manufacturing, and
other innovative businesses--as well as Members of Congress--urge us
regularly to vigorously safeguard U.S. patents and the jobs they help
create.

MARKET EXCLUSIVITY

5. The Hatch-Taxman Act's provisions on market exclusivity
were part of a compromise necessary to ensure that the U.S.
regulatory structure was updated to facilitate the entry of
generic drugs into the U.S. market. Most developing countries
already have robust generic markets, in large part because they
already allow producers of generic versions of drugs to obtain
regulatory approval based on data submitted by first applicants
or based on prior approval. In light of that fact, and given
that innovative drug companies largely develop drugs for
developed country markets and conduct the necessary tests to
get marketing approval in those markets regardless of whether
they are given market exclusivity in low-income developing
countries, what is the rationale for including these
provisions?
In negotiating the U.S.-Morocco FTA and other recent FTAs,
USTR has been mindful of the guidance provioed in the Trade Act
or 2002, which directs USTR to seek to ``ensur[e] that the
provisions of any multilateral or bilateral trade agreement
governing intellectual property rights that is entered into by
the United States reflect[s] a standard of protection similar
to that found in United States law.'' We understand the
rationale of this guidance is to help protect and create high-
paying jobs in leading American businesses. As a developed
economy, it is understandable that U.S. workers will be
increasingly employed in higher value (and better paid)
innovative and productive jobs. On the basis of Congress'
direction, the United States sought to include provisions that
reflect U.S. law, including with respect to the protection of
data.
The protection of clinical test data has long been a
component of trade agreements negotiated by U.S.
Administrations with both developed and developing countries.
Data protection provisions were included, for example, in many
past trade agreements, including the U.S.-Jordan FTA and the
U.S.-Vietnam Bilateral Trade Agreement--both negotiated by the
prior Administration after the passage of the law to which you
refer. Such provisions were included in NAFTA, too. They are in
all recent FTAs, including the U.S.-Singapore FTA and the U.S.-
Chile FTA. Data protection provisions have also been included
in many bilateral intellectual property agreements.
The TRIPS Agreement itself requires protection of clinical
test data against unfair commercial use. While the United
States protects data to obtain approval for new chemical
entities for five years, other countries provide different
terms. The EU, for example, protects such data for 6-10 years.
Implicit in the question, however, appears to be an
assumption that data protection is disadvantageous for
developing countries like Morocco. Yet, protection of data
actually has the potential of facilitating and accelerating
access to medicines. As recognized in Chapter 15 of the FTA
(footnotes 12 and 13), Morocco does not currently approve
generic versions of medicines based on approvals granted in
other countries. As a result, today a generic producer wishing
to sell pharmaceuticals in Morocco may obtain approval only if
an innovative producer first obtains approval in Morocco or if
the generic producer invests the significant money and time
necessary to recreate the data itself. After an innovative
producer obtains approval in Morocco, a generic producer may
rely on such data to obtain approval for its generic product.
Therefore, under existing Moroccan law, generic
manufacturers in Morocco cannot obtain marketing approval for a
generic drug until an innovator has first obtained approval for
the drug in Morocco. Without data protection, innovative
producers will be less likely to enter the Moroccan market in
the first place because, once they obtain approval, generic
producers may capture most of the market. The data exclusivity
provisions of the FTA can thus provide an important incentive
for innovators to enter the market, which may in turn expand
the potential universe of generic drugs in Morocco. As noted
above, this is the development we are seeing in Jordan, to the
benefit of Jordan consumers.
6. Please describe the circumstances under which the three
additional years of marketing exclusivity described in Article
15.10.2 would apply.
The question seems to imply that the basic five year term
of protection for data submitted to obtain approval of new
chemical entities may be extended to eight years. This is not
correct. There is no circumstance in which the FTA requires
that an innovator receive a data protection period longer than
five years for new chemical entities.
The three year period of protection reflects a provision in
U.S. law, which relates to new information that is submitted
after a product is already on the market (for example, because
the innovator is seeking approval for a new use of an existing
product). In that situation, at least in cases where the
origination of this new data involves considerable effort, the
FTA requires that the person providing the new data gets three
years of protection for that new data relating to that new use.
This three year period only applies to the new data for the new
use; it is not added to the exclusivity period for any data
previously submitted.
For example, if a new chemical entity is given marketing
approval, the data supporting that approval is protected for
five years. After that time, generic producers may rely on the
data to obtain approval for a generic version of the drug for
the use supported by the original data. If a new use is
subsequently discovered for the chemical entity, and the health
authority approves the new use based on new data, then the
originator of the new data is entitled to three years of
protection for that data. During that time, however, generics
can continue to produce and market the drug for the original
use.
7. Neither Article 15.10.1 or 15.10.2 on marketing
exclusivity appear to allow for reliance on previously
submitted data or prior approval during the period of market
exclusivity absent consent of the first applicant. The Doha
Declaration reaffirmed the right of countries to use
flexibilities under the TRIPS agreement, such as compulsory
licenses. A compulsory license allows someone other than the
patent holder to produce and sell a drug under patent. It is
not clear to us why the grant of a compulsory license would
override a grant of market exclusivity, as provided in Articles
15.10.1 and 15.10.2. (We note that there is no exception to
protect the public.) Please describe how the market exclusivity
provisions in Article 15.10.1 and Article 15.10.2 relate to
Morocco's ability to issue a compulsory license.
The Doha Declaration recognizes that the TRIPS Agreement
allows countries to issue compulsory licenses to address public
health problems. The U.S.-Morocco FTA is fully consistent with
this principle. It contains no provisions with respect to
compulsory licensing, leaving the flexibilities available under
WTO rules unchanged.
In the negotiation of the U.S.-Morocco FTA, both parties
recognized the importance of protecting public health. Your
questions pertain to whether provisions of Chapter 15 (which is
the Intellectual Property Rights chapter) might affect this
common interest. To address this type of concern, the United
States and Morocco agreed to a side letter on public health in
which both Parties stated their understanding that ``[t]he
obligations of Chapter Fifteen of the Agreement do not affect
the ability of either Party to take necessary measures to
protect public health by promoting access to medicines for all,
in particular concerning cases such as HIV/AIDS, tuberculosis,
malaria, and other epidemics as well as circumstances of
extreme urgency or national emergency.'' The Parties also
stated that ``Chapter Fifteen does not prevent the effective
utilization of the TRIPS/health solution'' reached in the WTO
last year to ensure that developing countries that lack
pharmaceutical manufacturing capacity may import drugs.
Therefore, if circumstances ever arise in which a drug is
produced under a compulsory license, and it is necessary to
approve that drug to protect public health or effectively
utilize the TRIPS/health solution, the data protection
provisions in the FTA would not stand in the way.
8. Where a compulsory license has been issued, may a Party
automatically deem that the first applicant has consented to
reliance on the data or prior approval for the drug produced
under the compulsory license?
As explained above, if the measure described in the
question is necessary to protect public health, then, as
explained in the side letter, the FTA would not stand in the
way.
9. If the patent and test-data were owned by different
entities, does a compulsory license result in legal ``consent''
by both the patent holder and the data owner for use of the
patented material and the test data?
See previous response.
10. When the drug is off patent, and a Party wishes to
permit marketing for a second entrant, what mechanism exists in
the FTA to allow for an exception to the provisions on market
exclusivity?
A patent is designed to protect one type of intellectual
property work, i.e., an invention. Protection of data is
intended to protect a different type of work, i.e., undisclosed
test data that required significant time and effort to compile.
The fact that one type of intellectual property protection for
a product has expired, should not lead as a matter of course to
the conclusion that all other intellectual property rights
attached to the same product should also expire. The same is
true in other areas of intellectual property. For example, a
single CD may encompass several intellectual property rights
related to the music, the performer and the record company.
These rights may expire at different times. The fact that the
copyright attached to the sound recording has expired, should
not mean that the composer or performer loses the copyright it
has. As you know, this principle is important to a broad range
of U.S. creative and innovative industries, including the
entertainment sector, America's second largest export business.
However, as indicated in the side letter, if a circumstance
arose, such as an epidemic or national emergency, that could
only be addressed by granting a second entrant marketing
approval notwithstanding the data protection rights of the
originator of the data, the FTA would not stand in the way.
11. Is a grant of market exclusivity pursuant to Articles
15.10.1 and 15.10.2 considered an ``investment'' with respect
to Chapter 10 of the Agreement? If so, would an abridgement of
the period of market exclusivity constitute a compensable
expropriation under Chapter 10?
The definition of an ``investment'' in the FTA includes,
inter alia, ``intellectual property rights.'' Whether an
abridgement of the data protection obligation gives rise to a
compensable expropriation of an ``investment'' under Chapter
Ten is a fact-specific issue that would have to be resolved on
the merits of a particular case. It is worth noting, however,
that Article 10.6.5 provides that the expropriation provision
of Chapter Ten does not apply to the issuance of compulsory
licenses or to the limitation of intellectual property rights
to the extent that such action is consistent with the
intellectual property chapter (Chapter Fifteen). A
determination concerning the consistency of an action with
Chapter Fifteen would be informed by the side letter.
12. Article 10.6.5 of the FTA appears to clarify that any
act of patent infringement carried out by a Party in the
issuance of a compulsory license in accordance with the TRIPS
does not constitute a compensable expropriation. Issuance of a
compulsory license, however, is only one aspect of the process
of getting a drug to market. Does the clarification in Article
10.6.5 also ensure that other measures taken by a government to
ensure that a drug on which a compulsory license has been
issued can be lawfully marketed (e.g., a grant of marketing
approval to a generic or second producer before the period of
marketing exclusivity has expired) will not constitute
compensable expropriations? If not, is there another provision
in the agreement that would ensure that such measures doe not
constitute expropriations?
See response to Question 11.
13. Article 15.10.3 requires that a patent term be extended
where there is a delay in the regulatory approval process. The
provision does not state whether delays attributable to the
applicant (e.g., failure to provide adequate data) mitigate
against extension. Article 15.9., the comparable provision for
extension of a patent term because of a delay in the patent
approval process, makes clear that delays attributable to the
patent applicant should not be considered in determining
whether there is a delay that gives rise to the need for an
extension. Why was similar language not included in Article
15.10.3?
The Parties did not find it necessary to specifically
address the issue of how to handle delays attributable to an
applicant for marketing approval in the context of data
protection. As with numerous other provisions, the Parties
retain the flexibility to address such details in their
implementation of the FTA, provided that they comply with the
basic obligation.
14. Is Morocco, or for that matter the United States,
required by the FTA to extend a patent term where there is a
delay in the regulatory approval that is attributable to the
applicant?
The FTA preserves flexibility for the Parties to address
the issue of delays attributable to an applicant for marketing
approval through their domestic laws and regulations.

BOLAR PROVISIONS

15. Please explain whether this Article prohibits Morocco
from allowing the export of generic versions of patented
pharmaceutical products for purposes other than ``meeting
marketing approval requirements.'' If it does not, please
explain in detail how you came to that conclusion.
No, it does not. The Article dealing with the ``Bolar''
exception to patent rights only deals with one specific
exception. It does not occupy the field of possible exceptions,
and thus does not prevent Morocco from allowing the export of
generic versions of patented pharmaceutical products for
purposes other than ``meeting marketing approval requirements''
when permitted by other exceptions. For example, Morocco has
the right to allow exports where consistent with TRIPS Article
30 and WTO rules on compulsory licensing. Morocco may, for
example, allow export of generic versions of patented drugs by
issuing a compulsory license in accordance with the TRIPS/
health solution agreed last August in the WTO.
16. If this provision does in fact limit Morocco's ability
to allow the export of generic versions of patented
pharmaceutical products, please explain how Morocco could serve
as an exporting country to help least-developed and other
countries address public health needs under the Paragraph 6
Decision. (Exporters under the Paragraph 6 Decision are
exporting to meet the health needs of an importing country, not
merely to obtain marketing approval).
As noted in the response to Question 15, the FTA does not
limit Morocco's ability to make use of the TRIPS/health
solution agreed last August to export drugs under a compulsory
license to developing countries that cannot produce drugs for
themselves.
17. Does Article 15.9.6 allow export of a generic version
of a patented drug to get marketing approval in a third country
(i.e., other than the United States or Morocco)? (Article
15.9.6 states that ``the Party shall provide that the product
shall only be exported outside its territory for purposes of
meeting marketing approval requirements of that Party.'')
Morocco can get marketing approval in a third country to
allow export of a generic version through the issuance of a
compulsory license for export, consistent with WTO rules.
Article 15.9.6 does not interfere with that result.

SIDE LETTER

18. On the Paragraph 6 Decision, please explain how the
statement that the FTA does not ``prevent the effective
utilization'' is not merely rhetorical. Please be specific as
to why you believe the provisions in the FTA do not preclude
Morocco from acting as an importer or exporter of drugs under
the Paragraph 6 Decision, including how the FTA 's provisions
related to market exclusivity can be waived if Morocco acts in
either capacity.
There are no provisions in the FTA related to compulsory
licensing, which means that it does not limit in any way
Morocco's ability to issue compulsory licenses in accordance
with WTO rules, including TRIPS Article 31 and the TRIPS/health
solution. With respect to other rules included in Chapter 15,
including data protection, the side letter states that the FTA
does not ``prevent the effective utilization of the TRIPS/
health solution.'' As stated in the side letter, the letter
constitutes a formal agreement between the Parties. It is,
thus, a significant part of the interpretive context for this
agreement and not merely rhetorical. According to Article 31 of
the Vienna Convention on the Law of Treaties, which reflects
customary rules of treaty interpretation in international law,
the terms of a treaty must be interpreted ``in their context,''
and that ``context'' includes ``any agreement relating to the
treaty which was made between all the parties in connection
with the conclusion of the treaty.''
19. On the issue of consultation, do the letters mean that
both Parties agree to amend the FTA as soon as possible to
reflect access to medicines amendments to the TRIPS Agreement?
Will the United States refrain from enforcing provisions of the
FTA that contravene the TRIPS Agreement amendments while the
FTA is being amended? Is USTR willing to engage in an exchange
of letter with the Government of Morocco memorializing such an
understanding?
The United States would, of course, work with Morocco to
ensure that the FTA is adapted as appropriate if an amendment
to the TRIPS Agreement were adopted to ensure access to
medicines. The only amendment currently being contemplated with
respect to TRIPS involves translating the TRIPS/health solution
from last August into a formal amendment. The United States has
no intention of using dispute settlement to challenge any
country's actions that are in accordance with that solution. In
fact, Canada passed legislation recently that would allow it to
export drugs in accordance with the TRIPS/health solution. The
United States reached an agreement with Canada just last
Friday, July 16, to suspend parts of NAFTA to ensure that
Canada could implement the solution without running afoul of
NAFTA rules.
In closing, let me emphasize that we appreciate the
importance of the U.S. commitment to the Doha Declaration on
the TRIPS Agreement and Public Health and the global effort to
ensure access to medicines in developing countries to address
acute public health problems, such as AIDS, malaria and
tuberculosis. The United States played a leading role in
developing these provisions, including enabling poor countries
without domestic production capacity to import drugs under
compulsory licenses. We also successfully called for giving
Least Developed Countries an additional ten years, from 2006
until 2016, to implement TRIPS rules related to
pharmaceuticals. These accomplishments offer a significant
solution to the conflicts we encountered on taking office in
2001.
At the same time, as Congress has directed us, the
Administration has worked on multiple fronts to strengthen the
value internationally of America's innovation economy. These
efforts have included stronger intellectual property protection
rules and enforcement so as to assist U.S. businesses and
workers, and encourage ongoing innovation that benefits U.S.
consumers.
Our FTAs are but one component of the Administration's
broader efforts to achieve these objectives, and complement
efforts undertaken in other fora. Our FTAs not only do not
conflict with the objectives expressed in the Doha Declaration
but reinforce those objectives and facilitate efforts to
address public health problems.
Sincerely,
John K. Veroneau,
General Counsel.
------

Embassy of the Kingdom of Morocco,
Washington, DC, July 19, 2004.
Hon. Sandy Levin,
Rayburn House Office Building,
House of Representatives.
Dear Representative Levin: I deeply appreciate the
opportunity to work with you on the U.S. Morocco Free Trade
Agreement. In particular, I appreciate the opportunity to talk
to you about the pharmaceutical provisions in the Free Trade
Agreement, and about how the Government of Morocco is meeting
the health needs of its citizens.
The Government of Morocco has a well-developed health
system, including a comprehensive public health program. For
example, free medical care, including medicines, is available
through our hospitals. Morocco's health care policy includes a
strong emphasis on generic drugs.
Morocco has not needed to engage in emergency measures such
as compulsory licensing or parallel imports. In fact, there is
a well-developed domestic pharmaceutical industry in Morocco,
producing also generics, and in 2000, well in advance of the
Free Trade Agreement and completely independent of it, Morocco
decided to bar parallel imports.
In addition, as a separate, but quite important matter, the
Government of Morocco is strongly committed to and has agreed
to the highest-standard intellectual property rights provisions
in the Free Trade Agreement. The Government of Morocco believes
that effective intellectual property right protection will play
a vital role in the continued economic development of our
country.
The pharmaceutical provisions in the Free Trade Agreement
were carefully considered in Morocco. They were discussed in
detail with all parties. All sectors of our health system were
involved, including the pharmaceutical industry. The
discussions also included the members of the civil society in
Morocco.
The Government of Morocco achieved in this agreement full
flexibility to meet our nation's health concerns. In
particular, the Government of Morocco believes the agreement
fully preserves its right to issue a compulsory license in the
event that this should prove necessary.
The Agreement does bar ``parallel imports'' in 1.5.9.4.
However, as described above, the Government of Morocco already
bans ``parallel imports.'' In addition, the Government of
Morocco believes that in the event that it faced a situation
where extraordinary action was required, it could meet the
needs of its people through a compulsory license.
The Government of Morocco considered carefully the data
exclusivity provisions in the agreement. We do not believe that
they present any risk to our ability to meet the health needs
of our citizens.
Under the Agreement, a compulsory license does not override
obligations to provide data exclusivity under 15.10.1 and 2.
The Government of Morocco believes it is unlikely that a
situation would ever arise where data exclusivity would be a
barrier to the issuance of a compulsory license. If such an
event did occur, the Government of Morocco believes that an
accommodation could be reached with the owner of the data.
The Government of Morocco supports the Paragraph 6 solution
of the Doha Declaration. The Free Trade Agreement does not
restrict our ability to export under the Paragraph 6 solution
of the Doha Declaration. To the specific, 15.9.6 does not
create a barrier to exports under the Paragraph 6 solution of
the Doha Declaration.
The June 15, 2004 side letter between our two countries
addresses the ability to amend the Free Trade Agreement,
responsive to amendments to the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights. Under the Agreement,
the Government of Morocco believes it can consult immediately
to amend the Agreement responsive to any WTO amendments. Under
the Agreement, it is not required to wait for there to be an
application in dispute of the Agreement.
I look forward to keep working with you.
Sincerely,
Aziz Mekouar,
Ambassador.