H.R. 3078: United States-Colombia Trade Promotion Agreement Implementation Act

H.R. 3078

United States-Colombia Trade Promotion Agreement Implementation Act

Date
October 12, 2011 (112th Congress, 1st Session)

Staff Contact
Jon Hiler

Floor Situation

On Tuesday, October 11, 2011, the House is scheduled to consider H.R. 3078, the United States-Colombia Trade Promotion Agreement Implementation Act, under a rule.  The rule provides for 90 minutes of debate equally divided and controlled by the chair and ranking minority member of the Committee on Ways and Means.  H.R. 3078 was introduced by Rep. Eric Cantor (R-VA), by request, on October 3, 2011 and was referred to the Committee on Ways and Means.  The committee held a mark-up session on October 5, 2011 and ordered the bill favorably reported without amendment by a vote of 24-12.

Bill Summary

H.R. 3078 would implement the agreement establishing a free trade area between the United States and Colombia.  The following is a sectoral breakdown of the changes that the agreement would provide, as outlined in H. Rept. 112-237 from the Committee on Ways and Means:

Agriculture: U.S. agriculture exports to Colombia currently face an average tariff of 20 percent, whereas only two Colombian agricultural exports to the United States face tariffs above three percent. The Agreement would remedy this by providing immediate duty-free treatment for 77.5 percent of Colombia’s agricultural tariff lines, including U.S. exports of soybeans, cotton, wheat, barley, peanuts, bacon, high-quality beef, the vast majority of processed products, and almost all fruit and vegetable products, with tariffs eliminated on almost 93 percent of agricultural tariff lines within 10 years. The Agreement would immediately eliminate Colombia’s separate “price band” variable tariffs for U.S. exports, which the European Union’s trade agreement with Colombia does not eliminate for EU exports.

As a result, the International Trade Commission (ITC) estimates significant gains in U.S. agricultural exports. For example, the ITC estimates that U.S. exports of grains could increase by 55 to 77 percent and soybeans, soybean products, and animal feeds by 30 to 50 percent. The Agreement would also provide guarantees against key non-tariff barriers. For example, Colombia has committed to continuing to recognize the equivalence of the U.S. food safety system for meat and poultry and would provide access for all U.S. beef and beef products consistent with international norms.

 

Manufacturing: The Agreement would significantly lower both tariff and nontariff barriers to U.S. exports of manufactured goods. Tariffs on U.S. manufactured goods exported to Colombia average over nine percent, with tariffs on auto and auto parts at 17.4 percent, consumer goods at 15 percent, and building products at 13.2 percent.  Upon implementation, over 80 percent of U.S. exports of consumer and industrial products to Colombia would immediately become duty-free, with remaining tariffs phased out over ten years. Key U.S. export sectors that would receive immediate duty-free treatment include aircraft and auto parts; agricultural and construction equipment; agro-chemicals; and medical, scientific, and information technology equipment. The Agreement would also guarantee access to Colombia for U.S. exports of remanufactured products, such as industrial machinery and consumer electronics.

As a result, the ITC estimates significant gains in U.S. exports in key sectors and products. For example, the ITC estimates that exports of motor vehicles and parts would be likely to increase by 43.8 percent. Exports of miscellaneous machinery would be likely to increase by 14.9 percent and electronics by 8 percent. Colombia also agreed in the Agreement to become a full participant under the WTO Information Technology Agreement, which would further open Colombia’s market to U.S. high-tech exports. The Agreement would provide U.S. firms with lower tariff barriers than major competitors from countries that do not have trade agreements with Colombia in effect.

 

Services: The services sector accounts for over half of Colombia’s GDP, making improved market access for U.S. services critical. The Agreement would provide U.S. service firms with market access, national treatment, and regulatory transparency exceeding that afforded by the WTO General Agreement on Services. The Agreement would eliminate significant restrictions on the ability of U.S. firms to compete in the engineering, architecture, real estate, telecommunications, computer, and financial services markets. U.S. nationals would be allowed to serve in key executive and professional posts, which Colombia now prohibits. The ITC estimates, based on tariff equivalents, that the Agreement would reduce barriers in the banking sector by more than half. Significant restrictions on U.S. asset managers would be eliminated four years after the Agreement’s entry into force. U.S. service providers that establish a local presence in Colombia would benefit from strong investor protections included in the Agreement.

 

Government Procurement: The government procurement provisions of the Agreement are essential to guaranteeing non-discriminatory access for U.S. goods services, and suppliers to 28 key Colombian central government agencies, all state-level governments, and certain significant government enterprises, including ECOPETROL (national oil company), ISS (public healthcare provider), and ADPOSTAL (postal service). These provisions are particularly important because Colombia is not a member of the WTO Government Procurement Agreement and is only an observer. The procurement provisions would grant U.S. entities greater access and protection than they currently have to Colombia’s government procurement market, which, by one measure, is $28.3 billion to $42.4 billion annually. (Government procurement is generally 10 to 15 percent of a country’s gross domestic product (“GDP”), and Colombia’s 2010 GDP was over $283 billion.)

 

Intellectual Property Rights: Under the Agreement, Colombia would adopt higher and extended standards for the protection of intellectual property rights, such a copyrights, patents, trademarks, and trade secrets. The Agreement would also provide enhanced means for enforcing those rights. Under the Agreement, each partner country would be required to grant national treatment to nationals of the other, and all laws, regulations, procedures, and final judicial decisions would need to be in writing and published or made publicly available. The Agreement would lengthen terms for copyright protection, cover electronic and digital media, and increase enforcement to go beyond the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.  Both parties would be obliged to provide appropriate civil and criminal remedies for willful violators of intellectual property rights.

 

Textile and Apparel: All U.S. textiles and apparel products meeting the Agreement’s rules of origin would immediately become duty-free and quota-free when exported to Colombia. The Agreement’s rules of origin are generally based on the “yarn forward” standard. A “de minimis” provision would allow limited amounts of specified third-country content to go into U.S. and Colombian apparel, giving producers in both countries needed flexibility. The Agreement would allow the use of “short supply” fabrics, yarns, and fibers (that is, fabrics, yarns, and fibers not made in Colombia or the United States that have been determined not to be commercially available in either country) as inputs. The Parties agreed to a list of short supply fabrics, and the Agreement includes a process for adding more.

Customs cooperation commitments between the United States and Colombia would allow for verification of claims of origin or preferential treatment, and denial of preferential treatment or entry if claims cannot be verified. A special textile safeguard would provide for temporary tariff relief if increased imports under the Agreement prove to cause serious damage to U.S. producers.

 

Investment: The Agreement would ensure a stable legal framework for U.S. investors operating in Colombia. All forms of investment would be protected under the Agreement, including enterprises, debt, concessions and similar contracts, and intellectual property. With very few exceptions, U.S. investors would be treated as well as Colombian investors in the establishment, acquisition, and operation of investments in Colombia.

The Agreement draws from U.S. legal principles and practices to provide U.S. investors in Colombia with a basic set of substantive and procedural protections that Colombian investors currently enjoy under the U.S. legal system. These include due process protections and the right to receive fair market value for property in the event of an expropriation. The Agreement includes recourse to an investor-state dispute settlement mechanism for certain types of claims.

In the preamble, the Parties agree that “foreign investors are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set forth in this Agreement.” This provision reflects one of the negotiating objectives of TPA to ensure “that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States.”

 

Labor: The labor chapter of the Agreement includes the obligation that the Parties adopt and effectively enforce the five core international labor rights as stated in the 1998 International Labor Organization Declaration on Fundamental Principles and Rights at Work. The Agreement would also require each country to enforce its own existing laws concerning acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. The obligations under the labor chapter would be subject to the same dispute settlement mechanisms and enforcement mechanisms as obligations in other chapters of the Agreement. Neither Party would be permitted to waive or otherwise derogate from its laws that implement this obligation in a manner affecting trade or investment between the Parties. Procedural guarantees in the Agreement would ensure that workers and employers have fair, equitable, and transparent access to labor tribunals or courts.

 

Environment: The Agreement would commit the Parties to effectively enforce their own domestic environmental laws and adopt, maintain, and implement laws and all other measures to fulfill obligations under covered multilateral environmental agreements. The Agreement also includes a fully enforceable, binding commitment that would prohibit the Parties from lowering environmental standards in the future in a manner affecting trade or investment. The Agreement would promote a comprehensive approach to environmental protection by encouraging voluntary, market-based mechanisms to protect the environment and by providing procedural guarantees that ensure fair, equitable and transparent proceedings for the administration and enforcement of environmental laws. The Agreement would call for a public submissions process with an independent secretariat for environmental matters to ensure that views of civil society are appropriately considered. All obligations in the environment chapter would be subject to the same dispute settlement procedures and enforcement mechanisms as obligations in other chapters of the Agreement.

 

Other Matters

The bill would also extend the Andean Trade Preference Act through July 31, 2013, with duty-free treatment applying to most products originating in Bolivia, Colombia, Ecuador, and Peru.  The benefits would apply retroactively to February 12, 2011, the date on which the ATPA previously expired.  The Committee on Ways and Means considers this section necessary for the purpose of assisting these Andean countries in their fight against drug production and trafficking by expanding their economic alternatives.

For budgetary offset purposes, Section VI of the bill would also make revisions to certain tax and customs fee statutes.  The revenue effects of these provisions are discussed in more detail in the CBO analysis linked below.

Background

The Committee report noted the following significance of trade relations with Colombia: Colombia has a long history of standing with the United States as an important strategic ally in a region that includes several increasingly anti-American governments.  Colombia serves on the United Nations Security Council and chairs its Iran Sanctions Committee. Colombian troops served alongside U.S. troops in the Korean War and serve under the United Nations mandate in Haiti, Sierra Leone, and – since 1956 – the Sinai.

Colombia has also been training militaries and police forces in counter-narcotics and counterinsurgency measures in numerous countries.  The Committee notes that Colombia has shown dramatic improvement over the last decade in protection of labor rights for Colombian workers, in recognition of which the International Labor Organization (ILO) removed Colombia from its labor watch list in 2010. According to Vice President Garzon’s Observatory for Human Rights, homicides against trade union members declined from 196 in 2002 to 37 in 2010 – a decline of 81 percent. The decline has continued in 2011, with 22 homicides against trade union members through the end of September 2011. Prosecutions and convictions for crimes against trade union members have also increased substantially since 2006, when the Prosecutor General established a team of 114 specialists focused solely on labor violence cases. Convictions increased from 16 in 2006 to 84 in 2009 to over 100 in 2010, and the total since 2006 stood at 391 as of the end of August 2011. As a result of these and other improvements, the ILO removed Colombia from its labor watch list in 2010, recognizing “all the measures … adopt[ed] recently to combat … violence against the trade union movement.”

Particularly noteworthy is the Colombian Action Plan Related to Labor Rights, to which Presidents Obama and Santos agreed on April 7, 2011.  The Office of the U.S. Trade Representative has certified that Colombia has completed all action items that were due by September 15, 2011, accounting for almost all of the actions required under the action plan. The few actions that remain to be completed are due in December 2011 and in 2012. For example, Colombia massively expanded labor union eligibility for its protection program, which has already provided security for over 10,000 people, none of whom were killed while in the program. Colombia also assigned 95 new investigators to labor violence cases and significantly increased funding for the special labor violence unit within the Prosecutor General’s office. In endorsing the action plan, the president of one of Colombia’s three main labor confederations called it the most significant social achievement of the last 50 years in Colombia.

 

Trade Act of 2002 procedures:

H.R. 3078 is being considered by Congress under the procedures of the Bipartisan Trade Promotion Authority Act of 2002, included in the Trade Act of 2002. Pursuant to these 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 the Trade Act of 2002.

Following submission of these documents, the implementing bill is introduced, by request, by the Majority Leader and the Minority Leader in each chamber. The House then has up to 60 legislative days to consider implementing legislation for the Agreement, and the Senate has up to an additional 30 legislative days. No amendments to the legislation are allowed under TPA requirements.

 

Cost

According to estimates by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), enacting H.R. 3078 would reduce revenues by $139 million in 2012 and by about $1.5 billion over the 2012-2021 period.  CBO estimates that enacting H.R. 3078 would decrease direct spending by $68 million in 2012 and by about $1.5 billion over the 2012-2021 period.  The net impact of those effects is an estimated reduction in deficits of $22 million over the 2012-2021 period.  Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues.

Further, CBO estimates that implementing the legislation would result in discretionary costs of $4 million over the 2012-2016 period, assuming the availability of appropriated funds.  CBO has determined that the non-tax provisions of H.R. 3078 contain no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA), and would impose no costs on state, local, or tribal governments.

CBO has determined that the non-tax provisions of the bill contain private-sector mandates with costs that would exceed the annual threshold established in UMRA for private-sector mandates ($142 million in 2011, adjusted annually for inflation).

JCT has determined that the tax provisions of H.R. 3079 contain no intergovernmental or private-sector mandates as defined in UMRA.

More information on the CBO/JCT score can be found here.