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109th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 109-182
======================================================================
DOMINICAN REPUBLIC-CENTRAL AMERICA-UNITED STATES FREE TRADE AGREEMENT
IMPLEMENTATION ACT
_______
July 25, 2005.--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 AND DISSENTING VIEWS
[To accompany H.R. 3045]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3045) to implement the Dominican Republic-Central
America-United States 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................................. 8
II. Section-by-Section Summary......................................10
A. Title I: Approval and General Provisions............ 10
B. Title II: Customs Provisions........................ 12
C. Title III: Relief from Imports...................... 19
D. Title IV: Miscellaneous............................. 23
III. Vote of the Committee...........................................27
IV. Budget Effects of the Bill......................................27
A. Committee Estimate of Budgetary Effects............. 27
B. Budget Authority and Tax Expenditures............... 28
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 28
V. Other Matters to be Discussed Under the Rules of the House......31
A. Committee Oversight Findings and Recommendations.... 31
B. Statement of General Performance Goals and
Objectives......................................... 32
C. Constitutional Authority Statement.................. 32
D. Information Relating to Unfunded Mandates........... 32
VI. Changes in Existing Law Made by the Bill, as Reported...........32
VII. Views...........................................................39
I. INTRODUCTION
A. Purpose and Summary
H.R. 3045 would implement the August 5, 2004 Agreement
establishing a free trade area between the United States, the
Dominican Republic, Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua (DR-CAFTA or Agreement).
B. Background
I. The United States-Dominican Republic-Central America Free Trade
Agreement
The Committee believes that the Agreement meets the
objectives and priorities set forth in the Bipartisan Trade
Promotion Authority Act of 2002 (TPA). The Agreement covers all
agricultural and industrial sectors, opens DR-CAFTA markets to
U.S. services, contains robust protections for U.S. investors
and intellectual property rights holders, and includes strong
labor and environment provisions. In addition to the new
commercial opportunities, DR-CAFTA will help cement many of the
recent democratic, legal, and economic reforms in the DR-CAFTA
countries.
Consumer and industrial goods.--More than 80 percent of
U.S. exports of consumer and industrial products to the DR-
CAFTA countries will be duty-free immediately upon entry into
force of the Agreement, with remaining tariffs phased out over
ten years. Key U.S. exports, such as information technology
products, agricultural and construction equipment, chemicals,
and medical and scientific equipment will gain immediate duty-
free access to Central America and the Dominican Republic.
Agriculture.--More than half of U.S. agricultural exports
to DR-CAFTA countries will immediately receive duty-free
treatment, and most other tariffs will be phased out within
twenty years. The current average Central American and
Dominican Republic tariff on agriculture goods ranges from 35-
60 percent. Nearly every major U.S. agricultural sector will
benefit from expanded market access under CAFTA-DR, with gains
in such sectors as feed grains, wheat, rice, soybeans, poultry,
pork, beef, dairy, fruits, vegetables, and processed products.
The American Farm Bureau estimates that the Agreement will
increase U.S. farm exports by $1.5 billion per year.
With respect to sugar, the United States will provide
increased market access for DR-CAFTA countries of only about
1.2 percent of current U.S. sugar consumption in the first
year, incrementally growing over 15 years to about 1.7 percent
of current consumption.
Textiles and apparel.--The Agreement contains a general
yarn-forward rule of origin for textiles that is already met by
over 90 percent of existing textile trade. Goods satisfying the
yarn-forward rule will receive duty-free treatment retroactive
to January 1, 2004. Limited exceptions to the yarn-forward rule
include a tariff preference level of 100 million square meter
equivalents (SMEs) for Nicaragua, and cumulation of inputs from
Mexico and Canada for certain woven apparel subject to a 100
million SMEs annual cap. This cumulation cap can grow to 200
million SMEs, as long as CAFTA trade grows. This cumulation
provision benefits American companies with investments in
Mexico and Canada and helps to integrate production in the
region. The Committee requests semiannual reports for the first
three years on the operation of the textile and apparel
provisions in the Agreement, including any recommendations on
how these provisions can be improved.
Services.--The Agreement will provide broader market access
and greater regulatory transparency in most services
industries. The Agreement utilizes a negative list for coverage
with very few reservations, which means that all services are
covered unless specifically excluded. The Agreement offers new
access in sectors such as telecommunications, express delivery,
computer and related services, tourism, energy, transport,
construction and engineering, financial services, insurance,
audio/visual and entertainment, professional, environmental,
and other sectors. The Agreement also mandates transparency and
non-discriminatory application in the regulation of service
industries.
Intellectual Property Rights.--Because the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPs)
contains minimum international standards for intellectual
property protection, bilateral free trade agreements (FTAs) are
an important means of raising international practices to higher
U.S. standards. Specifically, U.S. authors, performers,
inventors, and other producers of creative material will
benefit from the improved standards the FTA requires for
protecting intellectual property rights such as copyrights,
patents, trademarks, and other intellectual property and the
enhanced means for enforcing those rights. The Agreement
lengthens terms for copyright protection, covering electronic
and digital media, and strengthens enforcement obligations.
Each party is obliged to provide appropriate civil and criminal
remedies, and parties must provide legal incentives for service
providers to cooperate with rights holders, including
limitations on liability.
Investment.--The Agreement contains an investor-state
dispute settlement provision, which allows investors alleging a
breach in investment obligations to seek binding arbitration
with the country. These investor protections give U.S.
investors in these developing countries access to objective
arbitration. These provisions level the playing field for U.S.
investors by giving them legal protections in Central America
andthe Dominican Republic comparable to the protections that
foreign investors already receive in the United States.
The Committee believes that there have been significant
misrepresentations about investment protection provisions in
this and other free trade agreements. Nothing in the Agreement
or any other free trade agreement or bilateral investment
treaty interferes with a state or local government's right to
regulate. An investor cannot enjoin regulatory action through
arbitration, nor can arbitral tribunals. Also, the Agreement
makes improvements over former FTAs by incorporating standards
in the expropriation provisions drawn directly from U.S.
Supreme Court decisions and by taking regulatory interests
fully into account. Consistent with U.S. law, for example, the
DR-CAFTA specifies that nondiscriminatory regulatory actions
designed and applied to protect the public welfare do not
constitute indirect expropriations ``except in rare
circumstances.'' Moreover, the arbitration process under the
Agreement is more open and transparent, and hearings and
documents would be public, and amicus curiae submissions are
expressly authorized.
Building on experience under the North American Free Trade
Agreement (NAFTA), the DR-CAFTA investment chapter includes
checks to help ensure that investors cannot abuse the
arbitration process. The Agreement includes a special provision
(based on U.S. court rules) that allows tribunals to dismiss
frivolous claims at an early stage of the proceedings, and it
expressly authorizes awards of attorneys' fees and costs if a
claim is found to be frivolous.
The Committee believes that the allegations and anti-trade
rhetoric surrounding NAFTA Chapter 11 investor-state cases are
exaggerated. The United States has never lost a single case
under NAFTA or any other FTA or bilateral investment treaty
(BIT), nor has the United States ever paid to settle such a
case.
Labor and environment.--The Agreement contains obligations
under which each government commits to effectively enforce its
domestic labor and environmental laws, as required by TPA. The
Agreement also provides that parties shall strive to continue
to improve their domestic labor and environmental laws. The
Agreement makes clear that it is inappropriate to weaken or
reduce labor or environmental protections to encourage trade or
investment. The Environment Chapter provides for a public
participation mechanism whereby civil society may submit
information relating to concerns or specific problems with
enforcement of environmental laws. Civil society will be able
to make submissions to an independent secretariat concerning
effective enforcement of environmental laws in Central America
and the Dominican Republic. DR-CAFTA is the first FTA to
include such a mechanism within the Agreement. The Agreement
also reinforces efforts to promote transparency and public
participation in government decision-making by including a
specific obligation for each party to convene a new or consult
existing national consultative or advisory committees to
provide views on matters related to the implementation of the
Environment Chapter.
The DR-CAFTA countries and the United States negotiated an
Environmental Cooperation Agreement (ECA) in parallel with the
FTA. The ECA's main objectives are to protect, improve, and
conserve the environment, including natural resources, in
Central America and the Dominican Republic.
The Agreement also contains a cooperative mechanism to
promote respect for the principles embodied in the
International Labor Organization (ILO) Declaration on
Fundamental Principles and Rights at Work, and compliance with
ILO Convention 182 on the Worst Forms of Child Labor.
Almost all of the DR-CAFTA countries have ratified the ILO
Fundamental Conventions on forced labor, freedom of association
and right to organize, right to organize and collective
bargaining, equal remuneration, abolition of forced labor,
discrimination, minimum work age, and worst forms of child
labor. The only exception is El Salvador, which has not
ratified the two ILO Conventions related to freedom of
association and collective bargaining because of a
constitutional ruling by its Supreme Court limiting unions in
the public sector. Nonetheless, El Salvador remains subject to
the scrutiny of ILO's Committee on Freedom of Association,
which issues reports, findings, and recommendations on any
complaints with regard to these rights. Moreover, under the
Constitutions of all of the DR-CAFTA countries, the core
conventions of the ILO, once ratified, become part of the body
of national law and provide a basis for workers to challenge
labor law provisions that might otherwise conflict with the
country's ILO obligations.
The Committee believes that concern that labor provisions
are weaker than in other free trade agreements such as the
United States-Jordan Free Trade Agreement (Jordan FTA) is
unfounded. The Jordan FTA, for example, which passed the House
by voice vote in 2001, contains the same labor obligations as
DR-CAFTA, uses a weaker dispute settlement mechanism than DR-
CAFTA, and does not include the vigorous capacity building
provisions of DR-CAFTA. DR-CAFTA clarifies what was implicit in
the Jordan FTA: the only provision subject to dispute
settlement is the requirement that a party enforce its own
laws. Indeed, President Clinton, when he transmitted the Jordan
agreement to Congress, stated, ``It is important to note that
the FTA does not require either country to adopt any new laws
in these [labor and environment] areas, but rather includes
commitments that each country enforce its own labor and
environmental laws.'' DR-CAFTA explicitly incorporates
President Clinton's statement, as do all other FTAs under TPA
in the past several years.
Moreover, DR-CAFTA has a more developed and conclusive
dispute settlement mechanism than the Jordan FTA. The Jordan
FTA's dispute settlement mechanism is underdeveloped, lacks
strict time limits, and allows complaints to be blocked in
perpetuity. By contrast, DR-CAFTA contains detailed and
developed procedures. DR-CAFTA's dispute settlement leads to
monetary assessments and the possible suspension of tariff
benefits, while side letters to the Jordan FTA state that the
parties do not intend or expect to use trade sanctions. DR-
CAFTA contains a more robust capacity-buildingmechanism than
the Jordan FTA, including the establishment of a Labor Affairs Council
that will oversee a Labor Cooperation and Capacity-Building Mechanism.
Labor under DR-CAFTA as compared with preference
programs.--The labor provisions of the Agreement are superior
to those applicable to these countries under the Generalized
System of Preferences (GSP) and the Caribbean Basin Economic
Recovery Act (CBERA) preference programs in three ways. First,
DR-CAFTA contains stronger obligations on worker rights. Under
DR-CAFTA, Central American countries publicly commit to
effectively enforce their laws that recognize and protect
internationally recognized labor rights. The labor laws a
country is obligated to effectively enforce under DR-CAFTA
cover all of the internationally recognized worker rights used
as eligibility criteria for GSP and CBERA. While the DR-CAFTA
requires countries to effectively enforce their labor laws, the
eligibility requirements for GSP and CBERA in contrast require
a country only to be ``taking steps'' to afford internationally
recognized worker rights. This is a far weaker obligation than
under DR-CAFTA.
Second, DR-CAFTA offers a better enforcement mechanism for
the United States to consider labor law reforms in the
Agreement countries. Under DR-CAFTA, if a country is found to
not adequately enforce its labor laws, the government would pay
a significant fine until the situation is remedied, with trade
sanctions as a last resort. In contrast, the only option under
our trade preference programs is to suspend or withdraw trade
benefits offered through the programs. This has never occurred.
Withdrawal of GSP/CBERA benefits is a blunt instrument, which
could harm the very workers whose rights the United States
seeks to protect.
Third, CAFTA offers a more constructive way to solve labor
problems by ensuring access to fair, equitable, and transparent
tribunals for labor law enforcement, and to promote public
awareness. Unlike DR-CAFTA, the GSP/CBERA programs contain no
options other than trade sanctions to address the situation: no
formal consultation mechanism, no fines, and no capacity-
building assistance. DR-CAFTA offers various ways to solve
labor problems by working together, including consultation
provisions. If fines are imposed, funds would be spent on
initiatives aimed at improving enforcement of labor laws in the
Central American country.
Government procurement.--The government procurement
commitments in the DR-CAFTA are significant because none of the
Central American countries is a party to the WTO Agreement on
Government Procurement, and the DR-CAFTA provides comparable
benefits to U.S. interests. Specifically, the Agreement grants
non-discriminatory rights to bid on most contracts offered by
Central American ministries, agencies, and departments. It
calls for transparent and fair procurement procedures including
clear, advance notice of purchases and effective review. As
with government procurement commitments at the state level in
all prior U.S. trade agreements, DR-CAFTA state commitments
cover only those states which agreed to be covered before the
Agreement was signed.
Dispute settlement.--The Agreement sets out detailed
procedures for the resolution of disputes, with high standards
of openness and transparency. Dispute settlement procedures
promote compliance through consultation and trade-enhancing
remedies, rather than relying solely on trade sanctions. The
Agreement's dispute settlement procedures also provide for
``equivalent'' remedies for commercial and labor or
environmental disputes. In addition to the use of trade
sanctions in commercial disputes, the Agreement provides the
parties the option of using monetary assessments to enforce
commercial, labor, and environmental obligations of the
Agreement, with the possibility that assessments from labor or
environmental cases may be used to fund labor or environmental
initiatives. If a party does not pay its annual assessment in a
labor or environmental dispute, the complaining party may
suspend tariff benefits, while bearing in mind the objective of
eliminating barriers to trade and while seeking not to unduly
affect parties or interests not party to the dispute.
Access to medicines.--The Agreement provides protections
for developers and manufacturers of innovative pharmaceutical
drugs consistent with U.S. law and recent trade agreements.
Consistent with the WTO TRIPs Agreement, countries must provide
that a drug innovator's data submitted for the purpose of
obtaining marketing approval must be protected from unfair
commercial use by competitors. The Agreement expressly states
that nothing in the intellectual property chapter affects the
countries' ability to protect public health by promoting access
to medicines for all. Nor will the Agreement prevent effective
utilization of the recent WTO consensus allowing developing
countries that lack pharmaceutical manufacturing capacity to
import drugs under compulsory licenses.
Stronger patent and data protection increases the
willingness of companies to release innovative drugs in free
trade partners' markets, potentially increasing, rather than
decreasing, the availability of medicines. For example, the
Jordan FTA, signed in 2000, contained an intellectual property
chapter that covered data protection. Since 2000, there have
been over 40 new innovative product launches in Jordan, a
substantial increase in the rate of approval of innovative
drugs, helping facilitate Jordanian consumers' access to
medicines. Since enactment of the FTA, the Jordanian drug
industry has begun to flourish. The Committee emphasizes that
this is an example of how strong intellectual property
protection can bring substantial benefits to developing
countries.
Democracy, freedom, security, and rule of law.--The
Committee notes that as recently as the 1980s, Central America
was plagued by civil war and Communist insurgencies and today
remains vulnerable from anti-reform forces. Moreover, U.S.
security is connected to development in the region because
criminal gangs, drug trafficking, and trafficking in persons
create dangerous transnational networks that focus on breaches
of U.S. borders. Poverty remains a powerful incentive for
people in the region to leave their homes to come to the United
States illegally. DR-CAFTA offers a way to address the sources
of these problems.
The democratically elected Presidents of Central America
and Dominican Republic have repeatedly emphasized that economic
liberalization through theAgreement will strengthen the
foundations of democracy by promoting growth and cutting poverty,
creating equality of opportunity, fighting crime, and reducing
corruption. It will help in accomplishing these broad social goals by
securing concrete benefits through economic freedom, i.e., tangible
improvements in people's daily life. Given the relatively few trade
liberalizing steps required of the United States through the Agreement
(over and beyond what the United States currently gives these countries
through trade preference laws), the Agreement represents a remarkable
opportunity to stabilize the region for the benefit of the United
States as well as other countries and also assist people in all
economic levels.
Conclusion.--DR-CAFTA is a marked improvement over existing
law for both the economies of Central America, the Dominican
Republic, and the United States. The existing preference
programs garnered large support in the House on May 4, 2000,
when 309 House Members voted to support the DR-CAFTA countries,
among others, in the CBTPA, by enhancing the Caribbean Basin
Initiative preference program and unilaterally opening the U.S.
market to goods from Central America and the Caribbean Basin.
DR-CAFTA would enhance benefits for these Central American
countries and the Dominican Republic because the current CBTPA
program is temporary (ending in 2008), excludes many products,
restricts use of regional inputs, and requires burdensome
documentation procedures on beneficiaries. In contrast, DR-
CAFTA makes trade benefits permanent, covers all products that
meet the rule of origin, allows regional inputs, and permits
use of simple electronic documentation procedures. DR-CAFTA
also changes the current unilateral nature of benefits to these
CBTPA beneficiaries into mutually reciprocal trade benefits for
Americans under DR-CAFTA. While the current unilateral program
makes 80% of exports from these countries to the United States
duty-free, DR-CAFTA provides U.S. exporters with equal
treatment by granting immediate duty free access to 80% of U.S.
exports. The remainder of trade is liberalized over 15-20
years.
II. TPA process
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 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 in the
Agreement, the President must submit to Congress a description
of those changes to existing laws that the President considers
would be required to bring the United States into compliance
with the Agreement. After entering into the Agreement, the
President must also submit to 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.
III. Status of implementation by DR-CAFTA countries
Three out of the six DR-CAFTA partner countries have
ratified the Agreement: El Salvador, Guatemala, and Honduras.
Nicaragua and the Dominican Republic have both introduced
legislation to implement the Agreement. The Costa Rican
president has said that Costa Rica will introduce legislation
to ratify the Agreement.
C. Legislative History
On October 1, 2002, the United States Trade Representative
(USTR) formally notified the Congress of its intention to
pursue a free trade agreement with Costa Rica, El Salvador,
Guatemala, Honduras, and Nicaragua (CAFTA). On August 4, 2003,
USTR notified the Congress of its intention to initiate free
trade agreement negotiations with the Dominican Republic with
the purpose of integrating it into the CAFTA. On February 20,
2004, the President formally notified the Congress of his
intent to sign a free trade agreement with the five Central
American countries. On March 24, 2004, the President formally
notified the Congress of his intent to sign a free trade
agreement with the DR. On May 28, 2004, Ambassador Zoellick
signed the CAFTA, and on August 5, 2004, he signed the DR-CAFTA
with the Dominican Republic and the five Central American
countries.
In accordance with TPA requirements, President Bush
submitted to Congress on October 1, 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.
Legislative hearing
On April 21, 2005, the Committee held a hearing on the
implementation of the DR-CAFTA. The hearing focused on
Congressional consideration of the DR-CAFTA and the benefits
that this agreement will bring to American businesses, farmers,
workers, consumers, and to the U.S. economy. At the hearing,
Deputy U.S. Trade Representative Peter Allgeier and
representatives from the private sector expressed their views
on the benefits of the Agreement. There was widespread support
expressed for the Agreement.
Committee action
On June 15, 2004, the Committee on Ways and Means
considered in an informal markup session draft legislation to
implement DR-CAFTA to provide guidance to the Administration on
the implementing bill and statement of administrative action.
The Committee approved the Chairman's amendment in the nature
of a substitute withoutfurther amendment by a vote of 25-16.
The Chairman's substitute included a requirement that the
Administration report on activities conducted by the DR-CAFTA countries
and the United States to build capacity on labor issues. The substitute
also included a provision noting that DR-CAFTA will have a very
positive impact on the U.S. services industry. The substitute requires
that the Administration examine after one year the effect the Agreement
has had on the services industry, and requires the Administration to
make recommendations as to how the Trade Adjustment Assistance program
should be amended if the DR-CAFTA has led to negative effects on the
services industry.
On June 23, 2005, President Bush formally transmitted to
Congress the legal text of the DR-CAFTA, 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 June 23, 2005, Majority Leader DeLay
introduced, by request, H.R. 3045 to implement the Agreement.
The bill was referred to the Committee on Ways and Means.
On June 30, 2005, the Committee on Ways and Means formally
met to consider H.R. 3045. The Committee ordered H.R. 3045
favorably reported to the House of Representatives by a vote of
25-16, 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. It also provides that
when the President determines that other countries that have
signed the Agreement have taken measures necessary to comply
with those obligations that are to take effect at the time the
Agreement enters into force, the President is authorized to
provide for the Agreement to enter into force with respect to
those countries that provide for the agreement to enter into
force for them.
Reason for change
Approval of the Agreement and the Statement of
Administrative Action is required under the procedures of
section 2103(b)(3) of TPA. 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 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.
With respect to textiles and apparel, the Committee directs
that the executive branch, particularly the Committee for the
Implementation of Textile Agreements (CITA), the Bureau of
Customs and Border Protection (Customs) of the Department of
Homeland Security, and the Department of Commerce, to issue all
guidelines, regulations, and procedures necessary for the
implementation of the textile and apparel provisions of this
agreement in an expeditious manner. The Committee further
directs these agencies to ensure that the implementing
legislation and such regulations and guidelines be interpreted
and enforced broadly so as to maximize opportunities for
textile and apparel trade under this agreement.
SECTION 104: CONSULTATION AND LAYOVER FOR PROCLAIMED ACTIONS
Current law
No provision.
Explanation of provision
Section 104 provides that if the President intends to
implement an action under this proclamation authority, the
President may proclaim the action only after he has: obtained
advice from the International Trade Commission and the
appropriate private sector advisory committees; submitted a
report to the Ways & Means and Finance Committees concerning
the reasons for the action; and consulted with the Committees.
The action takes effect 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 Committee believes 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 the date the Agreement
enters into force with respect to the United States except that
sections 1-3 and Title I take effect upon the date of
enactment. During any period in which a country ceases to be a
CAFTA-DR country, the provisions of this Act cease to have
effect with respect to that country. The provisions of the Act
terminate on the date on which the Agreement terminates with
respect to the United States.
Reason for change
Section 107 implements provisions of 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.
Sections 201(a)(2) and 201(a)(3) terminate each CAFTA-DR
country's status as a beneficiary of the Generalized System of
Preferences and the Caribbean Basin Economic Recovery Act
(CBERA) once the agreement enters into force with respect to
that country.
Under section 201(a)(3)(B) three exceptions apply to
withdrawal under the CBERA; the United States will continue to
treat CAFTA-DR countries as beneficiary countries: (1) to
preclude the International Trade Commission from cumulating
CBERA imports in antidumping and countervailing duty
investigations according to article 8.8.1 of the Agreement; (2)
to implement duty free treatment for certain ethyl alcohol
provided under paragraph 12 of Appendix I of the General Notes
to the Schedule of the United States to Annex 3.3 of the
Agreement; and (3) for purposes of taxpayer deductions for
business trips to CBERA countries.
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 CAFTA-DR
countries 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.
The three exceptions under section 201(a)(3)(B) are also
consistent with the Agreement and allow DR-CAFTA countries to
continue to (1) be exempt from cumulation in antidumping and
countervailing duty investigations; (2) receive duty free
treatment for certain ethyl alcohol; and (3) be eligible for
certain taxpayer deductions for business trips to CBERA
countries.
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 3.15 and Annex 3.15 of the
Agreement. Article 3.15 permits the United States to impose an
``agricultural safeguard measure,'' in the form of additional
duties, on imports of certain goods of Agreement countries
specified in the Schedule of the United States to Annex 3.15 of
the Agreement that exceed the volume thresholds set out in that
annex. Under the Agreement, the sum of the duties assessed
under an agricultural safeguard and the applicable rate of duty
in the Schedule of the United States to Annex 3.3 of the
Agreement may not exceed the general Normal Trade Relations
(NTR) rate of duty. No additional duty may be applied on a good
if, at the time of entry, the good is subject to a safeguard
measure under the procedures set out in Subtitle A of Title III
of the bill or under the safeguard procedures set out in
Chapter 1 of Title II of the Trade Act of 1974.
Section 202(b) provides for the Secretary to impose
agricultural safeguard duties in any year when the volume of
imports of the good from an Agreement country exceeds 130
percent of the in-quota quantity allocated to that country for
the good in that calendar year in the Schedule of the United
States to Annex 3.3 of the Agreement. The additional duties
remain in effect only until the end of the calendar year in
which they are imposed.
Reason for change
Section 202 implements the agricultural safeguard
provisions of article 3.15 and Annex 3.15 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
4 of the Agreement. Under the general rules, there are three
basic ways for a good of a CAFTA-DR country 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: (1) it is ``wholly obtained or
produced entirely in the territory of one or more of the CAFTA-
DR countries''; (2) those materials used to produce the good
that are not themselves originating goods are transformed in
such a way as to cause their tariff classification to change or
meet other requirements, as specified in Annex 4.1 of the
Agreement; or (3) it is produced entirely in the territory of
one or more CAFTA-DR countries exclusively from originating
materials.
Under the rules in chapter 4 and Annex 4.1 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 another CAFTA-DR country, an
apparel product must have been cut (or knit to shape) and sewn
or otherwise assembled in one or more CAFTA-DR country from
yarn, or fabric made from yarn that originates in a CAFTA-DR
country. However, Annex 3.27 of the Agreement provides a 2-year
exception to this general rule for 500,000 square meter
equivalents (SMEs) of certain wool apparel goods assembled in
Costa Rica. These goods will be subject to a rate of duty that
is 50 percent of the NTR rate of duty. Annex 3.28 of the
Agreement provides an exception to this general rule allowing
access for 100 million SMEs of apparel assembled in Nicaragua
in the first 5 years of the Agreement, phasing down over the
next 4 years and eliminated in year 10. The Agreement also
allows for the cumulation of inputs from Mexico and Canada for
certain woven apparel subject to a 100 million SMEs annual cap.
This cumulation cap can grow to 200 million SMEs, if CAFTA
trade grows.
Section 203(o)(2) provides authority for the President to
add fabrics or yarns to a list of products that are unavailable
in commercial quantities (i.e., in ``short supply'') in a
timely manner, and such products are treated as if they
originate in an Agreement country, regardless of their actual
origin, when used as inputs in the production of textile or
apparel goods. Section 203(o)(4) provides a process by which
the President may modify that list at the request of interested
entities, defined as Agreement countries and potential and
actual suppliers and purchasers of textile or apparel goods.
The remainder of section 203 sets forth more detailed rules
for determining whether a good meets the Agreement's
requirements under the second method of qualifying as an
originating good. These provisions include rules pertaining to
de minimis quantities of non-originating materials that do not
undergo a tariff transformation, transformation by regional
content, and the alternative methods for calculating regional
value content. Other provisions in section 203 address
valuation of materials and determination of the originating or
non-originating status of fungible goods and materials.
Reason for change
Rules of origin are needed in order to confine Agreement
benefits, such as tariff cuts, to parties to the Agreement and
to prevent third-country goods from being transshipped through
DR-CAFTA countries 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 directs
the Administration to ensure that such regulations and
guidelines necessary for the implementation of these rules be
published expeditiously and interpreted and enforced broadly so
as to maximize opportunities for textile and apparel trade
under this agreement.
The Committee welcomes the inclusion of cumulation
provisions in this agreement and urges their inclusion in
future agreements to ensure better integrationamong the United
States and its current and future free trade and trade preference
partners. The Committee notes that the cumulation provision in the
Agreement will not take effect until after further negotiations are
completed with Canada and Mexico in areas relating to customs
cooperation and reverse cumulation benefits. USTR is directed to
undertake these negotiations expeditiously and to provide regular
updates to the Committee on the status of these talks and on the
implementation of this provision. The Committee also notes that under
Article 3.25.1 of the Agreement, parties may seek modifications to the
rules of origin, and USTR has already publicly announced its intention
to seek such a modification with respect to pockets. USTR is directed
to report regularly with the Committee on any consultations it conducts
pursuant to Article 3.25.1 of the Agreement, and to ensure input from
all affected U.S. textile and apparel interests in such consultations.
With respect to the short supply provisions, the Committee
believes that maintaining a current short supply list under the
DR-CAFTA is integral to the effective functioning of the rule
of origin for textiles and apparel. The Committee further notes
that items considered to be in short supply under the North
American Free Trade Agreement and U.S. trade preference
programs are reflected in the short supply list for this
Agreement. The Committee believes such a short supply approach
and process should be a model for future FTAs. The Committee
clarifies that the process under section 203(o)(4) by which the
President may remove an item from the DR-CAFTA short supply
list (or impose a restriction on its use) applies only to new
items added in an unrestricted quantity to the list under DR-
CAFTA and does not include items that were included in the
original short supply list that the Parties negotiated. This
unique removal process has not been included in previous FTAs
or trade preference programs and was added with the express
understanding that the threshold to approve items in short
supply for DR-CAFTA is less arduous than other FTAs and trade
preference programs. The Committee is disappointed that the
Administration has considered removing products from short
supply status under CBTPA after designating them as being in
short supply. The Committee continues to intend that once an
item designated in short supply under other FTAs (other than
DR-CAFTA) and trade preference programs, it is permanently
designated as such because there is no express authority
provided by the statute, unlike DR-CAFTA.
With regard to the short supply procedures to be published
by CITA, the Committee considers it important that all parties
be able to participate in an open and transparent system. CITA
should publish procedures that clearly explain the criteria it
uses to make its determinations on whether and why a good is or
is not available in commercial quantities. At the very least,
when CITA determines that a good is available in commercial
quantities, a sample of the good should be readily available
for physical inspection by all parties as well as evidence of
some effort to market the good in the United States. Moreover,
all parties should have open access to the full evidence being
considered by CITA as well as the opportunity to respond to the
full evidence before a determination is made.
SECTION 204: CUSTOMS USER FEES
Current law
Section 58c of the Title 19 lays out various user fees
applied by customs officials to imports, including the
merchandise processing fee (MPF), which is applied on an ad
valorem basis subject to a cap.
Explanation of provision
Section 204 of the bill implements U.S. commitments under
Article 3.10.4 of the Agreement, regarding the exemption of the
merchandise processing fee on originating goods. This provision
is similar to those included in the implementing legislation
for the North American Free Trade Agreement, the U.S.-Singapore
Free Trade Agreement, the U.S.-Chile Free Trade Agreement, and
the U.S.-Australia Free Trade Agreement. The provision also
prohibits use of funds in the Customs User Fee Account to
provide services related to entry of originating goods, in
accordance with U.S. obligations under the General Agreement on
Tariffs and Trade 1994.
Reason for change
As with other free trade agreements, the Agreement
eliminates the merchandise processing fee on qualifying goods
from DR-CAFTA countries. Other customs user fees remain in
place. Section 204 is necessary to put the United States in
compliance with the user fee elimination provisions of the
Agreement. The Committee expects that the President, in his
yearly budget request, will take into account the need for
funds to pay expenses for entries under the Agreement given
that MPF funds will not be available.
SECTION 205: RETROACTIVE APPLICATION FOR CERTAIN LIQUIDATIONS AND
RELIQUIDATIONS OF TEXTILE OR APPAREL GOODS
Current law
No provision.
Explanation of provision
Section 205 implements Article 3.20 of the Agreement and
provides that, notwithstanding section 514 of the Tariff Act of
1930, the Secretary of the Treasury must liquidate or
reliquidate entries of textile or apparel goods of an eligible
Agreement country made between January 1, 2004, and the date
the Agreement enters into force with respect to that country,
provided that the goods would have been considered originating
goods if the Agreement had been in force at that time.
Reason for change
Section 205 is necessary to put the United States into
compliance with Article 3.20 of the Agreement.
SECTION 206: DISCLOSURE OF INCORRECT INFORMATION
Current law
No provision.
Explanation of provision
Section 206 implements Articles 4.15.3 and 4.20.5 of the
Agreement. The provision prohibits the imposition of a penalty
upon importers who make an invalid claim for preferential
tariff treatment under the Agreement if the importer acts
promptly and voluntarily to correct the error. If an importer
so acts more than once, falsely or without substantiation, U.S.
authorities may suspend preferential treatment with respect to
identical goods imported by that importer.
Reason for change
Section 206 is necessary to put the United States into
compliance with Articles 4.15.3 and 4.20.5 of the Agreement.
SECTION 207: RELIQUIDATION OF ENTRIES
Current law
No provision.
Explanation of provision
Section 207 implements Article 4.15.5 of the Agreement and
provides authority for the Customs Service to reliquidate an
entry to refund any excess duties (including any merchandise
processing fees) paid on a good qualifying under the rules of
origin for which no claim for preferential tariff treatment was
made at the time of importation if the importer so requests,
within one year after the date of importation.
Reason for change
Article 4.15.5 of the Agreement anticipates that private
parties may err in claiming preferential benefits under the
Agreement and provides a one-year period for parties to make
such claims for preferential tariff treatment even if the entry
of the goods at issue has already been liquidated, i.e.,
legally finalized by customs officials. Section 207 is
necessary to put the United States into compliance with Article
4.15.5 of the Agreement.
SECTION 208: RECORDKEEPING REQUIREMENTS
Current law
No provision.
Explanation of provision
Section 208 of the bill implements Article 4.19 of the
Agreement and provides that an exporter or producer issuing a
certification of origin for a good shall maintain, for a period
of five years, records and supporting documents related to the
origin of the good.
Reason for change
Section 208 is necessary to put the United States in
compliance with the recordkeeping requirement provisions of the
Agreement at Article 4.19.
SECTION 209: ENFORCEMENT RELATING TO TRADE IN TEXTILE OR APPAREL GOODS
Current law
No provision.
Explanation of provision
Section 209 implements the customs cooperation provisions
in Article 3.24 of the Agreement. Under section 209(a), the
President may direct the Secretary of the Treasury to take
``appropriate action'' while a verification that the Secretary
has requested is being conducted. Such appropriate action may
include: (i) suspending preferential tariff treatment for
textile or apparel goods that the person subject to the
verification has produced or exported if the Secretary believes
there is insufficient information to sustain a claim for such
treatment; (ii) denying preferential tariff treatment to such
goods if the Secretary decides that a person has provided
incorrect information to support a claim for such treatment;
(iii) detaining such goods if the Secretary considers there is
not enough information to determine their country of origin;
and (iv) denying entry to such goods if the Secretary
determines that a person has provided erroneous information on
their origin.
Under section 209(c), the President may also direct the
Secretary to take ``appropriate action'' after a verification
has been completed. Depending on the nature of the
verification, the action may include: (i) denying preferential
tariff treatment to textile or apparel goods that the person
subject to the verification has exported or produced if the
Secretary considers there is insufficient information to
support a claim for such treatment or determines that a person
has provided incorrect information to support a claim for such
treatment; and (ii) denying entry to such goods if the
Secretary decides that a person has provided erroneous
information regarding their origin or that there is
insufficient information to determine their origin. Unless the
President sets an earlier date, any such action may remain in
place until the Secretary obtains enough information to decide
whether the exporter or producer that was subject to the
verification is complying with applicable customs rules or
whether a claim that the goods qualify for preferential tariff
treatment or originate in an Agreement country is accurate.
Under section 209(e), the Secretary may publish the name of
a person that the Secretary has determined: (i) is engaged in
intentional circumvention of applicable laws, regulations, or
procedures affecting trade in textile or apparel goods; or (ii)
has failed to demonstrate that it produces, or is capable of
producing, textile or apparel goods.
Reason for change
In order to avoid textile transshipment, special textile
enforcement provisions were included in the Agreement. Section
209 is necessary to authorize these enforcement mechanisms for
use by U.S. authorities.
SECTION 210: REGULATIONS
Current law
No provision.
Explanation of provision
Section 210 provides that the Secretary of the Treasury
shall prescribe regulations to carry out the tariff-related
provisions of the bill, including the rules of origin and
customs user fee provisions.
Reason for change
Because the implementing bill involves lengthy and complex
implementation procedures by customs officials, section 210 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
301-316)
Current law
No provision.
Explanation of provision
Sections 301-316 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 theAgreement, a CAFTA-DR 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 301 defines
key safeguard terms for Subtitle A.
Section 311 provides for the filing of petitions with the
ITC and for the ITC to conduct safeguard investigations
initiated under Subtitle A. Section 311(a) provides that a
petition requesting a safeguard action may be filed with the
ITC by an entity that is ``representative of an industry.'' As
under section 202(a)(1) of the Trade Act of 1974, the term
``entity'' is defined to include a trade association, firm,
certified or recognized union, or a group of workers. Section
311(b) sets out the standard to be used by the ITC in
undertaking an investigation and making a determination in
Subtitle A safeguard proceedings.
Section 311(c) defines ``substantial cause'' and applies
factors in making determinations in the same manner as section
202 of the Trade Act of 1974. Section 311(d) exempts from
investigation under this section CAFTA-DR articles that have
previously been the basis for according relief under Subtitle A
to a domestic industry.
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 may 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 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. In general, the President may take
action in the form of: a suspension of further reductions in
the rate of duty to be applied to the articles in question; or
an increase in the rate of duty on the articles in question to
a level that does not exceed the lesser of the existing NTR
(MFN) rate or the NTR (MFN) rate of duty imposed on the day
before the Agreement entered into force. Under section
313(c)(2), if the relief the President provides has a duration
greater than one year, the relief 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 four years.
However, if the initial period of import relief is less than
four years, the President may extend the period of import
relief (to a maximum aggregate period of four years). Section
313(e) specifies that on the termination of relief, the rate of
duty for the remainder of the calendar year is that rate
scheduled to have been in effect one year after the initial
provision of import relief. For the remainder of the duty
phase-out period, the President may set the rate called for in
the Agreement or choose to eliminate the duty in equal annual
stages until the end of the phase-out period.
Section 313(f) exempts from relief any article that is: (i)
subject to import relief under the global safeguard provisions
in U.S. law (chapter 1 of Title II of the Trade Act of 1974);
or (ii) the product of a de minimis supplying country.
Section 314 provides that no relief may be provided under
this subtitle after ten years from the date the Agreement
enters into force, unless the tariff elimination for the
article under the Agreement is greater than ten years, in which
case relief may not be provided for that article after the
period for tariff elimination for that article ends.
Section 315 authorizes the President to provide
compensation to CAFTA-DR countries 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 increased import competition
from DR-CAFTA countries in the future, with the understanding
that the President is not required to provide relief if the
relief will not provide greater economic and social benefits
than costs. The Committee intends that administration of this
safeguard be consistent with U.S. obligations under Section A
of Chapter Eight (Trade Remedies) of the Agreement.
Subtitle B: Textile and Apparel Safeguard (Sections 321-328)
Current law
No provision.
Explanation of provision
Section 321 provides that a request for safeguard relief
under this subtitle may be filed with the President by an
interested party. The President is to review the request and
determine whether to commence consideration of the request. If
the President determines to commence consideration of the
request, he will publish a notice commencing consideration and
seeking comments. The notice is to include a summary of the
request.
Under section 321(b), if the President determines that the
request contains information necessary to warrant consideration
on the merits, the President must provide notice that the
request will be considered and seek public comments on the
request.
Section 322(a) of the Act provides for the President to
determine, pursuant to a request by an interested party,
whether, as a result of the elimination or reduction of aduty
provided under the Agreement, a CAFTA-DR textile or apparel article is
being imported into the United States in such increased quantities, in
absolute terms or relative to the domestic market for that article, and
under such conditions as to cause serious damage, or actual threat
thereof, to a domestic industry producing an article that is like, or
directly competitive with, the imported article. The President must
make this determination within 30 days after the completion of
consultations held pursuant to article 3.23.4.
Section 322(b) identifies the relief that the President may
provide, which is the lesser of the existing NTR/MFN rate or
the NTR/MFN rate imposed when the Agreement entered into force.
Section 323 of the bill provides that the period of relief
shall be no longer than three years. If the initial relief
period is less than three years, the President may extend the
relief, but the aggregate period of relief, including
extensions, may not exceed three years.
Section 324 provides that relief may not be granted to an
article under this safeguard if relief has previously been
granted under this safeguard, or the article is subject to
import relief under subtitle A of title III of this bill or
under chapter 1 of title II of the Trade Act of 1974.
Under section 325, after a safeguard expires, the rate of
duty on the article that had been subject to the safeguard
shall be the rate that would have been in effect but for the
safeguard action.
Section 326 states that the authority to provide safeguard
relief under this subtitle expires five years after the date on
which the Agreement enters into force. Section 327 of the Act
gives authority to the President to provide compensation to
CAFTA-DR countries if he orders relief. Section 328 provides
for the treatment of confidential business information.
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 3.23 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 determinations
under section 322(a), and for providing relief under section
322(b).
Subtitle C: Cases Under Title II of the Trade Act of 1974 (Section 331)
Current law
The President has no authority under Title II of the Trade
Act of 1974 (``section 201'') to exclude articles from DR-CAFTA
countries from the application of a safeguard remedy. A similar
authority is granted with respect to Singaporean articles in
section 331 of the United States-Singapore Free Trade Agreement
Implementation Act, to articles from Jordan in section 221 of
the U.S.-Jordan Free Trade Area Implementation Act, and to
articles from Australia in section 331 of the U.S.-Australia
Free Trade Agreement Implementation Act.
Explanation of provision
Section 331(a) provides that if the ITC makes an
affirmative determination, or a determination that the
President may consider to be an affirmative determination, in a
global safeguard investigation under section 202(b) of the
Trade Act of 1974, the ITC must find and report to the
President whether imports of the article of each DR-CAFTA
country considered individually that qualify as originating
goods under section 203(b) are a substantial cause of serious
injury or threat thereof. Under section 331(b), if the ITC
makes a negative finding under section 331(a), the President
may exclude any imports that are covered by the ITC's finding
from the global safeguard action.
Reason for change
This provision implements Article 8.6.2 of the Agreement.
TITLE IV: MISCELLANEOUS
SECTION 401: GOVERNMENT PROCUREMENT
Current law
U.S. procurement law (the Buy American Act of 1933 and the
Buy American Act of 1988) discriminates against foreign
suppliers of goods and services in favor of U.S. providers of
goods and services. Most discriminatory purchasing provisions
are waived with respect to a country that is a party with the
United States to a bilateral or multilateral procurement
agreement, such as the WTO Agreement on Government Procurement
and the NAFTA.
Explanation of provision
Section 401 amends the definition of ``eligible product''
in section 308(4)(A) of the Trade Agreements Act of 1979. As
amended, section 308(4)(A) provides that, for a DR-CAFTA
country, an ``eligible product'' means a product or service of
that country that is covered under the Agreement for
procurement by the United States.
Reason for change
This provision implements U.S. obligations under Chapter
Nine of the Agreement.
SECTION 402: MODIFICATIONS TO THE CARIBBEAN BASIN ECONOMIC RECOVERY ACT
Current law
The Agreement countries are currently beneficiaries under
the Caribbean Basin Economic Recovery Act (CBERA) and the
Caribbean Basin Trade Partnership Act (CBTPA). As such, goods
from these countries receive preferential trade treatment when
entering the United States subject to various requirements.
Inputs from such countries may be used by other CBERA and CBTPA
beneficiaries (i.e., may be cumulated) in goods that qualify
for benefits under the programs.
Explanation of provision
Section 402 of the bill makes several amendments to the
CBERA in light of the fact that the Agreement countries will no
longer be beneficiary countries for purposes of the CBERA or
CBTPA once the Agreement takes effect for them.
Subsection 402(b) of the bill amends section 212(b) of the
CBERA to delete the Agreement countries from the list of
countries that the President may designate as beneficiary
countries. Section 402(a) of the bill amends section 212(a)(1)
of the CBERA to define the term ``former beneficiary country''
to mean a country that ceases to be designated as a beneficiary
country because the country has become a party to a free trade
agreement with the United States.
Section 402(c) of the bill amends section 213(a)(1) of the
CBERA, which establishes the permissible source of materials
and processing for benefits. Specifically, the bill provides
that the term ``beneficiary country'' also includes ``former
beneficiary countries'' for purposes of determining whether the
rules of origin under Section 213(a)(1) of CBERA have been
satisfied.
Section 402(d) of the bill adds subparagraphs (G) and (H)
to 213(b)(5) of the CBERA. Subparagraph (G) defines the term
``former CBTPA beneficiary country'' to mean a country that
ceases to be designated as a CBTPA beneficiary country because
the country has become a party to a free trade agreement with
the United States.
Subparagraph (H) seeks to preserve benefits under currently
recognized co-production operations and ensure that the
remaining CBTPA beneficiary countries may continue to obtain
preferential treatment for their goods even if the goods
contain inputs of an Agreement country or the goods undergo
processing in an Agreement country. Specifically, the
subparagraph provides that a ``former CBTPA beneficiary
country'' will be considered a CBTPA beneficiary country for
purposes of determining the eligibility of a good for
preferential treatment under section 213(b)(2) of the CBERA
(for certain textile and apparel articles) and section
213(b)(3) of the CBERA, provided that the good undergoes some
production in one of the remaining beneficiary countries.
Subparagraph (H) also provides that a good that meets the
requirements of the subparagraph will not be ineligible for
preferential treatment under section 213(b)(2) or (3) because
the good was imported directly from a former CBTPA beneficiary
country. However, because Agreement countries will no longer be
CBTPA beneficiary countries, subparagraph (H) provides that a
good considered a good of an Agreement country under U.S. non-
preferential rules of origin is not eligible for preferential
treatment pursuant to subparagraph (H). This limitation does
not apply to certain goods of the Dominican Republic that
undergo production in Haiti, again for the purpose of
preserving benefits for existing co-production operations.
Reason for change
Under the CBTPA, inputs of, and processing operations
performed in, one or more CBTPA beneficiary countries may be
combined in establishing that a good is eligible for
preferential tariff treatment under the program. Section 402(d)
is necessary because when the DR-CAFTA is implemented, the
Central American countries and the Dominican Republic will lose
their status as CBTPA beneficiary countries. Therefore, without
an amendment to the law, the remaining CBTPA beneficiary
countries would be unable to use inputs of, or processing
performed in, the DR-CAFTA countries in establishing that a
good qualifies for preferential tariff treatment under the
CBTPA program. Given the existing production relationships with
the DR-CAFTA countries (such as apparel processing in which
producers in one country cut fabric into components and
producers in another country assemble the components into
apparel), the Committee intends to allow remaining CBTPA
beneficiary countries to continue to use inputs of, or
processing performed in, former CBTPA beneficiary countries in
establishing the eligibility for CBTPA preferential treatment
of goods that are produced through a combination of operations
(sometimes referred to as ``co-production'') in remaining CBTPA
beneficiary countries and former CBTPA beneficiary countries.
In fashioning this section, the Committee, together with
USTR, carefully analyzed existing commercial operations
developed under CBERA and CBTPA to avoid disrupting the
existing benefit structure created by Congress and relied upon
by firms and beneficiary countries when making investments in
the region. The amendment does not provide new benefits for the
remaining CBTPA beneficiary countries or the former CBTPA
beneficiary countries; rather the amendment preserves benefits
the remaining CBTPA beneficiary countries already have under
the CBTPA.
General rule under section 402(d).--Clause (i) of
subparagraph (H) provides that for purposes of determining the
eligibility of an article for CBTPA preferential treatment, the
term ``CBTPA beneficiary country'' includes a former CBTPA
beneficiary country. Thus, any type of production activity that
may, under the CBTPA, take place in a remaining CBTPA
beneficiary country may also take place in a former CBTPA
beneficiary country, subject to the country of origin
limitation described below. For example, the CBTPA provides (in
section 213(b)(2)(A)(ii)) duty-free treatment forapparel that
is assembled in one or more CBTPA beneficiary countries from U.S.
fabric that is cut into components in one or more CBTPA beneficiary
countries. Under the general rule, this apparel article would not be
disqualified from CBTPA preferential treatment because the fabric from
which it was made was cut into components in a former CBTPA beneficiary
country, instead of in a remaining CBTPA beneficiary. Similarly, an
article using regionally produced fabric (from U.S. yarn), which is now
eligible for duty-free treatment under CBPTA, would continue to satisfy
the general rule because the article underwent production in a
remaining CBPTA beneficiary country. For example, knit apparel made
from Honduran knit fabric (from U.S. yarn) that is cut in Honduras but
sewed or assembled in Jamaica would continue to be eligible under
CBPTA.
Imported directly.--Under CBERA, goods must be imported
directly from a beneficiary country to obtain CBTPA
preferential treatment. Clause (ii) of subparagraph (H)
provides that a good will not be disqualified from CBTPA
preferential treatment because it is imported directly from a
former CBTPA beneficiary country.
Country of origin limitation.--Clause (iii) of subparagraph
(H) limits the scope of the general rule in clauses (i) and
(ii). Specifically, clause (iii) provides that if a good is a
good of a former CBTPA beneficiary country under the non-
preferential rules of origin that the United States applies in
the normal course of trade, then the good is not eligible for
CBTPA preferential treatment under the general rule. For
example, under U.S. non-preferential rules of origin for
textile and apparel goods, the country in which an apparel
article is assembled is the country of origin. Therefore, an
apparel article that is assembled in a former CBTPA beneficiary
country would not qualify for CBTPA preferential treatment
under the general rule because the article would be a good of
the former CBTPA beneficiary country under U.S. non-
preferential rules of origin.
Haiti-DR exception.--Clause (iii) of subparagraph (H) makes
an exception to the country of origin limitation in the case of
a good that is co-produced in Haiti and the Dominican Republic.
Under this exception, origin-conferring activities may take
place in the Dominican Republic as long as the good contains
inputs of, or undergoes processing in, Haiti. Using the example
from above, if U.S. fabric is cut into components in Haiti, and
the components are sewed and assembled in the Dominican
Republic, the resulting apparel item will be eligible for CBTPA
preferential treatment--even though the apparel item would be a
good of the Dominican Republic under U.S. non-preferential
rules of origin.
SECTION 403: PERIODIC REPORTS AND MEETINGS ON LABOR OBLIGATIONS AND
LABOR CAPACITY-BUILDING PROVISIONS
Current law
No provision.
Explanation of provision
Section 403 creates periodic report and meeting
requirements on labor provisions of DR-CAFTA and the White
Paper prepared by Agreement countries, in particular activities
conducted by the DR-CAFTA countries and the United States on
capacity building on labor issues.
Reason for change
This provision was not included in the original preliminary
draft of the implementing bill but was added by the Committee
in the Chairman's amendment in the nature of a substitute.
These new provisions, providing for bi-annual progress reports
on the implementation of DR-CAFTA's labor provisions and the
DR-CAFTA Trade and Labor Ministers' ``White Paper'' and
periodic meetings of the Secretary of Labor with the Ministers
of Labor of the CAFTA-DR countries, show the deep interest of
the Committee in ensuring that the labor efforts described in
the Agreement are closely monitored and vigorously implemented.
Overall, these provisions will ensure that the Congress and
Administration closely track the progress made by the nations
that are parties to DR-CAFTA in promoting important, shared
goals in protecting labor rights.
The Committee notes with approval the recent letter dated
June 28, 2005, from Ambassador Portman to Senator Bingaman
committing to significant funding for capacity building work
that will improve enforcement of labor laws and compliance with
the Agreement and the Trade and Labor Ministers' ``White
Paper'' as well as economic development assistance in the
region. In particular, the Administration's letter supports the
recent increase in environmental and labor law enforcement
capacity building funding in the FY 2006 Foreign Operations
Appropriations bill from $20 million to $40 million and
maintaining this level through FY09, a combined total of $160
million in that period. Moreover, the letter points to $390
million of U.S. Millennium Challenge Account funds for Honduras
and Nicaragua, and pledges $150 million of additional
Millennium Challenge Account funds in the next several years to
the remaining Agreement countries. The Committee strongly
believes that these meaningful funding commitments will improve
compliance with the Labor obligations of the Agreement and will
assist DR-CAFTA countries in meeting the development needs of
rural populations as they adjust.
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. 3045.
MOTION TO REPORT THE BILL
The bill, H.R. 3045, was ordered favorably reported by a
rollcall vote of 25 yeas to 16 nays (with a quorum being
present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Stark........ ........ X .........
Mrs. Johnson................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Cardin....... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Camp....................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. McNulty...... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Jefferson.... X X .........
Mr. English.................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Hayworth................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Weller..................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Hulshof.................... X ........ ......... Mr. Pomeroy...... ........ X .........
Mr. Lewis (KY)................. X ........ ......... Ms. Tubbs Jones.. ........ X .........
Mr. Foley...................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Brady...................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Reynolds................... X ........ ......... Mr. Emanuel...... ........ X .........
Mr. Ryan....................... X ........ ......... ................. ........ ........ .........
Mr. Cantor..................... X ........ ......... ................. ........ ........ .........
Mr. Linder..................... X ........ ......... ................. ........ ........ .........
Mr. Beauprez................... X ........ ......... ................. ........ ........ .........
Ms. Hart....................... X ........ ......... ................. ........ ........ .........
Mr. Chocola.................... X ........ ......... ................. ........ ........ .........
Mr. Nunes...................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
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.
3045 as reported: The Committee generally agrees with the
analysis 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. 3045 would reduce customs duty receipts due
to lower tariffs imposed on goods from DR-CAFTA countries
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 18, 2005.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Way and Means,
House of Representatives, Washington DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3045, the
Dominican Republic-Central America-United States Free Trade
Agreement Implementation Act.
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. 3045--Dominican Republic-Central America-United States Free Trade
Agreement Implementation Act
Summary: H.R. 3045 would approve the Dominican Republic-
Central America-United States Free Trade Agreement (CAFTA-DR)
between the government of the United States and the governments
of the Dominican Republic and five Central American countries.
The agreement, which was entered into with Costa Rica, El
Salvador, Guatemala, Honduras, and Nicaragua on May 28, 2004,
and with the Dominican Republic on august 5, 2004, would
provide for tariff reductions and other changes in law related
to implementation of the agreement.
The Congressional Budget Office estimates that implementing
the agreement would reduce revenues by $3 million in 2006,
about $1.1 billion over the 2006-2010 period, and about $4.4
billion over the 2006-2015 period, net of income and payroll
tax offsets. CBO estimates the it also would increase direct
spending by $27 million in 2006, $245 million over the 2006-
2010 period, and $621 million over the 2006-2015 period.
CBO has determined that H.R. 3045 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would not directly
affect the budgets of state, local, or tribal governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3045 over the 2005-2015 period is
shown in the following table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues....................................... 0 -3 -5 -7 -525 -556 -582 -608 -646 -689 -733
CHANGES IN DIRECT SPENDING
Effect on Farm Programs:
Estimated Budget Authority........................... 0 24 35 41 49 55 55 57 59 61 64
Estimated Outlays.................................... 0 24 35 41 49 55 55 57 59 61 64
Merchandise Processing Fee:
Estimated Budget Authority........................... 0 3 4 4 15 15 20 20 20 20 0
Estimated Outlays.................................... 0 3 4 4 15 15 20 20 20 20 0
Trade Adjustment Assistance:
Estimated Budget Authority........................... 0 * * * * * * * * * *
Estimated Outlays.................................... 0 * * * * * * * * * *
Total Changes:
Estimated Budget Authority........................... 0 27 39 45 64 70 75 77 79 81 64
Estimated Outlays.................................... 0 27 39 45 64 70 75 77 79 81 64
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--* = Less than $500,000. Negative changes in revenues and positive changes in direct spending correspond to increases in budget deficits.
Basis of estimate
Revenues
Under the agreement, tariffs on U.S. imports from the
Dominican Republic, Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua 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, 2006, to gradual
elimination over 20 years. According to the U.S. International
Trade Commission (USITC), the United States collected $518
million in customs duties in 2004 on $17.7 billion of imports
from those six countries. Those imports consist mostly of
various types of apparel articles and produce. Nearly 80
percent of all imports from the region entered the United
States duty-free because the United States has normal trading
relations with those six countries or because the goods are
imported under one of several U.S. trade programs.
However those programs are scheduled to expire in the next
three years. The Generalized System of Preferences will expire
on September 30, 2006, and the Caribbean Basin Initiative will
expire on September 30, 2008.
CAFTA-DR would afford imports from the region preferential
treatment similar to what they currently receive. Based on data
from USITC and CBO's most recent forecast of U.S. imports, CBO
estimates that phasing out tariff rates as outlined in the
agreement wou1d reduce revenues by $3 million in 2006, about
$1.1 billion over the 2006-2010 period, and about $4.4 billion
over the 2006-2015 period, net of income and payroll tax
offsets.
This estimate includes the effects of increased imports
from the region 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 the six countries 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 the region
would displace imports from other countries.
Direct spending
Effect on Department of Agricultural Sugar Programs. CAFTA-
DR would provide the six countries with guaranteed minimum
access to the U.S. sugar market. Imports of sugar from these
countries would be tariff-free and could increase over time. By
increasing the amount of sugar supplied to the U.S. by
exporting countries, CBO estimates that the cost of the federal
sugar program would likely increase.
Federal government programs support the income of sugar
growers primarily by limiting the supply of sugar through
domestic marketing allotments--permission to market
domestically produced sugar--and import quotas. In addition, a
system of nonrecourse price-support loans is used to guarantee
sugar growers a minimum price, if the domestic and import
restrictions do not result in a sufficiently high market price.
The nonrecourse loan program allows producers to pledge their
sugar as collateral against a loan from the government at the
price-support loan rate. The ``nonrecourse'' aspect allows them
to forfeit their sugar to the government in lieu of repaying
the loan when prices are low, resulting in a quantity of sugar
being removed from the market, thus supporting the price. The
government attempts to limit the supply of sugar through
domestic allotments and import quotas to avoid costs in the
price-support loan system in most years. Unexpected market
events have resulted in substantial costs for the price-support
loan program in some recent years (for example, sugar program
costs were $465 million in 2000 and $61 million in 2004).
In addition, trade agreements and other commitments have
provided other sugar-producing countries with minimum access
guarantees to our markets, and tariffs on over-quota U.S.
imports from Mexico are scheduled to drop to zero in 2008.
Furthermore, if the total amount of U.S. sugar imports in any
year exceeds (or is estimated to exceed) a legislated quantity
of 1,532 million short tons (excluding some categories, for
instance, re-exported sugar), domestic marketing allotments
must be canceled under current law, meaning that marketing of
domestically produced sugar would be unrestrained.
CBO estimates that by providing additional import access
guarantees in compliance with CAFTA-DR, the sugar program will
likely cost an additional $500 million over the 2006-2015
period. Annual estimates are shown in the table above. As with
programs for most agricultural commodities, conditions in
domestic and world markets are highly variable, making
estimates of program costs for sugar somewhat uncertain. Actual
costs could be either higher or lower in any given year, and
these estimated costs represent our best estimate of expected
costs over the estimation period. Consistent with the current
budget resolution (H. Con. Res. 95), this estimate is relative
to CBO's March 2005 assumptions about sugar market conditions.
More current information concerning that market indicates that
the cost of this legislation would likely be lower in 2006 and
possibly lower in 2007, with no significant change in later
years.
Merchandise Processing Fee. This legislation would exempt
certain goods imported from the Dominican Republic, Costa Rica,
El Salvador, Guatemala, Honduras, and Nicaragua from
merchandise processing fees collected by the Department of
Homeland Security. Such fees are recorded as offsetting
receipts (a credit against direct spending). Based on the value
of goods imported from those countries in 2004, CBO estimates
that implementing this provision would reduce fee collections
by about $3 million in fiscal year 2006 and by a total of $120
million over the 2006-2014 period, with no effect thereafter
because the authority to collect merchandise processing fees
expires at the end of 2014.
Trade Adjustment Assistance. Implementing CAFTA-DR could
have a negligible effect on the Trade Adjustment Assistance
program (TAA). TAA provides extended unemployment compensation,
job training, and health insurance tax credits for individuals
who lose their job due to increases in imports. Based on
information from the International Trade Commission regarding
projected employment losses in various industries, CBO
estimates that the added costs to TAA would be less than $5
million over the 2006-2015 period, and less than $500,000 in
each year over that period.
Estimated impact on State, local, and tribal governments:
The bill contains no intergovernmental mandates as defined in
UMRA and would not affect the budgets of state, local, or
tribal governments.
Estimated impact on the private sector: CBO estimates that
under the bill, the tariff rates would be no greater than under
current law. Consequently, this bill would not impose any
private-sector mandates as defined in UMRA.
Previous CBO estimate: On July 18, 2005, CBO also
transmitted a cost estimate for S. 1307, identical legislation
passed by the Senate on June 30, 2005. The two cost estimates
are identical.
Estimate prepared by: Federal Revenues: Annabelle Bartsch
and Emily Schlect. Federal Spending: Mark Grabowicz, David
Hull, and Christi Hawley-Sadoti. Impact on State, Local, and
Tribal Governments: Melissa Merrell. Impact on the Private
Sector: Selena Caldera.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis; and Peter H. Fontaine, Deputy
Assistant Director for Budget 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 H.R. 3045 makes de minimis authorization of funding, and
the Administration has in place program goals and objectives,
which have been reviewed by the Committee.
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 13031 OF THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF
1985
SEC. 13031. FEES FOR CERTAIN CUSTOMS SERVICES.
(a) * * *
(b) Limitations on Fees.--(1) * * *
* * * * * * *
(15) No fee may be charged under subsection (a) (9)
or (10) with respect to goods that qualify as
originating goods under section 203 of the Dominican
Republic-Central America-United States Free Trade
Agreement Implementation Act. Any service for which an
exemption from such fee is provided by reason of this
paragraph may not be funded with money contained in the
Customs User Fee Account.
* * * * * * *
----------
TARIFF ACT OF 1930
* * * * * * *
SEC. 508. RECORDKEEPING.
(a) * * *
* * * * * * *
(g) Certifications of Origin for Goods Exported Under the
Dominican Republic-Central America-United States Free Trade
Agreement.--
(1) Definitions.--In this subsection:
(A) Records and supporting documents.--The
term ``records and supporting documents''
means, with respect to an exported good under
paragraph (2), records and documents related to
the origin of the good, including--
(i) the purchase, cost, and value of,
and payment for, the good;
(ii) the purchase, cost, and value
of, and payment for, all materials,
including indirect materials, used in
the production of the good; and
(iii) the production of the good in
the form in which it was exported.
(B) CAFTA-DR certification of origin.--The
term ``CAFTA-DR certification of origin'' means
the certification established under article
4.16 of the Dominican Republic-Central America-
United States Free Trade Agreement that a good
qualifies as an originating good under such
Agreement.
(2) Exports to cafta-dr countries.--Any person who
completes and issues a CAFTA-DR certification of origin
for a good exported from the United States shall make,
keep, and, pursuant to rules and regulations
promulgated by the Secretary of the Treasury, render
for examination and inspection all records and
supporting documents related to the origin of the good
(including the certification or copies thereof).
(3) Retention period.--Records and supporting
documents shall be kept by the person who issued a
CAFTA-DR certification of origin for at least 5 years
after the date on which the certification was issued.
[(g)] (h) Penalties.--Any person who fails to retain records
and supporting documents required by subsection (f) or (g) or
the regulations issued to implement [that subsection] either
such subsection shall be liable for the greater of--
(1) * * *
* * * * * * *
SEC. 514. PROTEST AGAINST DECISIONS OF THE CUSTOMS SERVICE.
(a) * * *
* * * * * * *
(h) Denial of Preferential Tariff Treatment Under the
Dominican Republic-Central America-United States Free Trade
Agreement.--If the Bureau of Customs and Border Protection or
the Bureau of Immigration and Customs Enforcement finds
indications of a pattern of conduct by an importer, exporter,
or producer of false or unsupported representations that goods
qualify under the rules of origin set out in section 203 of the
Dominican Republic-Central America-United States Free Trade
Agreement Implementation Act, the Bureau of Customs and Border
Protection, in accordance with regulations issued by the
Secretary of the Treasury, may suspend preferential tariff
treatment under the Dominican Republic-Central America-United
States Free Trade Agreement to entries of identical goods
covered by subsequent representations by that importer,
exporter, or producer until the Bureau of Customs and Border
Protection determines that representations of that person are
in conformity with such section 203.
* * * * * * *
SEC. 520. REFUNDS AND ERRORS.
(a) * * *
* * * * * * *
(d) Goods Qualifying Under Free Trade Agreement Rules of
Origin.--Notwithstanding the fact that a valid protest was not
filed, the Customs Service may, in accordance with regulations
prescribed by the Secretary, reliquidate an entry to refund any
excess duties (including any merchandise processing fees) paid
on a good qualifying under the rules of origin set out in
section 202 of the North American Free Trade Agreement
Implementation Act [or section 202 of the United States-Chile
Free Trade Agreement Implementation Act], section 202 of the
United States-Chile Free Trade Agreement Implementation Act, or
section 203 of the Dominican Republic-Central America-United
States Free Trade Agreement Implementation Act for which no
claim for preferential tariff treatment was made at the time of
importation if the importer, within 1 year after the date of
importation, files, in accordance with those regulations, a
claim that includes--
(1) * * *
(2) copies of all applicable NAFTA Certificates of
Origin (as defined in section 508(b)(1)), or other
certificates or certifications of origin, as the case
may be; and
* * * * * * *
SEC. 592. PENALTIES FOR FRAUD, GROSS NEGLIGENCE, AND NEGLIGENCE.
(a) * * *
* * * * * * *
(c) Maximum Penalties.--
(1) * * *
* * * * * * *
(9) Prior disclosure regarding claims under the
dominican republic-central america-united states free
trade agreement.--An importer shall not be subject to
penalties under subsection (a) for making an incorrect
claim that a good qualifies as an originating good
under section 203 of the Dominican Republic-Central
America-United States Free Trade Agreement
Implementation Act if the importer, in accordance with
regulations issued by the Secretary of the Treasury,
promptly and voluntarily makes a corrected declaration
and pays any duties owing.
[(9)] (10) Seizure.--If the Secretary has reasonable
cause to believe that a person has violated the
provisions of subsection (a) and that such person is
insolvent or beyond the jurisdiction of the United
States or that seizure is otherwise essential to
protect the revenue of the United States or to prevent
the introduction of prohibited or restricted
merchandise into the customs territory of the United
States, then such merchandise may be seized and, upon
assessment of a monetary penalty, forfeited unless the
monetary penalty is paid within the time specified by
law. Within a reasonable time after any such seizure is
made, the Secretary shall issue to the person concerned
a written statement containing the reasons for the
seizure. After seizure of merchandise under this
subsection, the Secretary may, in the case of
restricted merchandise, and shall, in the case of any
other merchandise (other than prohibited merchandise),
return such merchandise upon the deposit of security
not to exceed the maximum monetary penalty which may be
assessed under subsection (c).
* * * * * * *
(h) False Certifications of Origin Under the Dominican
Republic-Central America-United States Free Trade Agreement.--
(1) In general.--Subject to paragraph (2), it is
unlawful for any person to certify falsely, by fraud,
gross negligence, or negligence, in a CAFTA-DR
certification of origin (as defined in section
508(g)(1)(B) of this Act) that a good exported from the
United States qualifies as an originating good under
the rules of origin set out in section 203 of the
Dominican Republic-Central America-United States Free
Trade Agreement Implementation Act. The procedures and
penalties of this section that apply to a violation of
subsection (a) also apply to a violation of this
subsection.
(2) Prompt and voluntary disclosure of incorrect
information.--No penalty shall be imposed under this
subsection if, promptly after an exporter or producer
that issued a CAFTA-DR certification of origin has
reason to believe that such certification contains or
is based on incorrect information, the exporter or
producer voluntarily provides written notice of such
incorrect information to every person to whom the
certification was issued.
(3) Exception.--A person may not be considered to
have violated paragraph (1) if--
(A) the information was correct at the time
it was provided in a CAFTA-DR certification of
origin but was later rendered incorrect due to
a change in circumstances; and
(B) the person promptly and voluntarily
provides written notice of the change in
circumstances to all persons to whom the person
provided the certification.
* * * * * * *
----------
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, title III of the United
States-Singapore Free Trade Agreement Implementation
Act, title III of the United States-Australia Free
Trade Agreement Implementation Act, [and] title III of
the United States-Morocco Free Trade Agreement
Implementation Act, and title III of the Dominican
Republic-Central America-United States 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.
* * * * * * *
----------
SECTION 308 OF THE TRADE AGREEMENTS ACT OF 1979
SEC. 308. DEFINITIONS.
As used in this title--
(1) * * *
* * * * * * *
(4) Eligible products.--
(A) In general.--The term ``eligible
product'' means, with respect to any foreign
country or instrumentality that is--
(i) * * *
(ii) a party to the North American
Free Trade Agreement, a product or
service of that country or
instrumentality which is covered under
the North American Free Trade Agreement
for procurement by the United States;
[or]
(iii) a party to a free trade
agreement that entered into force with
respect to the United States after
December 31, 2003, and before January
2, 2005, a product or service of that
country or instrumentality which is
covered under the free trade agreement
for procurement by the United
States[.]; or
(iv) a party to the Dominican
Republic-Central America-United States
Free Trade Agreement, a product or
service of that country or
instrumentality which is covered under
that Agreement for procurement by the
United States.
* * * * * * *
----------
CARIBBEAN BASIN ECONOMIC RECOVERY ACT
TITLE II--CARIBBEAN BASIN INITIATIVE
SEC. 201. SHORT TITLE.
This title may be cited as the ``Caribbean Basin Economic
Recovery Act''.
* * * * * * *
SEC. 212. BENEFICIARY COUNTRY.
(a)(1) For purposes of this title--
(A) * * *
* * * * * * *
(F) The term ``former beneficiary country''
means a country that ceases to be designated as
a beneficiary country under this title because
the country has become a party to a free trade
agreement with the United States.
* * * * * * *
(b) In designating countries as ``beneficiary countries''
under this title the President shall consider only the
following countries and territories or successor political
entities:
Anguilla
Antigua and Barbuda
Bahamas, The
Barbados
Belize
Cayman Islands
[Costa Rica]
Dominica
[Dominican Republic]
[El Salvador]
Grenada
[Guatemala]
Guyana
Haiti
[Honduras]
Jamaica
Montserrat
Netherlands Antilles
[Nicaragua]
Panama
Saint Lucia
Saint Vincent and the Grenadines
Suriname
Trinidad and Tobago
Saint Christopher-Nevis
Turks and Caicos Islands
Virgin Islands, British
In addition, the President shall not designate any country a
beneficiary country under this title--
(1) * * *
* * * * * * *
SEC. 213. ELIGIBLE ARTICLES.
(a)(1) Unless otherwise excluded from eligibility by this
title, and subject to section 423 of the Tax Reform Act of
1986, and except as provided in subsection (b)(2) and (3), the
duty-free treatment provided under this title shall apply to
any article which is the growth, product, or manufacture of a
beneficiary country if--
(A) * * *
* * * * * * *
For purposes of determining the percentage referred to in
subparagraph (B), the term ``beneficiary country'' includes
[the Commonwealth of Puerto Rico and the United States Virgin
Islands] the Commonwealth of Puerto Rico, the United States
Virgin Islands, and any former beneficiary country. If the cost
or value of materials produced in the customs territory of the
United States (other than the Commonwealth of Puerto Rico) is
included with respect to an article to which this paragraph
applies, an amount not to exceed 15 per centum of the appraised
value of the article at the time it is entered that is
attributed to such United States cost or value may be applied
toward determining the percentage referred to in subparagraph
(B).
* * * * * * *
(b) Import-Sensitive Articles.--
(1) * * *
* * * * * * *
(5) Definitions and special rules.--For purposes of
this subsection--
(A) * * *
* * * * * * *
(G) Former cbtpa beneficiary country.--The
term ``former CBTPA beneficiary country'' means
a country that ceases to be designated as a
CBTPA beneficiary country under this title
because the country has become a party to a
free trade agreement with the United States.
(H) Articles that undergo production in a
cbtpa beneficiary country and a former cbtpa
beneficiary country.--(i) For purposes of
determining the eligibility of an article for
preferential treatment under paragraph (2) or
(3), references in either such paragraph, and
in subparagraph (C) of this paragraph to--
(I) a ``CBTPA beneficiary country''
shall be considered to include any
former CPTPA beneficiary country, and
(II) ``CBTPA beneficiary countries''
shall be considered to include former
CBTPA beneficiary countries,
if the article, or a good used in the
production of the article, undergoes production
in a CBTPA beneficiary country.
(ii) An article that is eligible for
preferential treatment under clause (i) shall
not be ineligible for such treatment because
the article is imported directly from a former
CBTPA beneficiary country.
(iii) Notwithstanding clauses (i) and (ii),
an article that is a good of a former CBTPA
beneficiary country for purposes of section 304
of the Tariff Act of 1930 (19 U.S.C. 1304) or
section 334 of the Uruguay Round Agreements Act
(19 U.S.C. 3592), as the case may be, shall not
be eligible for preferential treatment under
paragraph (2) or (3), unless--
(I) it is an article that is a good
of the Dominican Republic under either
such section 304 or 334; and
(II) the article, or a good used in
the production of the article,
undergoes production in Haiti.
* * * * * * *
VII. VIEWS
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ADDITIONAL VIEWS OF REPRESENTATIVE JEFFERSON
As a Democrat with a firm commitment to eliminate poverty
and to improve the lives of workers both here and abroad, I
believe it is important to discuss the important policy
implications contained in the proposed U.S.-FTA with the
Dominican Republic and the countries of Central America (DR-
CAFTA). In supporting the DR-CAFTA, I have determined the
United States can best promote improvements both to working
conditions and labor standards in those countries with the
commitments and the supporting capacity-building provisions of
this Agreement.
For years Democrats have promoted democracy in Central
America and have spoken about the need to secure commitments
from developing countries on core international labor standards
and labor enforcement; we have sought U.S. commitments to
substantive and comprehensive labor capacity-building programs;
and we have sought to ensure a role for the International Labor
Organization (ILO) in these efforts. With this unprecedented
Agreement, we have all of these things.
There are many important reasons why Democrats should vote
for greater economic integration with our Central American
friends and neighbors:
First, DR-CAFTA promotes economic
opportunity for the workers of the region who are
facing massive competition from Asia and elsewhere in
the most significant formal source of economic
livelihood--textile and apparel production. With nearly
half the population of these countries living in severe
poverty without formal employment, the continued
competitiveness of the textile and apparel industry and
other industries DR-CAFTA can promote is critical. I've
heard my colleagues suggest that the DR-CAFTA textile
and apparel rules remain too strict to really make a
difference. But the countries and the companies who
invest and purchase from the region believe
differently. Many of us had hoped for more flexibility,
but those whose livelihoods depend on these issues
believe that the new flexibilities DR-CAFTA provides
are critical to support an industry that provides some
of the best-paying jobs in the region (and that also
purchases significant U.S. inputs). Without DR-CAFTA,
these jobs will ebb away, as many have already started
to do, since the elimination of global textile and
apparel quotas at the beginning of the year.
Equally important are the strong investment
ties that can be bolstered by this agreement that are
critical to support much-needed economic growth. We all
know that investment flows around the world far out-
value bilateral or even multilateral aid. Helping these
countries improve their investment climate through a
more permanent relationship with the United States and
many of the provisions of the DR-CAFTA--including
increased transparency, curbs on corruption, and
provisions that promote the rule of law--could in fact
be the single most important driver to improve the
lives of our neighbors in Central America and the
Dominican Republic.
And finally, there are the Agreement's labor
provisions--both the commitments made by each country
in the labor chapter to enforce domestic laws (provided
for in their constitutions and ratified treaties, such
as the core ILO conventions these countries have
largely ratified) and the capacity-building program
built in to the DR-CAFTA, which the six governments
recently relied upon in undertaking an unprecedented
commitment to improve labor standards and enforcement
in each of their countries in very concrete ways. These
provisions are also strengthened by the DR-CAFTA
countries' commitments to the Inter-American
Development Bank (IDB) and the ILO outlined in the
``White Paper''.
But, despite all of these provisions and commitments, it is
argued that the DR-CAFTA's labor provisions are a backwards
step and that the DR-CAFTA should not be supported because of
the DR-CAFTA countries' history of weak labor laws and
suppressing worker rights.
DR-CAFTA'S LABOR COMMITMENTS ARE STRONG AND ENFORCEABLE
The DR-CAFTA commits each of the countries to enforce
domestic labor laws, subject to binding, time-limited dispute
settlement and monetary fines of up to $15 million per
occurrence, per year, that the United States and Labor Affairs
Council must decide how the country will spend to improve labor
law enforcement. If the offending country does not provide the
funds, the United States can impose trade sanctions. Chapter
16.8 of the DR-CAFTA defines ``Labor Law'' to be a Party's
statutes or regulations, or provisions thereof, which are
directly related to the following internationally recognized
labor rights:
The right of association;
The right to organize and bargain
collectively;
A prohibition on the use of any form of
forced or compulsory labor;
A minimum age for the employment of children
and the prohibition and elimination of the worst forms
of child labor; and
Acceptable conditions of work with respect
to minimum wages, hours of work, and occupational
safety and health.
A careful reading of the 1998 ILO Declaration on
Fundamental Rights and Principles at Work, which promotes the
observance of the ILO's core labor principles, demonstrates
that this definition adequately incorporates the ILO core
principles into the DR-CAFTA.\1\
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\1\ The 1988 ILO Declaration defines the core labor principles as:
Freedom of association and the right to collective
bargaining;
The elimination of forced and compulsory labour;
The abolition of child labour, and;
The elimination of discrimination in the workplace.
---------------------------------------------------------------------------
The DR-CAFTA's labor provisions are stronger than those of
the NAFTA, which has labor protections in a side agreement and
does not provide dispute settlement subject to monetary fines
or trade sanctions for violations of core labor laws. The
Agreement's labor provisions are also stronger than the Jordan
FTA, which does not have binding dispute settlement and under
which the offending country can block even the formation of an
objective panel to review its labor laws. Finally, these labor
provisions are indeed stronger than current preference
programs, such as CBI, which requires the President to deny all
preferential benefits if the country ``has not [taken] or is
not taking steps to afford internationally recognized worker
rights''. Such a standard does not even require the enforcement
of existing labor laws.
Critics have argued that the DR-CAFTA countries can weaken
their laws since the DR-CAFTA commitment not to weaken labor
laws is explicitly made not subject to dispute settlement. DR-
CAFTA and the Jordan FTA contain almost identical language on
this Issue, stating:
each Party shall strive to ensure that it does not
waive or otherwise derogate from, or offer to waive or
otherwise derogate from, such laws in a manner that
weakens or reduces adherence to the internationally
recognized labor rights referred to an Article 16.8 as
an encouragement for trade with the another Party, or
as an encouragement for the establishment, acquisition,
expansion, or retention of an investment in its
territory. (Italicized language is only found in DR-
CAFTA, not in the Jordan FTA)
This obligation was not explicitly exempt from dispute
settlement in the Jordan FTA, although the hortatory nature of
the commitment undercuts the notion that this is a standard
justiciable by formal dispute settlement. The Parties agreed to
``strive to ensure'' not to weaken law, a far different type of
commitment than the ``enforce your own laws'' standard found in
both DR-CAFTA and Jordan. In fact, this type of hortatory
standard in Jordan, DR-CAFTA and all the other recent FTAs, is
one of political will, not a justiciable standard that is
subject to dispute settlement. But political will remains an
extremely potent force.
Much more importantly, these countries' labor standards are
embedded in their democratic systems in a manner that makes
them not subject to precipitate change. Consider that for most
of the six countries, all of the core ILO protections are
explicitly, albeit generally, included in their Constitutions--
obviously not subject to change at whim.\2\
---------------------------------------------------------------------------
\2\ All but one of the DR-CAFTA countries has already ratified all
eight of the core ILO conventions (EI Salvador has ratified two), which
are in fact incorporated into their domestic laws. All of the countries
have extensive labor codes and a tripartite process (including the
government, labor and business) that must work together in proposing
any changes to those laws.
---------------------------------------------------------------------------
As we know from our own democratic system, labor law issues
are complex and subject to many factors. They simply are not
and cannot be changed overnight.
The structure of the monetary fines for labor (and
environmental) violations in the DR-CAFTA is quite innovative
and will provide more than adequate incentives for countries to
enforce their laws and improve upon their ability to afford
internationally recognized worker rights. Consider:
The fines (up to $15 million per occurrence)
are fairly significant given these governments' annual
budgets;
The fines can be applied annually if the
problem is not fixed; and
Most significantly, the fines collected will
be re-invested and focused on addressing the failure of
enforcement, which is oftentimes due to insufficient
resources or lack of capacity, which the fines can more
effectively address than trade sanctions.
Trade sanctions in the form of revoking trade benefits
often cause disruptions in investment flows and hurt U.S.
importers working with these trading partners. For us, the
greater concern is the uncertainty and dislocation that would
come from the revocation of trade benefits that will negatively
impact the workers in the DR-CAFTA countries.
DR-CAFTA REPRESENTS A MARKED IMPROVEMENT OVER UNILATERAL PREFERENCE
PROGRAMS FOUND IN EXISTING LAW (GS, CBI, AND CBPTA)
The unilateral trade preference programs require the
President (unless an exemption applies) to withdraw all of the
unilateral preference benefits if he finds that a country ``has
not [taken] or is not taking steps to afford internationally
recognized worker rights.'' Here, the U.S. government is not
required to do anything to help countries improve their
capacity to afford or enforce worker rights. In part, for this
reason, the use of trade sanctions under many of the unilateral
preference programs has rarely been used.
I am convinced that the approach in DR-CAFTA's Labor
Chapter is likely to be far more effective in promoting worker
rights in the DR-CAFTA countries. DR-CAFTA provides for a
neutral, time-limited dispute settlement panel process, unlike
the wholly Administration-driven process of GSP, CBI and CBTPA,
where reviews can be prolonged for many years. DR-CAFTA also
provides for focused penalties, rather than the all-or-nothing
approach of GSP, CBI and CBPTA, which has rarely produced
sanctions. Finally, the DR-CAFTA requires each country to
enforce its labor laws, in their constitutions and on their
books. GSP, CBI and CBTPA simply do not do have that
requirement.
Last, but not least, is the issue of whether the DR-CAFTA
countries' laws are good enough.
While the DR-CAFTA countries' laws can certainly be
improved in several areas, these countries in fact have the
most basic labor protections in their constitutions and in
their laws. Even a cursory review of the two International
Labor Organization reports on the DR-CAFTA countries' labor
laws reveals that each of these countries respects the core ILO
standards in their laws, oftentimes with general constitutional
protections, as well as detailed provisions on everything from
providing for union registration to prohibitions on anti-union
or anti-organizing discrimination.
Even more significantly, by operation of their
constitutions and their civil law systems, the DR-CAFTA
countries' legal systems, in fact, incorporate ratified
conventions, such as the core ILO conventions these countries
have ratified, into their domestic law. For Costa Rica, such
conventions are constitutionally considered superior to the
constitution; for the others, such conventions are considered
part of their domestic law. Notably, several constitutions
explicitly provide that the conventions are superior to their
domestic law.
The biggest labor issue for the DR-CAFTA countries is, in
fact, the inadequacy of their enforcement of existing labor
laws. Indeed, this is where many of the 20-plus labor problems
the critics identify/allege actually fall; they are issues of
enforcement, not the existing labor law. And that is where DR-
CAFTA can do the most good.
I am pleased that the Administration has committed to
substantial and sustained labor and environmental capacity-
building funding to support and strengthen the DR-CAFTA's
capacity-building framework. For the first time ever in
connection with a free trade agreement (FTA), dedicated and
substantial funding for labor and environmental capacity
building has been provided. These funds will help make concrete
DR-CAFTA's already robust labor and environmental capacity-
building commitments.
This funding, coupled with the six countries' commitments
to improve labor standards and labor enforcement in their April
2005 White Paper, represents a bold step forward in ensuring
that the DR-CAFTA will improve labor conditions and promote
greater adherence to and enforcement of worker's rights in the
Central American region. In particular:
For FY 2005, Congress appropriated $20
million for labor and environmental capacity building
for the six DR-CAFTA countries. For FY 2006
Administration has committed to support a doubling of
this funding--to $40 million--as reported by the House
Appropriations Committee.
For FY 2007 through FY 2009, the
Administration will propose and support $40 million in
labor and environmental capacity-building funds for the
DR-CAFTA countries.
Numerous commitments in addition to those already contained
in the DR-CAFTA and the April 2005 White Paper will provide
powerful and public action-forcing events to promote continued
and concrete work by the Administration and the six DR-CAFTA
countries to improve labor standards and enforcement. I believe
the ILO monitoring and reporting committed to by the
Administration and the Administration reporting and periodic
labor meeting requirements added to the implementing
legislation provide unprecedented catalysts for advancements in
labor conditions in the region.
Biannual Administration report for 15 years
on the progress made by the DR-CAFTA countries in
implementing the labor provisions of the FTA and the
April 2005 White Paper, as well as U.S. labor capacity-
building efforts. This provision, included in the DR-
CAFTA implementing bill, includes specific requirements
for the solicitation and inclusion of public comments
in the report.
Meetings of the U.S. Secretary of Labor with
labor ministers from each of the DR-CAFTA countries on
a periodic basis to discuss the operation of the DR-
CAFTA labor chapter and progress made on implementing
the White Paper commitments.
ILO Monitoring and Six-Month Reporting. The
Administration has made a commitment to fund the
International Labor Organization's on-the-ground
monitoring mechanism, which includes a requirement for
reports every six months on the DR-CAFTA countries'
progress on implementing the White Paper from FY 2006
through FY 2009.
Finally, it is important to note that the Administration
also made specific commitments to give high priority to
negotiating Millennium Challenge Compacts (MCCs) with the
Dominican Republic, El Salvador and Guatemala. (Honduras and
Nicaragua have already been designated to receive substantial
MCC funds.) The Administration has also committed an additional
$10 million per country per year for transitional rural
assistance for up to five years or until the country concludes
a MCC. These funds are an important corollary to help ensure a
positive adjustment to DR-CAFTA's new rules, particularly in
the agricultural sector.
WILL THE DR-CAFTA COUNTRIES FOLLOW-THROUGH ON THEIR LABOR COMMITMENTS,
GIVEN THEIR SPOTTY ENFORCEMENT RECORDS?
For the first time, all of the DR-CAFTA countries have
expressed strong support and a determined commitment to
affording and enforcing worker rights. Has this not been THE
goal of tying labor rights to trade agreements? Their
commitment to the DR-CAFTA's labor standards and more was
enriched by their commitment to address their enforcement
capacity as outlined in the IDB/ILO White Paper. In so doing,
these countries are not only making commitments on labor
enforcement to the United States, but they are making them to
international organizations. This commitment will include
timelines, benchmarks, and clear objectives. Never before have
I seen an FTA partner take such extraordinary steps to
demonstrate their seriousness of purpose regarding affording
workers core international labor protections. To simply ignore
these commitments flies in the face of the democratic ideals
our Party has promoted in trade policy over the last 10 years.
Of course the DR-CAFTA countries can improve their labor
laws--and through this process these countries have committed
in fact to seeking improvements through their own democratic
and tripartite processes. But the fact that there are
deficiencies in some of these laws is not a reason to vote
``no'' on DR-CAFTA. We didn't vote ``no'' on the Jordan FTA
despite the even more significant deficiencies in Jordan's
labor code (such as the lack of a right of any employee to
strike without government approval or the fact that a large
number of workers, including foreign workers and many
agricultural workers, are excluded from labor code
protections). We didn't vote ``no'' on the Jordan FTA even
though former President Clinton made it explicitly clear that
``the FTA does not require either country to adopt any new
laws.'' Congress made the right decision then and we should do
so here.
Given the significant commitments to core labor protections
and capacity building incorporated into the CAFTA, I believe
that this is an Agreement that reflects Democrats' own core
values and concerns. The terms of the Agreement, including its
enhanced enforcement provisions, in combination with the
countries' earnest commitment to improving the lives of their
workers, as well as the Administration's agreement to provide
significant resources for capacity building in the DR-CAFTA
countries should engender confidence that this Agreement will
not only create economic opportunities for the United States
and the DR-CAFTA countries but that it will also promote
greater adherence to core labor standards throughout our
hemisphere.
That said, I welcome continued dialogue on these issues and
look forward to every Member's consideration of the important
ways that supporting DR-CAFTA will have on improving workers'
lives and working conditions in the six DR-CAFTA countries, and
in improving our economy and job prospects here at home.
William J. Jefferson.
DISSENTING VIEWS
The Dominican Republic-Central America-United States Free
Trade Agreement Implementation Act, H.R. 3045, considered by
the Committee on June 30, 2005, represents a missed
opportunity. The Administration had an opportunity to negotiate
and submit to Congress for approval an agreement that would
have ensured that the benefits of trade flow broadly to working
people, small farmers and society at large, as well as to
larger businesses. The Administration had an opportunity to
submit a world class, cutting edge agreement that would have
helped to close the widening gap between the rich and poor, and
lead to the development of a middle class in the Central
American countries and the Dominican Republic, which can afford
to purchase U.S. goods and services. The Administration had an
opportunity to craft a lasting, bipartisan approach to U.S.
trade policy. Instead, the Administration negotiated a free
trade agreement with Central America and the Dominican Republic
(CAFTA) and submitted a bill to Congress that does little to
ensure that our trade policy raises living standards in the
United States and abroad, and that exacerbates, rather than
bridges, differences in views among the Members of this
Committee.
The vote earlier this month on U.S. participation in the
World Trade Organization (``WTO'') demonstrates clearly that
issues of international trade can be, and traditionally have
been, in the main, broadly bipartisan. This conclusion is only
buttressed by previous votes on free trade agreements with
Jordan (2001), Chile (2003), Singapore (2003), Australia,
(2004), and Morocco (2004); the enhanced Caribbean Basin
Initiative and Africa Growth and Opportunity Act (2000); and,
legislation granting Permanent Normal Trade Relations (PNTR) to
China (2000). These votes demonstrate that the opposition to
CAFTA of virtually every Democrat is not based on a rejection
of the view that trade holds the potential for generating
economic growth and increased standards of living.
To the contrary, most Democratic Members of the Committee
continue to support that view, and strongly support a CAFTA--
the right CAFTA. We believe in the power of trade as a tool for
promoting economic growth and enhancing bilateral relationships
between the United States and its trading partners. We believe
that a trade agreement, drafted correctly, would benefit the
United States on the one hand, and the countries of Central
America and the Dominican Republic, on the other.
I. CAFTA LACKS BASIC, INTERNATIONALLY-RECOGNIZED LABOR STANDARDS
A. The Right CAFTA Would Include Basic Labor Standards
The right CAFTA would ensure that Central American workers
have the ability to bargain for better working conditions and
wages, so that they can raise themselves and their families out
of poverty and so that they can earn enough to become consumers
of U.S. goods. The right CAFTA would ensure that U.S. firms and
workers are not asked to compete against companies in Central
America that gain a competitive advantage by suppressing their
workers. The right CAFTA would not promote a race to the
bottom.
The changes that would be necessary to make the CAFTA an
agreement that a broad majority of Democratic Committee Members
could support are few, but significant. The amendment
introduced by Ranking Member Rangel during the informal markup
on June 15, 2005, set forth these changes. First, the right
CAFTA would require each party to the agreement to commit to
(1) bring its labor laws into compliance with the basic
standards of the International Labor Organization (ILO) within
3 years; and (2) subject this commitment to meet ILO labor
standards and other obligations set forth in the CAFTA Chapter
on Labor to the regular dispute settlement mechanisms that
apply to all other commercial provisions in the agreement.
In addition, Democrats have consistently called on the
Administration to provide meaningful technical assistance to
assist the CAFTA countries to meet these goals. In that regard,
it is particularly disappointing that the Administration
continues to cut foreign aid rather than increase it. For
example, even as the Administration this week promised in a
letter to Congress to provide additional technical assistance
of $40 million for ``labor and environmental'' goals, the House
of Representatives passed in the Labor-HHS Appropriations bill
the Administration's proposal to cut the budget of the
principal agency that supports foreign labor standards
technical assistance by $82 billion.
B. CAFTA Represents a Step Backward From Current U.S. Law
These changes would ensure that U.S. trade policy moves
forward--rather than backward--to build upon existing U.S.
trade preference programs (e.g., the Generalized System of
Preferences, Caribbean Basin Initiative (CBI), and Caribbean
Basin Trade Partnership Act (CBPTA)). These preferential trade
programs have for more than 20 years conditioned trade benefits
to countries in Central America and the Caribbean on the
countries' making steady progress toward achieving basic ILO
standards. More recently, over the last five years, the CBTPA
program has conditioned its more ambitious trade benefits on
the countries actually achieving those standards.
Notably, U.S. law further authorizes the President to deny
trade benefits to countries that are not in compliance with
these basic labor standards. The United States has the programs
to deny trade benefits. Since 1984, the United States has made
effective use of the labor criteria in GSP/CBI/CBPTA programs
to improve labor standards in CAFTA countries. The track record
is as follows.
First, the United States U.S. has ``suspended trade
benefits'' 19 times since 1984: 4 times for intellectual
property issues, 1 time for drug trafficking issues, and 14
times for labor issues. Second, the United States has suspended
benefits to CAFTA countries twice: (1) in 1987, President
Reagan suspended benefits to Nicaragua, for failure to meet the
labor rights eligibility criteria; and (2) in 1998, President
Clinton suspended benefits to Honduras for failure to meet the
intellectual property eligibility criteria.
Third, the United States has repeatedly used the potential
for suspension of benefits as leverage to promote improvements
in CAFTA countries' labor laws. Examples described below
involve Costa Rica, El Salvador and Guatemala. Reliance on
potential suspension of benefits is (1) good trade policy
(achieve goal without disruption of trade), and (2) parallels
use of GATT/WTO dispute settlement, in which vast majority of
cases are resolved without need for formal adjudication and
even higher percentage of such cases are resolved without the
use of trade sanctions.
The CAFTA is a major step backwards from 20 years of U.S.
law and enforcement efforts. As currently negotiated, the CAFTA
does not require that CAFTA countries continue to improve their
labor laws to conform with basic international labor
standards--in fact, it does not require that the countries'
laws meet any standard, or even that the countries have a law
relating to the basic standards. The only enforceable provision
in the CAFTA Chapter on Labor requires that member countries
``enforce their own laws,'' no matter how weak. This provision
is substantially weaker than current U.S. law.
The CAFTA countries currently receive unilateral trade
benefits underthree preference programs: (1) the Caribbean
Basin Initiative (CBI) enacted in 1984; (2) the Generalized System of
Preferences (GSP), enacted in 1976, and modified in 1984 to include a
labor condition; and (3) the Caribbean Basin Trade Preferences Act
(CBTPA) enacted in 2000. Approximately 50% of all imports from the
CAFTA countries already enter duty-free under these three programs. (An
additional 30% of products enter duty-free under regular U.S. tariff
rates.)
The CBI, CBTPA and GSP programs each condition a country's
eligibility for trade benefits (i.e., duty-free access to the
U.S. market) on, among other things, whether the country is
making progress toward implementing basic international labor
standards. More specifically, when determining whether a
country should be designated a beneficiary country or maintain
its eligibility for benefits, the President must make the
following determinations under each program. For CBI and GSP,
the President must determine that the country is ``taking steps
to afford internationally recognized worker rights.'' For
CBTPA, the President must take into account ``the extent to
which the country provides internationally recognized worker
rights.''
CAFTA would drop even these minimum requirements. Unlike
current U.S. law, CAFTA does not contain any condition
requiring a country to achieve--or even move towards
achieving--a basic level of worker rights.
Although the GSP, CBI and CBTPA programs all condition the
eligibility of countries for trade benefits on their progress
on worker rights, the formalized process for the public to
petition the Administration for withdrawal of benefits is
contained in the umbrella program (GSP). Accordingly, the
United States has utilized the labor rights condition under the
GSP program more than the conditions in the Caribbean-specific
programs.
The United States has suspended GSP benefits 19 times since
1984. Fourteen of those suspensions were tied to the failure of
the beneficiary country to meet the program's eligibility
criteria on worker rights. Four suspensions were due to a
country's failure to comply with the program's eligibility
requirements regarding intellectual property rights, and one
suspension was due to a failure to comply with the eligibility
criteria regarding drug trafficking.
Among the CAFTA countries, Nicaragua and Honduras have had
their benefits curtailed for failure to meet eligibility
criteria. In the case of Nicaragua, President Reagan terminated
the country's eligibility for the program in 1987, due to
worker rights issues, and the country remains ineligible for
the program today. In the case of Honduras, President Clinton
suspended benefits under both the GSP and CBI programs in 1998,
due to the country's failure to meet the programs' eligibility
criteria regarding the protection of intellectual property
rights.
Typically, the United States has used the potential for
suspension of GSP/CBI/CBTPA benefits to promote improvements in
our trading partners' labor laws. In fact, most of the labor
law reforms of the past twenty years in the CAFTA countries has
been due to the leverage of the workers rights conditionality
under GSP/CBI/CBPTA. The following examples illustrate this
fact.
In June 1993, a GSP petition against Costa Rica led to
reform of its Labor Code in October 1993, to provide
protections for union organizers and prohibiting solidarity
associations from engaging in collective bargaining. Similarly,
in June 1992, a petition against Guatemala resulted in
recognition of a maquila union for the first time in six years
in August 1992. During the period 1993-1997 when Guatemala was
under GSP review, the government raised the minimum wage,
established new labor courts and streamlined the legal
recognition process.
In 2000, Guatemala's status under GSP was reopened due to
the firing of banana plantation workers at a Del Monte company.
In April 2001, Guatemala passed a labor reform bill that
granted new rights to farm workers. Finally, in 1992, EI
Salvador was put on continuing GSP review for workers rights
violations. In 1994, El Salvador changed its laws to make it
easier for unions to be recognized without employer
interference.
The changes proposed by Ranking Member Rangel would
eliminate both the backsliding as compared with current U.S.
law and the double standard created under the CAFTA with regard
to the enforcement of the agreement's labor provisions versus
other commercial provisions. As negotiated, the CAFTA provides
that labor provisions are enforceable primarily through a weak
system of fines, which the offending country effectively pays
to itself. In comparison, the agreement's other commercial
provisions are enforceable using trade sanctions. Mr. Rangel's
amendment would correct this imbalance to ensure that the
rights of workers receive the same protection as the rights of
corporations under the agreement.
As stated, we consider that meaningful technical assistance
must be an integral part of U.S. trade policy with the CAFTA
countries, and others. In Central America, such assistance
needs to be used to improve existing laws (so that they meet
ILO standards) as well as to strengthen enforcement.
``Unfortunately, the technical assistance prosed by the
Administration--whatever its other weaknesses--requires only
that countries enforce the laws they have on their books--even
if the law on the books is weak or there is no existing law.
Even the best enforcement of inadequate laws can never yield
acceptable results. Indeed, Congress would never approve an
agreement that requires merely that our trading partners
enforce their existing laws in other areas, such as
intellectual property rights. Would any Administration ever
provide technical assistance for countries to enforce laws that
allow or promote piracy of American patents, copyrights or
trademarks? Requiring only that countries ``enforce their own
laws'' with regard to labor standards is equally inappropriate.
II. CAFTA COULD DEFEAT COUNTRIES' ABILITY TO RESPOND TO PUBLIC HEALTH
EMERGENCIES
We also continue to have reservations about sections of the
CAFTA (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 are concerned
about test data requirements in the CAFTA, which could prevent
the CAFTA countries from addressing public health problems and
delay the introduction of generic pharmaceuticals into the
Central American market, thereby making pharmaceuticals less
affordable in the region.
In particular, Article 15.10.1 of the CAFTA requires
parties 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
CAFTA iswhether they can be waived if a CAFTA country wants to
approve a producer other than the test data owner to produce and sell a
drug in the CAFTA country during the test data protection period. The
following example illustrates the issue:
Assume Guatemala decides that it needs to increase
the supply of an HIV/AIDS drug in its market. Company A
owns the patent on the HIV/AIDS drug, and also is the
only producer to have obtained marketing approval for
the drug in the Guatemalan market. If Guatemala is
unable to convince Company A to produce more of the
HIV/AIDS drug at a reasonable price, Guatemala could
issue a compulsory license to another drug
manufacturer, Company B. However, the compulsory
license, which is allowed under the FTA, is an
exception only for the patent rights related to the
HIV/AIDS drug. The compulsory license does not affect
Company A's right to prevent any other company from
receiving marketing approval for the drug based on the
data it submitted.
Obviously, if the United States invoked its right to
test data protection as to the drug in question, the
compulsory license would be useless--and Guatemala's
right under specified circumstances pursuant to WTO
rules to issue such a license would be defeated.
Notably, the above analysis applies even if the HIV/AIDS drug
is not covered by a patent. The only difference is that
Guatemala would not need to issue a compulsory license.
The Intellectual Property Chapter of the Agreement (Chapter
15) does not include any specific exception that would allow
Guatemala or any other CAFTA countries to waive the test data
requirements to address a public health need. As such, our
concern is that the test data requirements could effectively
undermine the CAFTA countries' ability to use compulsory
licenses. As such, we believe that the CAFTA violates at a
least the spirit of the November 2001 World Trade Organization
Declaration on the TRIPS Agreement and Public Health (``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.''
We were heartened by the comments of Ambassador Allgeier,
the Deputy United States Trade Representative, at the mock
markup held by the Committee on June 15. At the mock markup,
Ambassador Allgeier stated that the ``Understanding Regarding
Certain Public Health Concerns,'' which was adopted by the
parties as a side agreement to the CAFTA, allows a country to
waive test data requirements in order to market a drug produced
under a compulsory license. The portion of the side agreement
that Ambassador Allgeier apparently relied on for this
interpretation states, in relevant part, that ``[t]he
obligations of [the Intellectual Property Chapter] do not
affect a Party's ability to take necessary measures to protect
public health by promoting access to medicines for all. * * *''
In our view, the side agreement is not sufficiently clear
as to whether it provides an exception to the test data
protection provisions. Accordingly, we urge USTR to ensure that
Ambassador Allgeier's interpretation is given express legal
effect in all future trade agreements, by making the exception
explicit.
III. CAFTA AND THE ENVIRONMENT
We also have reservations about the CAFTA Chapter on
Environment, which includes only minimal commitments. The
agreement includes no benchmarks for countries to meet in
improving their environmental laws and practices, and instead
requires only that the countries enforce their existing laws.
In addition, although the CAFTA includes commitments by the
countries to engage in cooperative activities to improve and
conserve the environment, these obligations are largely
rhetorical, as the CAFTA also includes no commitments for
funding such activities.
IV. INVESTOR-STATE PROVISIONS COULD ALLOW FOREIGN INVESTORS TO HAVE
GREATER RIGHTS THAN U.S. INVESTORS IN THE UNITED STATES
Another area of concern is the so-called ``investor-state''
dispute settlement mechanism provided for in the CAFTA Chapter
on Investment. The investor-state mechanism can be a useful
tool to ensure that U.S. investors overseas are protected
against unfair treatment.
However, if not properly crafted to reflect current U.S.
laws, the investor-state mechanism can provide foreign
investors greater rights than U.S. investors in the U.S.
market. Congress recognized the potential for this problem
during debate over the Trade Act of 2002 (P.L. 107-210), and
included a mandate to USTR that U.S. trade agreements ensure
that ``foreign investorsin the United States are not accorded
greater substantive rights with respect to investment protections than
[U.S.] investors in the United States.''
Unfortunately, the CAFTA still leaves out key elements of
U.S. law, notwithstanding that it arguably is an improvement
over the standard contained at Chapter 11 of the NAFTA. The
result is to empower CAFTA panels to issue decisions that could
go well beyond U.S. law--allowing foreign investors to receive
greater rights than U.S. investors in the U.S. market. Given
the aggressive reasoning of some arbitration panels that have
considered claims brought under the NAFTA, it is particularly
important that the investor-state provisions included in free
trade agreements closely track U.S. constitutional and Supreme
Court jurisprudence in order to ensure that legitimate U.S.
laws and regulations are not threatened--and there is no
chilling effect on local, state or federal authorities.
V. U.S. TRADE PRIORITIES
Finally, we believe that, in general, bilateral free trade
agreements have a legitimate place in U.S. trade policy. If the
agreements are properly negotiated and free trade partners are
properly selected in coordination with Congress, these
agreements can contain significant benefits for the United
States in helping to set the global trade agenda and in other
ways.
Nonetheless, we urge the Administration to recognize that
the most important U.S. trade priorities should be the ongoing
negotiations in the World Trade Organization and opening
markets that achieve the largest gains for Americans. We are
concerned that the Administration has focused too heavily on
FTAs. In the case of CAFTA, we are concerned that Congress as
well has had to dedicate enormous resources and attention to
this agreement at the expense of other important trade
priorities, largely because the CAFTA negotiated by the
Administration could not attract broad, bipartisan support.
Charles B. Rangel.
Pete Stark.
Jim McDermott.
Richard E. Neal.
Xavier Becerra.
Benjamin Cardin.
Sander Levin.
John Lewis.
Michael R. McNulty.
John B. Larson.
