This fall, the US Congress is expected to start consideration of free trade agreements finalised in June with Peru, Colombia, Panama and South Korea, as well as tackle the new farm bill that has already been approved by the House of Representatives.
Changes made to the agreements reflect the new FTA template agreed between the administration and congressional Democrats in May (Bridges Year 11 No.4 page 13). They include provisions on labour and the environment, as well as intellectual property. The four FTA partners must adopt, maintain and enforce basic international labour standards rather than just enforce their own laws, as well as adopt and implement six multilateral environmental agreements. Violations of these obligations will be subject to the same dispute settlement rules as the core commercial provisions, provided that the complainant can demonstrate that trade has been affected. The agreements also clarify that foreign investors in the US will not have greater rights than its own investors do, which is expected to discourage foreign firms from challenging US health or environmental regulations.
In addition, Peru’s agreement includes a 22- page annex on forest governance, which commits the government to take a large number of measures – most within 18 months of the FTA’s entry into force – to combat trade associated with illegal logging and illegal trade in wildlife. The measures range from increasing the number and effectiveness of law enforcement personnel – including through the implementation of an anti-corruption plan – to increasing criminal and civil penalties. Peruvian authorities must also conduct periodic audits of producers and exporters of timber products exported to the US to verify that the timber was legally harvested, as well as investigate any exporter or producer upon a written request by the United States.
The FTAs with Panama, Peru and Colombia (but not Korea) also contain five significant changes in intellectual property protection designed to promote public health and access to affordable medicines (see page 15).
Despite these amendments, the Democratic leadership is in no hurry to start consideration of the agreements in Congress. The US Trade Representative, on the other hand, is keen to get all four treaties ratified as soon as possible, starting with Peru, followed by Colombia, Panama and South Korea, in that order. Democrats have warned that they will oppose the Colombian FTA until the level of violence against trade unionists has been significantly reduced in the country. Hearings on the Peru and Panama agreements could start this fall.
There is no timetable yet for considering the Korea pact, which is likely to face a tough battle. The business lobby generally supports it while labour groups are opposed. Senator Hillary Clinton, House Speaker Nancy Pelosi and other influential Democrats have said they will not support the agreement because it does not offer enough market access for US cars and Korea’s continued restrictions on US beef.
Andean Preferences Extended Until February 2008
On 30 June, the US Congress approved an eight-month extension for the Andean Trade Promotion and Drug Eradication Act. The expiry of the legislation would have cut preferential access to the US market for Bolivia, Colombia, Ecuador and Peru. The decision to prolong it was a qualified success for the Bush administration and the Democratic majority in Congress, both of which had called for a two-year extension. Opposing that proposal were a number of Republican politicians who, led by Iowa’s Senator Charles Grassley, wanted to terminate the benefits for Bolivia and Ecuador on the grounds that they were not upholding the interests of US investors and, more generally, sought to reinforce state control over the economy. Senator Grassley said he would keep a ‘close eye’ on the two countries in the coming months and warned that unilateral preferences should not be taken ‘for granted’.
House Approves New Farm Bill
In other news related to US trade policy, the House of Representatives approved a new farm bill in July, which would by and large maintain the level of government support to farmers under the current legislation due to expire on 30 September. The changes made include more money for conservation and nutrition programmes, as well as renewable energy. The new bill would also authorise a permanent disaster relief programme and, for the first time ever, provide support to fruit and vegetable growers.
The bill retains the administration’s proposal to make counter-cyclical payments dependent of fluctuations in revenue per acre instead of prices (Bridges Year 11 No.1 page 3), but only proposes this as an option that farmers could choose. It also imposes a US$1 billion income limit for individuals eligible for subsidies, and requires those with incomes between US$500,000 and US$1 billion to derive at least 66 percent of their revenue from farming.
While US Agriculture Secretary Mike Johanns has charged that bill’s increases for target prices and loan rates for some commodities would augment the likelihood of WTO challenges, the legislation’s supporters say the US would ‘probably’ stay within its current US$19.1 billion Amber Box cap because key commodity prices are so high that subsidy payments would not kick in. Some analysts have also noted that a shift from directly supporting the price of milk to setting target prices for butter, cheese and non-fat milk would allow the administration to shave off US$2.5 billion from its reported Amber Box payments because other uses of milk, such as the production of cream, would not be counted. The effective support for milk, however, would not change.
The Senate is set to start consideration of the bill in late September or early October. President Bush has threatened to veto it unless one of its a key provisions is struck out. The provision would pay for an extended nutrition programme through eliminating a tax break currently available to US subsidiaries of foreign firms.