Bridges Weekly Trade News Digest • Volume 11 • Number 17 • 16th May 2007

White House, Democrats Reach Deal On Bilateral FTAs, Sparking Hopes For TPA

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The Bush administration and senior Democratic lawmakers have struck a deal on environmental, labour, and drug patent protections in pending US bilateral free trade agreements, boosting their chances of receiving Congressional approval. Movement towards broader bipartisan cooperation on trade may also herald brightened prospects for the troubled Doha Round multilateral negotiations at the WTO.

As per the accord, which was the product of months of negotiation between Congress and the White House, Washington will seek to modify its FTAs to require the enforcement of some International Labour Organization (ILO) standards as well as several multilateral environmental agreements (MEAs). It will also change intellectual property rights rules in FTA to make it somewhat easier for developing country trading partners to expand access to generic copies of patented drugs. These changes were largely in line with a list of objectives set out by senior Democrats at the end of March (see BRIDGES Weekly, 28 March 2007).

According to the House Ways and Means Committee, the powerful body with jurisdiction over trade issues, the agreement "clears the way for broad, bipartisan support for the Peru and Panama FTAs." Unresolved concerns about the already-concluded agreements with Korea and Colombia means that their future remains murky.

The compromise on trade policy was announced on 10 May by Democratic House Speaker Nancy Pelosi (California), Congressional leaders from both parties, and top administration officials. Charles Rangel, the New York Democrat who chairs the Ways and Means Committee, played a major role in brokering the deal with Republican lawmakers and the White House.

US Trade Representative Susan Schwab said that the administration and Congress had "seized an historic opportunity to restore the bipartisan consensus on trade." Notably, she added that "the new trade policy template also opens the way for bipartisan work on trade promotion authority (TPA)."

The White House’s current TPA mandate, which lets it require Congress to vote either for or against trade agreements without the possibility of amendments, expires at the end of June. This ‘fast-track’ will have to be in force for WTO Members to be able to finalise a Doha Round agreement - without it, other countries would be reluctant to sign an agreement that could then be picked apart by US lawmakers.

Labour, environment, pharma patent rules

Ironically, the countries that signed bilateral FTAs with the US in time for them to be considered under TPA now face last-minute modifications — or else risk having the deals torpedoed by Congress.

Under the bipartisan agreement, the FTAs will have to require countries to enforce worker protections set out in the ILO’s 1998 Declaration of Fundamental Principles and Rights at Work. These include freedom of association, the right to organise, and prohibitions on forced and most kinds of child labour. They will also have to implement seven MEAs, including the Montreal Protocol on Ozone Depleting Substances, the Convention on International Trade in Endangered Species (CITES), the Convention on Marine Pollution, and the Ramsar Convention on Wetlands.

Significantly, both the labour and environmental obligations would become subject to the same dispute settlement procedures as the core commercial rules on tariff cuts. Furthermore, it would be more difficult for countries to plead insufficient resources as a reason for not enforcing labour laws. However, violations of both sets of provisions would only become subject to dispute settlement if they demonstrably affect trade and investment. This and the fact that the US has adopted the ILO principles in question appear to have assuaged fears among some Republicans that worker protections in FTAs could be used by union groups to force changes to US labour legislation.

The accord specifically directs the US trade representative to negotiate a new annex on forest sector governance with Peru, aimed principally at beefing up rules to prevent trade in endangered forest products.

In response to Democrats’ complaints that the intellectual property protections in FTAs were restricting access to lifesaving medicines in developing countries, the new template for trade agreements will allow trading partners to bring generic drugs to market more quickly. For instance, pharmaceutical test data will not be protected in partner countries beyond the period that it is in the US, which will make it possible for generics to be brought to market at the same time in both. A public health exception from data exclusivity obligations will also be introduced. Furthermore, patent extension requirements for pharmaceutical products will be softened, and drug regulatory agencies will be allowed to approve generics without having to first establish that no patents have been violated. Finally, the new policy calls for making side letters on public health concerns part of the formal text of the FTAs, along with a reaffirmation of countries’ right under WTO agreements to suspend patents in order to expand access to essential medicines.

Additional modifications to the FTAs will include a provision in the preamble making clear that foreign investors in the US will not benefit from stronger protections than domestic investors. Washington’s earlier model for FTAs included investor protections so far-reaching that they were often accused of undermining the ability of governments to regulate in the public interest.

US trade officials say that they are working with partner countries to see how these changes can be made into new legal language in the FTAs. Whether or not this will require a new legislative vote in countries such as Peru that have already ratified the agreements remains to be seen.

To complement the new provisions in the FTAs, the compromise also provided for expanded worker assistance and training in the US, along with support for making health and pension benefits portable between different employers. In theory, these policies would help soften the blow of trade-related adjustment, and make it easier for workers to change jobs without losing benefits.

The agreement may only smooth the Congressional passage of the FTAs with Peru and Panama. Democrats want the administration to seek greater access to the Korean market, particularly with regard to automotive, agricultural, and services trade. They also want the Colombia FTA to include special judicial measures to address violence against trade unionists.

Under the previous Republican-controlled Congress, trade-related legislation passed by razor-thin majorities. Moreover, upporting trade deals will not be easy for all Democrats, several of whom were helped to power in last November’s elections by anxieties over trade-related job losses. However, the Bush administration’s willingness to renounce its past opposition to stronger environmental and labour protections might help trade legislation receive support from enough Democrats to succeed.

Possible cooperation on TPA?

Lawmakers from both sides of the aisle broadly welcomed the deal, although not without some grumbling from more trade-sceptical sections of the Democratic caucus.

Rangel said that "for decades now, trade has been a polarising issue in Congress, but today’s agreement signals a new direction and a renewed spirit of bipartisanship." He expressed hope that the new policy would help boost employment and thus make "trade work, not just for shareholders, but for all Americans." Wally Herger, the California representative who is the top Republican on the House trade subcommittee, said that the "breakthrough agreement" provided a way forward not only on the FTAs, but also on the "reauthorisation of TPA."

Nevertheless, fast-track extension faces an uphill struggle. Speaking to journalists in Geneva on 11 May, US WTO Ambassador Peter Allgeier said that the agreement was "a very important step in the process toward TPA renewal." However, he noted that "what would be most helpful now [for encouraging renewal] is to give the Congress a real indication that we here in Geneva are going to be able to produce a genuinely market access opening agreement." The extent of tariff and subsidy cuts continues to leave WTO Members deeply divided. The AFL-CIO, a major US union, has indicated that it will oppose TPA extension despite the deal in Washington. The spike in the US’ trade deficit for March will make the issue even more politically contentious.

Of course, TPA is not technically necessary for negotiating - US trade diplomats will still be able to bargain with their WTO counterparts after it expires in a few weeks. However, officials from many other countries say that it will be difficult to seriously negotiate with the US in the absence of signs that TPA renewal is genuinely in the offing.

ICTSD reporting; "Bush and Democrats in Accord on Trade Deals," NEW YORK TIMES, 11 May 2007; "Labour, Drugmakers Not Sold on New Trade Accord Rules," BLOOMBERG, 11 May 2007; "Bush, Congress Agree on Trade Standards," WALL STREET JOURNAL, 11 May 2007.