Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

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

                              ----------                              


              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\
---------------------------------------------------------------------------
    \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.