[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
IMPLEMENTATION OF THE UNITED STATES-PERU
TRADE PROMOTION AGREEMENT
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 12, 2006
__________
Serial No. 109-86
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona XAVIER BECERRA, California
JERRY WELLER, Illinois LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota
RON LEWIS, Kentucky STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida MIKE THOMPSON, California
KEVIN BRADY, Texas JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
U.S. Trade Representative, Everett Eissenstat, Assistant U.S.
Trade Representative for the Americas.......................... 20
______
American Chamber of Commerce in Peru, Francisco X. Santeiro...... 66
American Federation of Labor and Congress of Industrial
Organizations, Brett Gibson.................................... 76
Association of American Chambers of Commerce in Latin America,
Francisco X. Santeiro.......................................... 66
Coats North America, Richard Norman.............................. 50
FedEx Express, Francisco X. Santeiro............................. 66
Forkan, Patricia, Humane Society International................... 63
Gibson, Brett, American Federation of Labor and Congress of
Industrial Organizations....................................... 76
Hispanic Alliance for Free Trade, Daniel H. Jara................. 60
Humane Society International, Patricia Forkan.................... 63
Jara, Daniel H., statewide Hispanic Chamber of Commerce of New
Jersey, and Hispanic Alliance for Free Trade................... 60
Lilygren, Sara, National Chicken Council and Tyson Foods, Inc.... 71
Mel-Delin Dairy, Ray Souza....................................... 57
National Chicken Council, Sara Lilygren.......................... 71
Norman, Richard, Coats North America, and U.S. Chamber of
Commerce....................................................... 50
Santeiro, Francisco X., American Chamber of Commerce in Peru, the
Association of American Chambers of Commerce in Latin America.. 66
statewide Hispanic Chamber of Commerce of New Jersey, Daniel H.
Jara........................................................... 60
Souza, Ray, Mel-Delin Dairy, and Western United Dairymen......... 57
Tyson Foods, Inc., Sara Lilygren................................. 71
Western United Dairymen, Ray Souza............................... 57
U.S. Chamber of Commerce, Richard Norman......................... 50
SUBMISSIONS FOR THE RECORD
American Apparel & Footwear Association, Arlington, VA, Kevin
Burke, statement............................................... 102
American Chamber of Commerce of Peru, statement.................. 104
Amorrortu, Bacilio, Houston, TX, statement and attachment........ 109
Association of Food Industries, Inc., Neptune, NJ, Jeffrey Levin
statement...................................................... 111
Bayer MaterialScience, Pittsburgh, PA, Tim Chappell, letter...... 114
Burke, Kevin, American Apparel & Footwear Association, Arlington,
VA, statement.................................................. 102
California Table Grape Commission, Fresno, CA, Kathleen Nave,
letter......................................................... 115
Chappell, Tim, Bayer MaterialScience, Pittsburgh, PA, letter..... 114
Council of the Americas, Eric Farnsworth, statement.............. 115
Emergency Committee for American Trade, statement................ 117
Exporamerica, statement.......................................... 119
Farnsworth, Eric, Council of the Americas, statement............. 115
Gavalis, Albert, New York, NY, statement......................... 126
Greater Miami Chamber of Commerce, Miami, FL, Barry Johnson,
statement...................................................... 127
Grocery Manufacturers of America, statement...................... 127
Johnson, Barry, Greater Miami Chamber of Commerce, Miami, FL,
statement...................................................... 127
Levin, Jeffrey, Association of Food Industries, Inc., Neptune,
NJ, statement.................................................. 111
National Pork Producers Council, statement....................... 129
Nave, Kathleen, California Table Grape Commission, Fresno, CA,
letter......................................................... 115
Peruvian Asparagus Importer's Association, Drexel Hill, PA,
statement...................................................... 135
Retail Industry Leaders Association, Arlington, VA, statement.... 139
IMPLEMENTATION OF
THE UNITED STATES-PERU
TRADE PROMOTION AGREEMENT
----------
WEDNESDAY, JULY 12, 2006
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:38 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory and revised advisory announcing the hearing
follow:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 27, 2006
FC-24
Thomas Announces Hearing on
Implementation of the United States-Peru
Trade Promotion Agreement
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
the implementation of the U.S.-Peru Trade Promotion Agreement. The
hearing will take place on Wednesday, July 12, 2006, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 10:30 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Invited witnesses will include Everett Eissenstat, Assistant
U.S. Trade Representative for the Americas. Any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the
printed record of the hearing.
BACKGROUND:
The Administration announced plans to negotiate an Andean free
trade agreement with Colombia, Peru, Ecuador, and Bolivia in November
2003. Negotiations began in May 2004 with Colombia, Peru, and Ecuador.
Negotiations with Peru concluded on December 7, 2005, and on April 12,
2006, then-U.S. Trade Representative Rob Portman and Peruvian Minister
of Foreign Trade and Tourism Alfredo Ferrero Diez Canseco signed the
U.S.-Peru Trade Promotion Agreement (PTPA). Peruvian President
Alejandro Toledo witnessed the signing. Peru held democratic elections
on April 9 and June 4, and former President Alan Garcia won the
election based on a platform of economic engagement and market reform.
Upon implementation of the PTPA, eighty percent of consumer and
industrial products and more than two-thirds of current U.S. farm
exports to Peru will become duty-free immediately. Over the coming
years, Peru will continue to provide substantial market access to U.S.
goods, services, and agricultural products by gradually eliminating all
tariffs on U.S. exports to Peru. As a result of this agreement, the
United States will have greater access to the Peruvian market for
products such as machinery, mineral fuel, electrical machinery, and
plastics, along with meats and poultry, grains, oilseeds, dairy
products, horticulture, processed products, and other agricultural
products. The agreement will also provide a secure, predictable legal
framework for U.S. investors operating in Peru, provide for enforcement
of quality labor and environmental standards, protect intellectual
property rights, and install an effective dispute settlement process.
In 2005, U.S. goods exports to Peru totaled nearly $2.3 billion.
Two way trade between the United States and Peru during 2005 amounted
to $7.4 billion. Many products from Peru already enter the U.S. market
duty-free under the Andean Trade Promotion and Drug Eradication Act
(ATPDEA) P.L. 107-210, which expires in December 2006.
In announcing the hearing, Chairman Thomas stated, ``The trade
promotion agreement with Peru builds on our past efforts of granting
trade benefits to alleviate poverty and eradicate drugs in the region.
The agreement will now make our bilateral trading relationship a
permanent two way street to benefit producers, service suppliers,
workers, and consumers in both countries. Together with other free
trade agreements in the region, the PTPA will help to establish an
integrated free trading system with our neighbors in the hemisphere.
Peru's President-elect Garcia is standing up to Cuban President Castro
and Venezuelan President Chavez in supporting the agreement, and we owe
it to the people of Peru to pass this agreement quickly with a strong
bipartisan vote.''
FOCUS OF THE HEARING:
The hearing will examine the U.S.-Peru Trade Promotion Agreement
and the benefits that the agreement will bring to American businesses,
farmers, workers, consumers, and the U.S. economy, as well as to U.S.
trade relations with our neighbors in the hemisphere.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Matt Turkstra or Cooper Smith at (202) 225-1721 no later than 12:00
p.m. on Wednesday, July 5, 2006. The telephone request should be
followed by a formal written request faxed to Allison Giles, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
2610. The staff of the Committee will notify by telephone those
scheduled to appear as soon as possible after the filing deadline. Any
questions concerning a scheduled appearance should be directed to the
Committee staff at (202) 225-1721.
In view of the limited time available to hear witnesses, the
Committee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing in lieu of a personal appearance. All persons requesting to be
heard, whether they are scheduled for oral testimony or not, will be
notified as soon as possible after the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Committee are required to submit 300 copies, along with an
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of
their prepared statement for review by Members prior to the hearing.
Testimony should arrive at the full Committee office, 1102 Longworth
House Office Building, no later than noon on Monday, July 10, 2006. The
300 copies can be delivered to the Committee staff in one of two ways:
(1) Government agency employees can deliver their copies to 1102
Longworth House Office Building in an open and searchable box, but must
carry with them their respective government issued identification to
show the U.S. Capitol Police, or (2) for non-government officials, the
copies must be sent to the new Congressional Courier Acceptance Site at
the location of 2nd and D Streets, N.E., at least 48 hours prior to the
hearing date. Please ensure that you have the address of the Committee,
1102 Longworth House Office Building, on your package, and contact the
staff of the Committee at (202) 225-1721 of its impending arrival. Due
to new House mailing procedures, please avoid using mail couriers such
as the U.S. Postal Service, UPS, and FedEx. When a couriered item
arrives at this facility, it will be opened, screened, and then
delivered to the Committee office, within one of the following two time
frames: (1) expected or confirmed deliveries will be delivered in
approximately 2 to 3 hours, and (2) unexpected items, or items not
approved by the Committee office, will be delivered the morning of the
next business day. The U.S. Capitol Police will refuse all non-
governmental courier deliveries to all House Office Buildings.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Please Note: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee website and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing
for which you would like to submit, and click on the link entitled,
``Click here to provide a submission for the record.'' Once you have
followed the online instructions, completing all informational forms
and clicking ``submit'' on the final page, an email will be sent to the
address which you supply confirming your interest in providing a
submission for the record. You MUST REPLY to the email and ATTACH your
submission as a Word or WordPerfect document, in compliance with the
formatting requirements listed below, by close of business Wednesday,
July 26, 2006. Finally, please note that due to the change in House
mail policy, the U.S. Capitol Police will refuse sealed-package
deliveries to all House Office Buildings. Those filing written
statements who wish to have their statements distributed to the press
and interested public at the hearing can follow the same procedure
listed above for those who are testifying and making an oral
presentation. For questions, or if you encounter technical problems,
please call (202) 225-1721.
FORMATTING REQUIREMENTS:
The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.
1. All submissions and supplementary materials must be provided in
Word or WordPerfect format and MUST NOT exceed a total of 10 pages,
including attachments. Witnesses and submitters are advised that the
Committee relies on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. All submissions must include a list of all clients, persons,
and/or organizations on whose behalf the witness appears. A
supplemental sheet must accompany each submission listing the name,
company, address, telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
* * * CHANGE IN RECORD CLOSING DATE * * *
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
July 10, 2006
FC-24 Revised
Change in Record Closing Date for Hearing on
Implementation of the United States-Peru
Trade Promotion Agreement
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the deadline for receiving written
statements in lieu of personal appearance for the Committee hearing on
Implementation of the United States-Peru Trade Promotion Agreement,
previously scheduled for the close of business, Wednesday, July 26,
2006, has been changed to close of business, Tuesday, July 18, 2006.
All other details for the hearing remain the same. (See Full
Committee Advisory No. FC-24, dated June 27, 2006).
Chairman THOMAS. Thank you for finding your seats. Good
morning. Our hearing this morning will exam the United States-
Peru Trade Promotion Agreement, which would liberalize trade
barriers and mutually benefit Americans, improving businesses,
farmers, workers and consumers. This is a significant step
forward in promoting democracy and stability in the Andean
region. It will cement our relationship. As you know, we have
had an agreement with the Andean countries, but it is due to
expire.
Working with President Toledo who has been a champion for
this FTA, he is hoping a timely implementation can be moved,
significantly smooth the process so that he could offer this as
a gesture, or, if you will, a parting gift to his people.
Because after all, no one in Peru, better than President
Toledo, knows first hand how much hope and opportunity can
change a person's life for the better. He is no stranger to the
devastating effects of poverty. His story is one that, frankly,
does and should inspire us all; born into a family of 16
children, and, typical in that kind of a poverty family
structure, seven died in infancy. When he was 6 years old he
worked as a shoe shine boy. One of the difficulties in terms of
the economic unit of the family in that environment, is that
virtually everyone has to be a contributor to that family.
Through opportunities, in part, in terms of people that he
met shining shoes, opportunities created by the Peace Corps,
and, frankly, hard work, President Toledo was able to attend
college in the United States--envious colleges in terms of
Stanford, Harvard--he got his Ph.D. from Stanford. He then went
back and served his people in a leadership position.
Most importantly, being an indigenous person elevating to
the presidency, the first and only in the history, not only of
Peru, but in South America, he continues to work regardless of
the ``political consequences'' to do what he firmly believes is
right for the people of Peru.
His education and his life experience has helped him
understand that trade and free markets, coupled with education,
can be a very significant help in eliminating the scourge of
poverty.
As I said we already have trade agreements with Peru, but,
frankly, the trade preferences expire. This is an opportunity
to lock into place a mutually beneficial FTA. We have another
agreement with Chile. Based upon the pressure by other
countries in South America on the democratically elected
process in other countries--Peru recently went through an
election with those pressures applied to them. Yet in the
Chair's opinion, it was an absolutely outstanding job in
signaling to the rest of the world that Peru stands with us and
what democracy and free markets mean.
They have also stood with us in the world arena, most
recently, over the question of North Korea.
The Peruvian Congress has moved forward, the President-
elect has made strong statements. They have approved this
agreement 79-14.
This agreement deserves broad bipartisan support, and my
hope is that it gets the kind of support it deserves.
With that, the Chair will recognize the gentleman from New
York for any statement he would make. The Chair then intends to
recognize the Chairman of the Subcommittee on Trade, and then
the Ranking Member of the Subcommittee on Trade.
Mr. RANGEL. Thank you, Mr. Chairman. I am almost lost for
words because I heard you mention bipartisanship, and that is
so shocking. I really thought that it would be your preference
that Democrats didn't participate in this at all since, to my
knowledge, this is the first meeting we have had as Democrats
and Republicans in which this subject has come up.
As a matter of fact, now that we have the United States
Trade Representative (USTR) before us, maybe before we get
started in questioning, he should be prepared to answer whether
or not you think your job is to deal with Republicans or to
deal with Democrats, or to deal with the Congress; whether you
think it is proper for Members of Congress, whether they are
Democrats or Republicans, to be negotiating with trade
representatives, with foreigners, whether or not foreigners
should hear you have to talk with the Democrats as though we
are two different countries.
It would seem to me that if we had differences among us as
Members of Congress on this Committee, that we take those
differences to you and not to foreigners, since, when the flag
is up, we are we all are supposed to salute it.
I don't like the idea that foreign ministers and Presidents
have been told that the Democrats are holding up this bill.
It doesn't bother me, because, that is the hand that is
dealt, but this Committee has never met as Republicans and
Democrats to study anything that would imply that we want a
Democratic bill.
Oh, from time to time we might talk with one or two
Democrats, most of whom lack seniority, and pick up a vote or
two, but having one or two Democratic votes hardly seems to be
bipartisan unless that concept has been a partisan political
decision.
I would like to know, when it is time to question, that if
a government, through its foreign minister, especially in this
case, through the President, says that he would want to include
all of the minimum International Labor Organization (ILO)
standards into an agreement, whether or not the majority party
can say, I don't want it in there, or whether or not the USTR
decides what is in there.
If you represent the United States of America, is the USTR
supposed to recognize the majority party or supposed to
recognize the Congress? I don't ever recall you or anyone else
saying, I would like to get together with the leadership of the
Republicans and Democrats and see what I can do.
Whether we are talking about Oman, whether we are talking
about Peru, whether we are talking about Vietnam, I really
think that the one area that we ought to try our darnedest,
whether we win or lose, to get partisanship out of the debate,
is when you are dealing with foreigners and when you are
dealing with trade.
No foreigner wants a Democratic bill or a Republican bill,
they want a bill with the United States.
When you are appointed and they called you USTR, that means
to me, the United States' Trade Representative.
Not the Republican trade representative.
So, Mr. Chairman, it is so good to discuss this issue of
Peru with you at this point in time. It makes me feel good as
an old man to hear you talk in terms of an appeal for
bipartisanship. I hope the stenographer would make certain that
it is recorded so that I can make certain to have a statement
of this. That is going to be very helpful as a matter of
history that we have discussed the subject and I thank you for
your kind generosity and time.
Chairman THOMAS. Thank the gentleman, especially for his
comments. The Chair would note that under the Trade Promotion
Authority, we have a congressional structure in which Ways and
Means is a permanent member. Peru has been discussed six times
at the COG between 2004 and 2006, between that same period,
2004 to 2006, there have been 28 staff briefings. The gentleman
from New York is correct, the elected officials from Peru have
taken an interest in this and they have come; they have talked
to the Committee on Ways and Means jointly in a bipartisan way,
several times, and they have talked to individuals in an
attempt to discover why this excellent piece of legislation
isn't moving any more rapidly than it is.
The Chair now recognizes the Chairman of the Subcommittee
on Trade, the gentleman from Florida, Mr. Shaw.
Mr. SHAW. Thank you, Mr. Chairman and I thank you for
holding this hearing and welcoming this first step toward the
approval of the Peru trade promotion agreement. Today, I
believe we have a tremendous opportunity to demonstrate to Peru
and other Latin American countries that the United States
stands ready to offer a positive economic partnership as an
alternative to that of Venezuela's President Hugo Chavez.
Economically, this is a good deal for both countries. With
this agreement, Peru is able to expand and make permanent the
benefits provided under the Andean Trade Promotion and Drug
Eradication Act, currently set to expire in December.
First, our point of view, American companies will gain
immediate duty-free access for much of our exports and the
agreement will lead to an eventual elimination of all tariffs
on U.S. exports to Peru. While the economics of this agreement
alone will justify our approval, there is much more at stake.
Every Member of this Committee should be well aware of
Chavez's action. He actively seeks to restrict free markets,
bring more economic activity under government control, and
spread his anti-American ideology throughout the region.
Recent actions in Bolivia and Ecuador show the damaging
effect that Chavez can have on his neighboring countries.
Peru's policies stand in stark contrast. Under President
Toledo, Peru has pursued market-oriented policies, making it
one of the fastest growing economics in the region.
Peru's voters rejected Chavez's recent attempt to tamper
with their Presidential elections opting last month to elect
moderate Alan Garcia. Just a few weeks later, the Peruvian
Congress overwhelmingly approved the agreement by a vote of 79-
14 with the full support of Garcia's political party.
Today, it is our turn. We have an agreement before us that
is beneficial to both nations and will buildupon relationships
started under the performance of our preference program. The
agreement is supported by American companies, investors, and
farmers eager to begin and continue to expand their businesses
in both the United States and Peru. This agreement is supported
by both the incoming and outgoing governments of Peru.
Most importantly, the agreement is a symbol of what other
Latin American countries can achieve if they reject the
demagogic policies of Mr. Chavez.
I hope that one day, this agreement will be expanded to
other Andean countries, such as Colombia and Ecuador.
What message would we send to those countries if after all
positive actions taken by Peru, Members pull the rug out from
beneath them by rejecting this agreement?
There is a fork in the road for many Latin American
nations. They can choose a road that leads to government
seizure of business, State-run enterprises, and stifled
investment, or they can choose a path of free and open markets,
one that allows its citizens to work and achieve the rewards
that accompany their labors.
Mr. Chairman, the Committee is also at an important fork in
the road. Members can choose to send mixed signals to those in
Peru who have worked hard to extend their hand in economic
cooperation or we can choose to recognize what this agreement
will mean not only to the U.S. business and workers but also to
the people of Peru and potentially those citizens of our
neighboring nations.
Mr. Chairman, I would like to add here, this is more than
just about trade. This is about the politics of our own
hemisphere. This is about forging friendships and forging
partnerships with those to the south of us.
The United States has, for so many years, turned its back
on Latin America.
With the Central America Free Trade Agreement (CAFTA) (P.L.
109-53) agreement, we have opened this up, with Chile, we have
opened this up. Now we have a chance to do this with Peru.
What better country could we possibly try to build on this
partnership than with Peru and the wonderful leadership that it
has had under President Toledo?
To vote otherwise, and I would say to Mr. Rangel, this is
an American issue. There is no question about this.
This isn't a Republican issue. It is not a Democrat issue.
It is an American issue. It is how we are going to stand up in
our own hemisphere. How we are going to lead in our own
hemisphere and what is the future of American politics in this
hemisphere.
It would be tragic for us to turn our backs on Peru. I
would hope that all the Members will continue to work hard on
both sides of the aisle and not be puppets for anybody, but to
move forward in doing the best we possibly can to bring a FTA
between the United States and Peru. I yield back.
Chairman THOMAS. Thank the gentleman. The Chair would now
recognize the Ranking Member on the Subcommittee on Trade, the
gentleman from Maryland, Mr. Cardin.
Mr. CARDIN. Mr. Chairman, thank you very much, and let me
just join in the observation that there are many good reasons
why we should move forward with the FTA between the United
States and Peru.
Peru is a good friend of the United States a trusted ally.
During the past 5 years, President Toledo has demonstrated
his commitment to improve the lives of the people of Peru by
reform within his own country.
So, I am hopeful that at the end of the day we will be able
to have an agreement that can receive strong bipartisan support
and strong support in both the House and the Senate.
As the Ranking Member of the Subcommittee on Trade, let me
make it clear that the Democratic party is very much in support
of opening up markets so that American manufacturers, producers
and farmers can export more product.
So, we do want to remove trade barriers. We also want to
expand trade benefits to other countries. We all benefit from
expanded trade.
We want to enforce our trade rules. I mention that
particularly today, Mr. Chairman, as you know, the May report
on the trade imbalance is very disturbing: $63.8 billion trade
imbalance for May of this year, which puts us on pace to exceed
last year's record trade deficit of $716 billion. So, it is
important that we enforce our trade rules.
It is also important that the United States advance basic
worker rights and labor in our trade agreements. We have the
best opportunity to do that in bilateral Free Trade Agreements
(FTAs). I must tell you, I was very optimistic last year when
President Toledo was here, and before the FTA was finally
negotiated, where President Toledo offered to put in the core
agreement, compliance with international labor standards in the
agreement with the United States.
To me, that was a signal that we could advance in a free
trade agreement, with a significant trading partner, core labor
standards, which would make it easier for us to advance worker
rights internationally in other agreements.
Rather than seizing on that opportunity, the negotiated
agreement moved backward and used the standard of enforcing
your own laws, which in Peru's case, is not acceptable.
So, yes, we want to move quickly on an agreement. The best
way to do it is to take Mr. Toledo's offer and put it in the
agreement, and then we could move forward quickly.
I point out, as the Chairman has, that we do have the
Andean Trade Preference Act, and we have generalized systems of
preferences today with Peru.
As a condition to receiving those unilateral benefits on
their imported products, they have to acknowledge a commitment
to move toward international labor standards.
We give that up by the negotiated agreement if we don't
include a reference to ILO standards.
So, where are the problems? We are now back to enforce
their own rules, and we look at Peru and its trading practices,
and we find in many cases, Peru does not today meet
international labor standards. They allow employers the use of
subcontractors and temporary workers to undermine the rights of
workers. They fail to effectively sanction employers who
interfere in union activities. They impose burdensome costs of
arbitration on workers. They fail to effectively sanction
employer interference in union activities. They permit
employers to change unilaterally collective bargaining
agreements.
I mention just these five examples, and there are others
that we will point out during the discussion on these issues,
because I understand the Ambassador of Peru has sent us a
letter, Mr. Chairman, indicating that, for at least the last
two of those issues, the government is prepared to take action
on interpretation.
Now, I mention that because one of the problems we have had
with other FTAs, are the exchange of letters, because we are
enforcing our own law standard, rather than moving forward to a
direct reference to ILO standards.
I will admit, it is difficult in interpretation to know
what is going on, on the ground. So, yes, it is important that
we move forward with Peru, and we can do it quickly on the
issue of labor standards if we just accept President Toledo's
offer. Then we don't have to deal with interpretation of
letters or other procedures which are not as acceptable as a
direct reference in the trade agreement itself.
Mr. Chairman, I do look forward to working with you. I do
point out that, as the mechanism in Congress to deal with this,
our Committee has not taken up the Peru labor issue, and maybe
it would be a good forum for us to meet in an effort to try to
resolve that difference. I thank you very much for this
hearing.
Chairman THOMAS. The Chair thanks the gentleman. Prior to
introducing the assistant U.S. trade representative for the
Americas, Edward Eissenstat as per prior agreement, the Chair
would recognize the gentleman from Michigan for more than the
ordinary time. I would say to the assistant trade
representative, the questions that so far have come from the
dais have not been rhetorical, and that at an appropriate time,
the gentleman can and should respond and perhaps some of it,
given its detail, could be done in writing, but all Members of
the Committee would be interested in seeing the responses if
that were the case. The Chair recognizes the gentleman from
Michigan.
Mr. LEVIN. Thank you Mr. Chairman. I ask that a statement
of mine be placed in the record.
Chairman THOMAS. Without objection.
[The prepared statement of Mr. Levin follows.]
Globalization is under siege in many places. Expanded international
trade is hitting more and more roadblocks, both in multilateral trade
and bilateral negotiations.
There are many reasons this is happening.
One reason is that we no longer in this Congress and with this
Administration have the broad bi-partisan cooperation around
international trade necessary to tackle difficult issues. The
Republican Majority has rejected a broadly bi-partisan approach in
favor of very narrow victories on small trade agreements. This either
reflects the Majority's partisanship, or blind devotion to a belief
that more trade is always better no matter its terms, its contents or
it consequences. Whichever it is, this course is a mistake for
international trade policy.
Another key reason is that the benefits of expanded trade are not
being widely shared. Too many people in too many places feel they are
being left out or left behind.
It is within this broad context and in hopes that we might seize
the opportunity presented by the Peru FTA to restore a balanced and bi-
partisan approach to U.S. trade policy that I would like to describe my
experience on the ground in Peru regarding the rights of workers, the
accessibility of citizens to medicines basic for good health, and the
impact of trade agreements on agriculture.
The reason for the increasing attention to the basic international
rights of workers is that large numbers of workers feel that they are
on the outside when they do not share the benefits of expanded trade.
Large numbers of workers become opposed to expansion of international
trade when they feel they are competing with nations that try to gain
economic advantage from the suppression of their own workers. This is
not a provincial matter or simply a clash of domestic interest groups.
It takes on added meaning when the U.S. negotiates free trade
agreements with nations with immense poverty and vast differences in
distribution of income. In Peru, there has been substantial economic
growth, with some reduction in poverty. At the same time, about 50
percent of the population of 28million live in poverty under that
nation's own poverty standard of $58 a month, and about 20 percent are
living in extreme poverty under $32 a month. In Peru the wealthiest 10
percent receive 37 percent of the income, while the bottom 10 percent
receives only 0.7 percent.
During the years of the Fujimori regime, both in law and practice,
workers were deprived of their basic international rights, especially
the basic right to associate together and bargain regarding wages and
conditions in the workplace. New laws stimulated a structure of
relationships whereby workers began laboring under individual contracts
or through subcontracts instead of a direct employment relationship. So
employment was subject to arbitrary change or termination by the
company. Large proportions of workers in the formal sector no longer
belonged to labor organizations representing workers but they were left
on their own at the mercy of their company, in both industrial and
service sectors.
President Toledo succeeded the Fujimori regime with the promise of
addressing poverty, including the rights of workers. He has
passionately emphasized his commitment to battle poverty in his
meetings here in D.C. and in our cordial personal discussions that he
generously accommodated when I was in Peru in January.
Some changes were made in the labor law reforms of 2002.
However, they have not reversed the denial of basic international
standards of worker rights rampant under the Fujimori regime. Basic
structures instituted under Fujimori remain to this day.
This is evidenced in the 2005 State Department Report on Human
Rights on Peru. It was detailed when I was in Peru in January in the 25
meetings I had with a broad range of government officials and private
sector groups.
Problem areas in Peru's laws, as identified in reports by the ILO
and State Department, include a failure to provide for a neutral
arbiter to determine strike legality and inadequate judicial procedures
for handling cases of anti-union discrimination and other labor law
violations. Recently, we received a letter from the Embassy of Peru
responding to these as well as other concerns that Ways and Means
Democrats raised over 6 months ago. Some of the violations may be being
addressed, but others, including these, are not. The letter addresses
the concern about the failure of Peruvian law to provide sanctions
against interference by employers in the ability of workers to
associate by reference to a law now under consideration in the Peruvian
Congress; it addresses the concern that Peruvian law has allowed
unilateral changes in a collective bargaining agreement by the employer
with a reference to a ``Supreme Decree'' issued just last week.
While these deficiencies are problems in and of themselves, what
has most eroded the ability of workers to exercise their basic rights,
including to associate and bargain, persists from the Fujimori years.
It is the replacement of regular permanent direct-hire employment with
short-term individual contracts and subcontracting.
The rights violations that workers in Peru face on a daily basis
are facilitated by that country's complex and inadequate labor law
regime. Unlike most countries with civil law systems, Peru does not
have a central labor code. Instead, workers' rights protections are set
out in myriad, individual labor laws. The result is a confusing web of
regulations that impedes workers from understanding their rights.
In this ad-hoc approach, there are separate laws for specific
sectors and specific forms of labor contracts. There are also
exemptions that carve out from coverage key segments of the Peruvian
workforce. One such segment is the subcontracted sector.
In 2002, Peru passed law number 27626, a labor law regulating and
limiting the use of subcontractors. The law was touted as a step toward
protecting subcontracted workers' rights. Instead, by Supreme Decree
number 003-2002-TR, Peru severely limited the scope of this new law,
leaving virtually unregulated the most common form of subcontracting B
hiring subcontracted workers to perform normal, everyday company
operations.
These subcontracted workers are exempted from the controls
established for other forms of subcontracting by the 2002 law. Instead,
they are covered by law number 728, rules for individual contracts.
Therefore, if these workers' rights are violated, each individual
worker must bring a separate legal case to try to seek justice, leaving
these vulnerable workers with little to no possibility of enforcing
their rights. In the wake of the 2002 reforms, subcontracting core
company operations has exploded, and a large marginalized workforce has
been created.
Likewise, employers are increasingly using the nine permissible
forms of temporary contracts permitted by Peru's labor law number 728
to further destabilize their workforces. Employers characterize
permanent, everyday activities as temporary in order to enjoy this
flexibility.
If subcontracted workers or temporary directly employed workers try
to unionize or complain about substandard working conditions, their
contracts can simply not be renewed or they are asked never to return.
In addition, if employers do not wish to wait until the contracts
expire to expel them from their workplaces, employers may fire persons
without cause. Employers do so knowing that the fired workers only have
a right to reinstatement if they can overcome the often insurmountable
obstacles to demonstrating in court that they were fired for an
impermissible reason, such as union organizing. Workers rarely succeed.
If Peru's labor laws are going to come close to complying with
international standards, these serious shortcomings must be addressed
to ensure that the rights of all workers.
The effect of this use of the temporary/individual contract/
subcontracting process has been a dramatic reduction in workers
belonging to labor organizations. When I was in Peru, I heard that the
reduction was 62 percent among mining workers, and 75 percent among
communication workers since this practice began. These trends are
reflected in the 2005 State Department report on Peru, which notes that
Approximately 5 percent of the formal sector workforce of 8.5 million
belonged to organized labor unions.
One of the engines of Peru's recent economic growth has been in
agro-businesses, especially in asparagus and artichokes. The U.S. Peru
FTA should enhance these exports. Agro-business has increased
employment in areas in Peru needing that increase. The challenge is for
that employment to substantially decrease poverty. If workers do not
have their basic international rights, it is far less likely that this
challenge will be met.
While it is not easy to obtain complete information, the following
conditions seem prevalent: agricultural laborers, the majority of which
are women, often work 10-14 hour days, 6 days a week, with no vacation,
no health benefits and for very low wages (approximately $5.30 a day)
that drop if demand for the crop falls. There is also reported to exist
pervasive subcontracting, the use of individual contracts, the firing
of union organizers, and the lack of labor inspections.
There are also reports of gender-specific rights violations in this
industry, given the high percentage of women workers. Although the FTA
requires Peru to effectively enforce its labor laws, anti-
discrimination laws are exempted.
A recent article in Peru's La Republica notes that in the Ica and
Trujillo regions of Peru, both of which experienced substantial
increases in agro-industry exports B asparagus in particular B after
the implementation of Andean trade preferences, there exists extreme
levels of inequality as to the distribution of benefits from expanded
trade. The article notes that between 2000 and 2004 the average wage
for executives grew 51 percent in the Ica region and 65 percent in the
Trujillo region. This stands in stark contrast to the average wage
increase for workers, which was 1 percent and 0.5 percent in the Ica
and Trujillo regions, respectively, for the same period.
These circumstances underline the problem with the insistence of
the Administration in negotiating a standard for worker rights that it
would never dream of using for any other subject of the FTA: i.e. that
a nation must simply enforce its own present laws. And the laws can be
made worse with impunity consistent with the FTA.
In his meetings in D.C. with Members of both parties of the Ways
and Means Committee, President Toledo expressed the view that if
globalization was going to work there must be a broader sharing of the
benefits of expanded trade. He further stated that workers must be
included and for this to happen the basic international labor standards
should be incorporated into the agreement.
The Bush Administration failed completely to seize the opportunity
to accomplish this result.
For large numbers of impoverished people within Peru and other
nations in Latin American and elsewhere, the Bush Administration's
position places us on the wrong side.
For large numbers of people in our nation who worry about competing
with nations that suppress the rights of their workers as a method of
competition, it places us on the wrong side.
At a time when there is increasing understanding of the need to
combine policies of growth directly with key elements of equity, it
places us on the wrong side.
In a recent report of the World Bank on Latin America entitled
``Poverty Reduction and Growth: Virtuous and Vicious Circles,'' there
is this passage reflecting a broadened tenor regarding trade policy:
``. . . a sensible development strategy should focus on the quantity of
growth (that is, on the achievement of a high growth rate) and the
quality of growth (that is, on the benefits from that growth).''
The U.S. Peru FTA has advantageous provisions relating to the
quantity of growth. Exports will increase both for Peru and the U.S.
History of development in our Nation and others demonstrates vividly
that enhancement of the rights and role of workers is an important
ingredient in the quality of growth. The approach put forth by the Bush
Administration on worker rights (simply requiring the status quo or
worse) flunks the quality test.
Agriculture/Subsistence Farming
The FTA will lead to still further growth in both Peruvian and
American agricultural exports.
Peruvian agricultural exports have blossomed in recent years. Under
Andean trade preference programs, the major growth has occurred in
asparagus and artichokes, where there is some competition with the
U.S., and also in fruits.
Lower Peruvian tariffs will clearly help Peruvian consumers in
areas where there is no major source within Peru.
A study issued 6 months ago by the Carnegie Endowment on U.S.
negotiations for a free trade agreement with Andean nations, stated,
based on its interview with leaders and analysts, that expanded trade
would have an ``unambiguous positive impact'' on some of the economy
and population, and that ``. . . [t]he brunt of the adjustment costs
are likely to fall on farmers and the rural population in the Andean
countries.'' A more recent Carnegie study reinforced this conclusion.
Before passing the FTA on June 27, the Peruvian legislature
approved a ``compensation fund'' in relation to the impact of the FTA
on small subsistence farmers in Peru.
When in Peru, I received very different estimates of the likely
impact of the FTA on the millions of small Peruvian farmers. Some said
it would be minimal. Representatives of an organization of small
farmers called Conveagro argued that it would be dramatic. They now
urge that the amount of the compensation fund covers only three crops B
wheat, corn and cotton B and is grossly inadequate for the 5 year
period.
Clearly, the people of Peru have most at stake from the impact of
this issue. There is also an American interest. For globalization to
work, for the middle class to blossom, the benefits need to be broadly
shared. Further, there is an interest particular to the Andean region,
i.e. to be certain that the displacement of subsistence crops does not
lead to their replacement with the growing of coca already representing
a major issue for our Nation, including our security interests.
It would be wise for us to spend enough time to understand this
aspect of the FTA.
Intellectual Property and Medicines
The issue of availability of basic medicines in negotiation of an
FTA came up when there was consideration of the U.S.-Morocco FTA.
During the hearing on this FTA, I asked whether the language in the
section on intellectual property was consistent with the agreement
worked out in the WTO at Doha assuring access to generic medicines to
meet basic health needs in developing nations including Morocco. The
long and short was that a side letter was negotiated in an effort to
address this issue.
I discussed this issue in relation to the language in the U.S.-Peru
FTA when I was in Peru with both Health NGOs, the Health Minister and
at a meeting of representatives of major pharmaceutical companies.
Access to affordable medicines is extremely important for public
health in Peru, where over half of the population lives in poverty and
around 20 percent lack access to health care. Only half of all
Peruvians have health insurance; people living in poverty are for the
most part not insured and must either pay out of pocket or receive no
treatment at all. Medicines account for one quarter of public health
expenditure and 44 percent of household spending on health.
This issue has been covered by side letters between the two
governments. It is important to understand whether its contents are
subject to dispute settlement and therefore legally binding.
An additional side letter that is included in the Peru FTA, which
states that the references to the intellectual property chapter in the
Understanding include Article 10 on measures related to certain
regulated products, may not provide additional assurances in this
regard. It is stated in the report by the Industry Trade Advisory
Committee on Intellectual Property, ``ITAC-15 believes that the letter
serves only to clarify the Understanding and does not impose any
additional obligations beyond those already found in the
Understanding.''
Peru should be held to global standards of intellectual property
rights and should enforce those rights. However, we need to analyze
specific provisions for pharmaceuticals that exceed those general
standards and assess whether the provisions would cause hardship on
Peruvians, particularly the large number of people living in poverty.
Conclusion
The U.S. Peru FTA is an important agreement. It involves our two
nations with some historically close and significant relationships.
There is significant goodwill between our Nations, which has been
increased in the years of the Toledo presidency.
The FTA is also a test case of whether and how to shape the
elements of globalization and international trade. Those who give blind
support to expanded trade give ammunition to those who adopt blind
opposition.
We can do better. Indeed, we must. The terms for expanding trade
between the U.S. and Peru provided us an opportunity to do so. It is
indeed late, but still not too late to accomplish it.
Mr. LEVIN. I have prepared--at first I asked that I might
testify before this Committee. I did so, because I think that
it is essential that there be more dialog. I was hopeful that,
really for the first time on this issue, that we might have
some meaningful back and forth, especially as it relates to
Peru.
The bipartisanship is so critical, especially with
globalization in real trouble--expanded trade is now meeting a
number of roadblocks, both in the multilateral sector, as well
as in bilateral agreements.
So, it is really important that we try to recreate a
bipartisan foundation for trade in the United States.
Secondly, I think it is important to ask why globalization
is in such trouble.
Why is expanded trade meeting so many roadblocks? There are
a number of reasons for it.
One of them, and it has been raised here by Mr. Shaw and
others, is that so many people in so many countries are not
benefiting from the expansion of trade.
They are being left out. To mention Mr. Chavez, I think you
need to look why he is there. It is in part, because, as
Venezuela grew in prosperity, the vast majority of people did
not benefit.
So, our failure to try to shape our agreements, so that
there is a wider sharing of benefits, our failure needs to be
rectified so that there doesn't arise leadership that I think
is agnostic to basic principles of expanded trade and
globalization that will really work.
That is the context, Mr. Shaw. It is a discussion about
globalization, the failure for its spread to have the benefits
spread, and the consequences of it.
It isn't because anybody is a puppet. A number of us, most
of us have been working hard for expanded trade. We want it in
terms that will work.
So, let's talk about Peru. When President Toledo came here,
he talked about worker rights. He said to all of us, who were
sitting there, Republicans and Democrats, in order for
globalization to work, workers have to participate. In order
for workers to participate, the basic international core
standards should be in the agreement and enforceable. That is
what he said.
That has been the position of Democrats not for any narrow
reasons, but because of its importance for the unfolding of
globalization.
Everybody has to understand that. We have taken some tough
decisions, Democrats on this side, not always popular on our
side, because we believe with expanded trade, it has to be
shaped so that benefits are shared, to say it very simply and
clearly.
President Toledo inherited from Fujimori a structure that
undid the rights of workers in Peru; undid them.
It set up a structure of subcontracting and private
contracts; short-term contracts. The result was that labor
organizations were decimated. When I was in Peru, that was told
to me in the mining industries; dramatic reduction in the
ability of workers to be in organized structures.
The same was true in communications. Also in the Fujimori
years, there were failures to give workers the right to
associate, even when they had direct contracts. There was
discrimination rampant against any effort for them to organize
and to have collective bargaining.
In 1982, some of those aspects were changed. The reforms
made some progress, but the basic structures today remain from
the Fujimori regime.
You can see the impact of that in the agribusinesses that
are now blossoming on the west coast of Peru.
There is more work, but there isn't the ability of workers
to gain a wage that----
Chairman THOMAS. Gentleman yield briefly. If the timer
would renew the time, please, for the gentleman.
Mr. LEVIN. I appreciate that. So, look, this is what the
issue is here today. We would like to support an agreement with
Peru. It is our strong preference. We admire the President of
Peru, President Toledo. There is no question about his desire
to come into office and to try to address issues of poverty.
If those issues are going to be addressed and assisted
through a U.S.-Peru Trade Promotion Agreement (TPA), there has
to be put into place, as he himself suggested, in the
agreement, with enforceability, the basic ILO standards, not
American standards, but ILO standards.
Mr. Eissenstat, you are not making the decisions, but the
question we have always asked is, if the President of Peru said
yes, why did we say no?
Why we tabled a proposition that did not meet what he was
willing to incorporate? There was some reference to what is in
the TPA, it doesn't prohibit us for 1 minute to take the step,
to put the core labor standards in, so that workers can be part
of the mix of progress.
In my statement, I also cover other issues--and I hope we
will here--about medicines, and also about the impact on
subsistence farmers.
Mr. Chairman, and Mr. Shaw and our colleagues on the
Republican side, I hope there is still time for us to do this
right. Our failure to do so is, I think, inexcusable.
I worry about what is happening in Latin America and the
rest of the world. I worry about the path of globalization. Mr.
Chairman, if globalization is going to work, we have to take
steps in our agreements that there be broad participation. We
simply say to a country, enforce its own laws with regard to
its workers. It is a step backward.
Mr. Eissenstat, in your testimony I would like you to
indicate whether that standard is used in any other arena,
except as to worker rights and the environment and why this
Administration refuses to move in the direction of
incorporating basic worker rights within the body of an
agreement, so that as this agreement unfolds--and there will be
benefits, there will be more expanded trade--there will be
provisions therein that will help ensure that the benefits of
expanded trade reach the vast majority of the people of Peru.
Thank you, Mr. Chairman.
Chairman THOMAS. The Chair thanks the gentleman, and for
those of you who might not be familiar with the fact, gentleman
from Michigan went to Peru, and spent some time in Peru
familiarizing himself with those activities that occurred.
The Chair would now recognize gentleman from Illinois who
has spent considerable time in Latin and South America, also
familiarizing himself with conditions in Peru. Gentleman from
Illinois, Mr. Weller, and if the gentleman would yield briefly.
Mr. WELLER. Happy to yield, Mr. Chairman.
Chairman THOMAS. Thank the gentleman. I will tell gentleman
from Michigan that in the number of meetings that we attended
in a bipartisan way, and the gentleman represented a portion of
what President Toledo said, but I think it is also important to
note that the President also made a rather impassioned plea not
to be locked into a straightjacket in terms of the labor
structure that was being forcibly offered to him; citing his
own history and the continued poverty in which, in organized
labor relationships, there has been progress, and was
supportive of that, but that needed to recognize the conditions
in which boot strapping from poverty may involve more of the
extended family in a positive economic model.
It is always best to try to take what someone says in the
full context of what they say, rather than accepting portions
and assuming then if you didn't hear him, that that was the
plea that he made.
He made a far broader, more complex plea on the question of
labor. In this mutually negotiated agreement, the President is
solidly 100 percent in support. I thank the gentleman.
Mr. WELLER. Thank you, Mr. Chairman for giving me the
opportunity to express my strong support for the Peru trade
promotion agreement. Mr. Chairman, this is a good agreement for
both Peru and the United States. Here at home, we will see
vibrant new export opportunities to help our manufacturers and
farmers to compete with Asia and Europe and Peru or neighbors
and friends will see increasing economic opportunity and
continued poverty reduction. These are tangible, achievable
goals, and we can attain them by choosing to say yes to the
agreement.
From the United States, on day one of this agreement going
into effect, 80 percent of our U.S. exports in consumer and
industrial products to Peru will become duty free immediately.
This means real export opportunities for American
manufacturers. I am proud to represent thousands of Caterpillar
workers who will see tremendous benefits in this agreement, Mr.
Chairman; a million dollar off-highway truck used in mining,
like the one I have here in front of me today, suffers today at
a 12 percent tariff when imported to Peru. That amounts to a
tax representing $120,000 added to the price of this million-
dollar truck, immediately making it less competitive with their
Asian competition. On day one of this agreement, that 12
percent tax on this million dollar piece of equipment goes
away.
This agreement is good for farmers. Again, on day one of
this agreement, 2/3 of current U.S. farm exports become duty
free immediately. Pork tariffs are as high as 25 percent going
into Peru, but Chilean pork is currently duty free going into
Peru. Pork taxes are reduced immediately and gone in 10 years,
helping us to compete. Soybeans, soybean meal and crude soy
bean oil become duty free immediately. For corn, Argentina
accounts for 2/3 of Peru's corn imports, and is priced
approximately 9 to 10 percent less than U.S. corn.
Argentine corn currently only has a 3.4 percent tariff, but
U.S. corn is dutiable at 17 percent.
Again, this agreement creates benefits for U.S. farmers by
reducing and eliminating all tariffs on corn. United States
agriculture stands to see over $700 million increased annually
when fully implemented, only if we choose today to implement
this agreement.
Let's not forget under current law, most imports from Peru
enter in this country with no duty. Ninety-eight percent of all
imports from Peru enter duty free, and the average U.S. duty on
imports from Peru is less than 1/10 of 1 percent, but the
average applied duty on U.S. exports to Peru is 8 percent. It
is a good deal for Peru, but not for U.S. workers or farmers.
This agreement makes our partnership equal, and means the
benefits that Peru has received unilaterally for nearly 15
years will now be shared equally. The International Trade
Commission (ITC) estimates an additional $2.1 billion in
economic growth from this agreement alone for the United
States, and increasing U.S. exports to 1.1 billion.
This agreement is not only important for our U.S.
exporters, but also for continued economic growth in Peru and
stability in their own hemisphere. I have traveled twice to
Peru and spent significant time learning about the conditions
there.
Let me begin by saluting President Toledo for his
leadership which allowed this agreement to be negotiated, and
for his and the people of Peru's unwavering friendship with the
United States.
We cannot forget where President Toledo brought the
Republic of Peru from and the path he has put Peru on.
Following the difficult Fujimori years, President Toledo
restored democratic institutions, built the economy on exports
and reduced poverty all the while working side by side with the
United States to fight narcotrafficking and supporting the
global war on terror.
I have traveled to export facilities, met and spoke with
workers and seen the hope and opportunity exports give to
workers in Peru.
President Toledo has argued passionately as one who knows
poverty firsthand in favor of this agreement, not only as a
solution to poverty, but as a tool.
The Peruvian people have spoken as well, and they spoke
loudly in favor of building the Peru-U.S. partnership. Voters
silently rejected the message of the chosen candidate of
Venezuela, Hugo Chavez, when Ollanta Humala advocated ending
Peru's partnership with the United States for a thin veneer of
populist sentiment, masking the greater hemispheric ambitions
of Chavez, the people of Peru saw through it and they said no.
Peru's congress took a definitive stand in favor of the Peru
TPA, voting 79-14 to ratify this agreement. Peru is now
counting on the United States to complete our work on this
agreement.
It is more important than ever that the United States not
turn its back on Peru and continue its partnership with this
key neighbor.
My colleagues, I hope you will give serious consideration
not only to the important work that Peru has done in a short
time, but also the positive course Peru has set on particularly
in the areas of labor.
Some of my colleagues argue that Peru has not done enough
on labor, but let's look at the facts. The Fujimori era
dismantled labor rights in Peru. President Toledo had to start
from the beginning to build and strengthen labor rights and has
made significant strides in 5 short years.
Major labor reform law was passed in 2003. That included
reducing the number of workers needed to establish a union,
eliminating prohibitions that kept workers from joining unions
during their probationary period, and limited the power of the
labor authority to cancel union's registration.
In 2004 Peru published regulations to strengthen labor
inspections and broadened labor inspector's powers. In all,
more than 30 labor reforms have been achieved in the Toledo
administration. The Peru trade promotion agreement includes
labor obligations as part of its core text and contains even
stronger language on labor standards than the U.S.-Chile FTA.
Finally, with regard to ILO issues, Peru has ratified 71
ILO conventions, including all eight of the core conventions.
The ILO has noted with satisfaction Peru's work on labor issues
having made changes to Peruvian law to address the vast
majority of ILO observations. Peru has received ILO praise as a
leading example in the Americas of efforts to bring national
laws into compliance with international ILO standards.
Four issues of concern related to Peru's labor laws were
raised by some Members of this Committee in a letter, and I
would just like to note for the record that each of these
points have been specifically addressed in a letter from
Peruvian Prime Minister Kuczynski. Briefly, he reaffirms that
the Peruvian constitution recognizes the right of workers to
unionize, to bargain collectively, to strike, and that
employers cannot interfere with unions.
Peru's law in collective work relations prohibits employers
from interfering with workers' right to form unions. Workers
dismissed for union activity have the right to file an amparo,
a petition for reinstatement to their jobs, and Peru's Congress
just this last week approved a new labor inspection law that
defines violation of fundamental labor rights as a severe
violation for enforcement purposes.
Finally, let me highlight two supreme decrees just
approved: one will amplify current law that employers cannot
unilaterally change contents or conditions established in
collective bargaining agreements, and another clarified that
unions, not government, make the determination of how many
workers constitute a strike granting majority.
Several other points were raised in this letter, but two
are worth pointing out here. First, there is no provision in
Peruvian law that prohibits temporary workers from affiliating
with the same union as permanent workers. If an employer fired
a temporary employee for trying to exercise his rights to
affiliate, he would have a cause of action for reinstatement
and specific constitutional protections.
Secondly, with regard to child labor protections, the
government has strengthened child labor laws and developed a
national plan of action. Peru passed laws in the year 2000,
2001 and 2004 to help fight child labor, and Peru has
participated in the ILO international program for elimination
of child labor for over a decade.
This is a good place to talk about what growing Peruvian
exports will mean for Peruvians. Export jobs pay higher wages
and bring people into the formal sector where rights are more
easily protected. That is what we are talking about today, more
economic opportunities, more job security.
Again, this agreement will not be the sole answer to
eliminating poverty, but it is a key tool.
Today we are faced with a choice, Peru's chosen decisively
to say yes to opportunity and to strengthening our partnership.
The question remains, if we, too, will make that positive
choice. I urge my colleagues to say yes to the U.S.-Peru Trade
Promotion Agreement (PTPA). Thank you, Mr. Chairman, and I
yield back.
Chairman THOMAS. I thank the gentleman, and now I will
recognize for his comments the assistant U.S. Trade
Representative, Mr. Eissenstat. Your written testimony will be
made a part of the record, and you may address us in any way
you see fit.
Prior to recognizing you, the Chair would ask unanimous
consent to submit to the USTR a written question by the
gentleman from New York, the gist of it is concern about rules
of origin, particularly dairy products, and we anticipate a
written response and the Chair would indicate that he would
like to see the answer as well.
Without objection, Mr. Eissenstat, the microphone is yours.
STATEMENT OF EVERETT EISSENSTAT, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR THE AMERICAS, OFFICE OF THE U.S. TRADE
REPRESENTATIVE
Mr. EISSENSTAT. Thank you, Mr. Chairman, Ranking Member
Rangel, Members of this distinguished Committee, it is really
an honor for me to be here today and have an opportunity to
discuss our free trade agreement with Peru. We greatly
appreciate the guidance of this Committee throughout the
negotiating process, and we look forward to continuing to work
with you as we move this agreement through the legislative
process.
The United States-Peru Trade Promotion Agreement marks the
beginning of a new chapter in our trade relations with Peru.
This agreement will enable us to turn our unilateral preference
program into a two-way commercial partnership. It eliminates
unfair trade barriers and provides new opportunities for
American manufacturers, farmers and ranchers.
The agreement levels the playingfield for U.S. exports with
respect to our competitors, improves market access, and
enhances protection for workers and the environment.
Please allow me to put this agreement in context. In 1991,
the U.S. Congress voted to authorize trade preferences to Peru
through the Andean Trade Preference Act. Bipartisan approval of
this preference program helped combat illegal drug cultivation
by providing new export opportunities for the Peruvian people.
In 2002, two things occurred which helped lay the foundation
for our current agreement.
First, U.S. Congress significantly enhanced trade
preferences under ATPA through the Andean Trade Promotion and
Drug Eradication Act. Second, Alejandro Toledo instituted a
series of political and economic reforms which have solidified
Peru's democratic institutions and reinvigorated its economy.
The results have been impressive. Since 2003, Peru's real
gross domestic product (GDP) has grown at an annual average
rate of 5 percent. More than 1.3 million Peruvians have been
lifted from extreme poverty. In 2005, imports from Peru to the
United States reached $5.1 billion.
The United States has much to gain from this agreement as
well. Today, 98 percent of imports from Peru enter the United
States duty free. Meanwhile less than 2 percent of U.S.
agricultural exports and 4 percent of U.S. industrial exports
enter Peru duty fee.
Our free trade agreement will put an end to this disparity.
On day one, 80 percent of our industrial products will become
duty free into Peru. These items will include technology
products, agricultural and construction equipment, auto parts
and chemicals.
At the same time, almost 90 percent of our current
agricultural trade with Peru will become duty free, including
products such as high quality beef, cotton, wheat, soybeans and
many fruits and vegetables. Peru also eliminated its price ban
system on trade with the United States.
The agreement provides new opportunities for U.S. service
providers across a wide range of sectors such as
telecommunications, insurance and express delivery. It also
provides strong protection for U.S. intellectual property
interests, including copyright protection for the digital age
as well as patents and trademarks.
The agreement establishes a secure, predictable legal
framework for U.S. investors in Peru.
Let me briefly address two issues that we know are of
particular importance to the Members of this Committee, labor
and the environment.
Peru has under taken significant labor reforms in the past
several years and is committed to undertaking additional
reforms in efforts to address concerns raised by the United
States.
Peru has ratified all eight ILOs core conventions, and
Peru's constitution guarantees freedom of association,
collective bargaining and the right the strike.
In 2003, Peru enacted a major labor reform law
strengthening labor rights and responding to ILO observations
on their labor regime. The agreement includes a variety of
tools that will help ensure that workers in Peru benefit from
these reforms.
First, the agreement will require Peru to effectively
enforce its labor laws. The agreement also calls for Peru to
provide fair, equitable and transparent domestic legal
procedures through which persons can seek enforcement of Peru's
labor laws.
The agreement creates a labor cooperation and capacity
building mechanism and a labor affairs council to oversee
progress under the labor chapter.
The environment chapter includes specific obligations in
the core text of the agreement. Each party must effectively
enforce its domestic environmental laws and this obligation is
subject to dispute settlement provisions. The agreement also
mandates the establishment of an independent secretariat to
review and consider public submissions on environment
enforcement matters. There is also a parallel environmental
cooperation agreement promoting joint cooperative efforts to
protect the environment including protection of endangered
species.
Mr. Chairman and Members of the Committee, Peru is a
country heading in the right direction. Just last month the
people of Peru elected a new President committed to promoting
free market principles and democracy. On June 28th the Peruvian
Congress approved our free trade agreement by a wide margin of
support, 79 to 14. Meanwhile ATPA preferences will expire at
the end of this year.
We need to seize this opportunity to advance our
partnership with Peru and help promote economic growth and
political stability in Peru and throughout the Andean region.
I hope that after examining the agreement, the Members of
this Committee and the U.S. Congress will agree that it is a
good agreement that is solidly in our National interests.
Thank you, Mr. Chairman, Members of the Committee, I am
happy to answer any questions you may have.
[The prepared statement of Mr. Eissenstat follows:]
Statement of Everett Eissenstat, Assistant U.S. Trade Representative
for the Americas, Office of the U.S. Trade Representative
Chairman Thomas, Chairman Shaw, Ranking Member Rangel, Members of
this distinguished committee, thank you for the opportunity today to
discuss the economic and political benefits of our free trade agreement
with Peru.
I appreciate the views and guidance received from members of this
Committee on the U.S.-Peru Trade Promotion Agreement over the last two
years. I look forward to working with you and your colleagues as we
seek congressional approval of this historic agreement.
The United States-Peru Trade Promotion Agreement marks the
beginning of a new chapter in our commercial partnership with Peru. The
agreement sets out fair and reciprocal trade rules which will promote
economic growth and prosperity in both countries. It eliminates unfair
barriers to U.S. exporters, opening a market of 28 million consumers to
U.S. manufacturers, farmers, ranchers, and service providers. In 2005,
exports of U.S. goods to Peru reached $2.3 billion and through the
implementation of this Agreement we expect our exports to rise
significantly. While the benefits of this Agreement will accrue for a
broad range of U.S. exporters across the country, states with the
largest volume of exports to Peru--Texas, Florida, California,
Louisiana, and Illinois--will gain even more export opportunities
through the implementation of the Agreement. In fact, according to the
International Trade Commission, our industrial and agricultural exports
to Peru are expected to increase annually by as much as $1.1 billion
once the Agreement is fully implemented. To date, it is the best
agricultural deal we have ever negotiated in terms of access for U.S.
farmers and ranchers to other markets.
In exchange, the Agreement makes permanent the trade benefits
Congress first authorized for Peru in 1991 under the Andean Trade
Preference Act and enhanced significantly in 2002. By helping to create
favorable conditions and incentives, the U.S.-Peru TPA will aid in
sustaining real growth, creating more jobs, and attracting investment
in Peru. This agreement will also support and enhance the democratic
and economic reforms undertaken by Peru's leaders in recent years.
An Emerging Partnership
I would like to put this Agreement in context. In 1991, the U.S.
Congress with strong bipartisan support voted to authorize duty-free
benefits to Peru through the Andean Trade Preference Act, or ATPA. ATPA
was designed to help expand economic opportunities in the Andean region
and encourage our Andean neighbors to move away from the production,
processing and shipment of illegal drugs and to move toward legitimate
products. Peru has benefited significantly from the program, steadily
increasing its exports to the United States since 1993. Imports from
Peru to the United States totaled $5.1 billion in 2005, of which $2.3
billion benefited from ATPA preferences.
In 2002, two events occurred which helped lay the economic and
political foundation for this Agreement. First, Congress enacted the
Andean Trade Promotion and Drug Eradication Act (ATPDEA), which renewed
and enhanced trade preferences under the ATPA. Second, Peru's
President, Alejandro Toledo instituted a series of political and
economic reforms which have helped lift many Peruvians out of poverty
and have solidified Peru's democratic institutions. These reforms have
included: (1) restoring democratic practices, best illustrated through
the free and fair presidential elections held this year; (2) increasing
expenditures for health and social infrastructure programs; (3)
undertaking initiatives in the area of labor rights, particularly to
protect the rights of labor unions and children; (4) enhancing respect
for the freedom of the press; and (5) improving Peru's investment
climate. The entire region took note when the people of Peru reaffirmed
their support for these positive reforms in June 2006, by electing a
president in June of 2006 committed to continuing to pursue democratic
and free-market principles.
The results have been impressive. Since 2003, Peru's real GDP has
grown at an annual average rate of five percent. In 2005, Peru's GDP at
market exchange rates totaled $78 billion. Two-way trade between Peru
and the United States increased from $3.4 billion in 2001 to $7.4
billion in 2005, a growth of 118 percent over four years. This economic
expansion has reached all levels of society. Even as Peru's population
expanded by 1.6 million between 2001 and 2005, the number of people
living in poverty declined. According to Peru's National Institute of
Statistics and Information (INEI) and the Ministry of Economy and
Finance during those four years, nearly 500,000 people were lifted out
of poverty, and more than 1.3 million escaped extreme poverty.
On June 28, the Peruvian Congress approved the United States-Peru
Trade Promotion Agreement by a wide margin of support with 79 votes in
favor and 14 against. The Agreement received full support from members
of President-elect Alan Garcia's APRA party. Meanwhile, our trade
preference program with Peru (ATPA) will expire at the end of this
year. To ensure that these positive trends I have outlined continue,
the time for Congress to act on this Agreement is now.
The political and economic benefits of the United States-Peru Trade
Promotion Agreement for the United States are significant
(notwithstanding the small size of Peru's economy). This agreement
makes trade between us a two-way street. Today, ninety-eight percent of
imports from Peru enter the United States duty-free as a result of our
unilateral preference programs or our most favored nation (MFN) duty-
free rates. Meanwhile, less than two percent of U.S. agricultural
exports and four percent of U.S. industrial exports can enter Peru
duty-free. This is attributed to the fact that Peru applies duty-free
treatment to very few products on a MFN basis.
The Agreement makes our trade relationship more reciprocal and more
equitable. On the day the Agreement takes effect, 80 percent of our
industrial products will be able to enter Peru duty-free. Within five
years, an additional six percent of our industrial products will become
duty-free and another four percent within seven years. Duties on the
remaining 10 percent of industrial products will be phased-out over ten
years. This will mean significant new opportunities for American
manufacturers of technology products, mining, agricultural and
construction equipment, medical and scientific equipment, auto parts,
paper products and chemicals. Peru also agreed to join the WTO
Information Technology Agreement, considered the ``gold standard'' of
liberalization in high tech products.
In agriculture we see a similar story. While Peruvian agricultural
exports face few if any duties when they enter the United States, U.S.
agricultural exports face Peruvian tariffs as high as 25 percent on
most products and much higher tariffs for some others such as rice.
Under Peru's current WTO commitments, these tariffs can legally be set
as high as 30 to 68 percent ad valorem. Additionally, Peru applies
variable tariffs based on price bands on more than 40 products,
including corn, rice, dairy, and sugar.
The United States-Peru Trade Promotion Agreement eliminates the
tariff disparity that currently exists between the United States and
Peru. It lowers tariffs, turning our one-way preference program into a
trade partnership, and assures that our exporters will not face higher
tariffs in the future. On the day the Agreement takes effect, almost 90
percent of our current agricultural trade with Peru will enter the
Peruvian market duty-free, providing opportunities to expand our
current 20 percent share of Peru's agricultural market. In addition,
Peru will immediately eliminate its price band system on trade with the
United States. Tariffs on other agriculture products will be eliminated
gradually, most within five to fifteen years. Within 17 years, all of
our agriculture exports will be duty-free.
In addition, the agreement will afford U.S. exporters preferential
treatment that will position them favorably vis-`-vis exporters in
third countries competing for the Peruvian market. These include strong
agricultural producers, including Brazil, Argentina, and Chile, with
which Peru has entered into preferential trade agreements over the past
several years. The United States-Peru Trade Promotion Agreement also
will give U.S. agriculture exporters a competitive edge over countries
such as China, which are gaining market presence in Peru, but do not
enjoy preferential access.
Here are a few examples of how the Agreement will help boost our
agricultural exports to Peru.
U.S. beef and beef products currently face applied tariffs ranging
from 0 to 25 percent in Peru, with ``bound'' (i.e. WTO ceiling) rates
set at 30 percent. Under the Agreement, the tariffs on top priority
products for the U.S. beef industry--high quality beef--will drop to
zero immediately upon entry into force of the Agreement. This will
enable our beef industry to compete on equal or better terms with beef
products from Argentina and Brazil that currently enjoy preferential
access to Peru's market.
Tariffs on most U.S. pork products, currently set as high as 25
percent, will be eliminated immediately or within five years after the
Agreement enters into force. The U.S. pork industry will then be in a
position to compete on an equal or more favorable basis with pork
products from Chile that currently enjoy preferential access to Peru.
The U.S. poultry industry is another clear winner. The Agreement
provides immediate duty-free treatment for a 12,000-ton tariff rate
quota for chicken leg quarters, and the quota will grow at an annual
compound rate of eight percent.
Other U.S. agricultural exports such as wheat, cotton, fruits, tree
nuts, vegetables and vegetables products, are all expected to increase
significantly as the Agreement will immediately eliminate Peru's
tariffs on these products, which range from 0 up to 25 percent. Even
for sensitive products for which tariffs are phased-out over longer
time periods (e.g. rice and dairy), Peru will establish tariff rate
quotas that will provide immediate duty-free access for certain
quantities that grow as the tariffs are phased-out.
In sum, this Agreement will substantially benefit U.S. agriculture.
The Agreement benefits U.S. exports by going beyond tariff
reductions. It eliminates non-tariff barriers that currently limit U.S.
products and services from competing in Peru's market. Under the
Agreement, Peru will become the first Andean country to lift its import
restriction on remanufactured goods. This is a significant achievement,
creating a new export market for U.S. remanufactured products such as
computers, cell phones, construction and medical equipment, heavy
machinery, and auto parts. The Agreement also establishes state-of-the-
art customs procedures to expedite the movement of goods between our
markets.
The Agreement will also provide important new opportunities for
U.S. companies in Peru across a wide range of services sectors:
telecommunications, banking, insurance, audio-visual services,
transportation, engineering, computer and related services and express
delivery, just to name a few. This agreement also provides
comprehensive and strong protection for U.S. intellectual property
interests, including copyright protection for the digital age, as well
as patents, trademarks and proprietary data protections. Additionally,
the Agreement provides for stronger enforcement against infringement of
intellectual property. The United States-Peru Trade Promotion Agreement
also includes strong anti-corruption procedures and provisions on
transparency in government contracting and in other areas of trade that
will help address this issue. The agreement also establishes a secure,
predictable legal framework for U.S. investors in Peru.
Let me briefly address two issues that we know are of particular
importance to many members of this Committee--labor and the
environment. Peru has undertaken significant labor reforms in the past
several years, and is committed to undertaking additional reforms in an
effort to address concerns the United States has raised. Peru has
ratified all eight core conventions of the International Labor
Organization (ILO) and Peru's Constitution guarantees freedom of
association, collective bargaining, and the right to strike. In 2003,
Peru enacted a major labor reform law, strengthening labor rights and
responding to ILO observations on Peru's labor law. Among the changes
it made, Peru's labor reform law reduced the number of workers needed
to form a union, limited the power of the labor authority to cancel the
registration of a union, and eliminated provisions that prohibited
unions from engaging in political activity.
The United States-Peru Trade Promotion Agreement includes a variety
of tools that will help ensure that workers in Peru benefit from these
reforms. First, the Agreement will require Peru to enforce its labor
laws effectively. Should Peru fail to do so, the United States can
invoke the Agreement's consultation and dispute settlement procedures,
which could ultimately lead to the imposition of an annual monetary
assessment of up to $15 million. The Agreement also calls for Peru to
provide fair, equitable and transparent domestic legal procedures
through which persons can seek enforcement of Peru's labor laws. The
Agreement also creates a labor cooperation and capacity building
mechanism to advance cooperation on labor matters. It establishes a
Labor Affairs Council, comprised of senior government officials, to
oversee implementation of and review progress under the labor chapter.
The environment chapter, like the labor chapter, includes specific
obligations in the core text of the Agreement. Specifically, each Party
must effectively enforce its domestic environmental laws, and this
obligation is subject to the Agreement's dispute settlement provisions.
The environment chapter not only includes the obligation to effectively
enforce domestic environmental laws, but also includes obligations on
transparency, rule of law, procedural guarantees and access to the
judicial, quasi-judicial and administrative proceedings and
requirements for public participation in policy decisions in the area
of trade and environment. The Agreement calls on the Parties to
establish an independent secretariat to review and consider public
submissions on environmental enforcement matters in Peru. An
Environmental Affairs Council, comprised senior-level officials with
environmental responsibilities, will review how the Agreement's
environmental provisions are implemented. We have also included, for
the first time in a U.S. free trade agreement, an article affirming
both countries' commitment to protect and conserve biological
diversity. Finally, in parallel with the free trade agreement, the
United States and Peru concluded an Environmental Cooperation Agreement
(ECA) that will promote joint cooperative efforts to protect the
environment, including protection of endangered species and fragile
ecosystems.
We strongly believe that the obligations set out in the environment
chapter and the cooperative activities we have agreed to undertake
under the ECA will help make trade and environmental protection
mutually supportive for both Peru and the United States.
Mr. Chairman and Members of the Committee, the United States-Peru
Trade Promotion Agreement enables us to turn our unilateral trade
preference program into a trade partnership, level the playing field
for U.S. exporters with respect to our competitors in Peru's market,
encourage domestic political and economic reforms in Peru, and enhance
protection for workers and the environment in that country. I hope that
after examining the Agreement, the Members of this Committee and the
U.S. Congress will agree that this is a solid agreement that is
strongly in our national interest.
Let me conclude where we began. Peru is a country heading in the
right direction. Peru's leaders and its people are making the right
choices. Just last month, faced with the choice to continue the
economic and political reforms instituted by President Toledo or to
follow an alternative, anti-market and anti-democratic model promoted
by others in the region, the people of Peru elected a new president
with a strong mandate to promote free market principles and a stronger
democracy. Today, it is our turn to choose. We can turn our back on
Peru by rejecting this Agreement or we can seize this opportunity to
strengthen our partnership with Peru and help promote economic growth,
prosperity and political stability in Peru and throughout the Andean
region. I look forward to working with you Mr. Chairman, Ranking Member
Rangel, and the other Members of this Committee to achieve strong
bipartisan support for this Agreement.
Again, thank you for the opportunity to testify today.
Chairman THOMAS. Thank you very much. The Chair would
recognize the gentleman from Florida, the Chairman of the
Subcommittee on Trade, with the understanding that the Chair
intends to enforce the normal rules of the Committee in terms
of 5 minutes for questioning of the witness. Gentleman from
Florida.
Mr. SHAW. Thank you, Mr. Chairman. I doubt I will take my 5
minutes. Mr. Eissenstat, your comments were very inclusive, and
I think covered most of the things that were brought out and
discussed and questioned on the opening statements.
Looking at the Andean Free Trade Agreement and comparing it
with the agreement that we have today, other than--that we have
before us today, what advantages, other than the fact that the
Andean Free Trade Agreement terminates at the end of this year,
what advantages or what difference are Peruvian exports to the
United States going to differ under this agreement?
Mr. EISSENSTAT. Thank you, Congressman Shaw, that is a very
good point. As you know, what we currently have with our trade
regime with Peru is a unilateral preference program whereby
their imports come into our country virtually duty free. We
don't have that same reciprocity with Peru. Under the terms of
this agreement, the preference program will turn into a two-way
street. Many of our goods and services exports will be duty
free. The agreement also opens up opportunities for services,
provides manufacturers, as well as agricultural producers.
So, it is a very solid agreement on the trade front.
In addition, this agreement provides tools that we do not
currently have to address labor and environment concerns that
the United States may have or that may arise under the
agreement. So, it is a very solid comprehensive agreement that
addresses many concerns and reaches far beyond the current
trade regime that we have with Peru today.
Mr. SHAW. So, is it correct to say that this imposes
certain restrictions and requirements on Peru that are not now
required under the Andean free trade agreement?
Mr. EISSENSTAT. Yes, Congressman Shaw, that is correct.
There are provisions in here to not only enforce your own laws
but there are cooperative provisions, labor capacity
provisions, and a number of cooperative activities that need to
be undertaken in the labor environment regimes that aren't part
of our current preference program.
This is in addition to on the trade front elimination of
the price band for agricultural products, and duty free
treatment for virtually 90 percent of our current trade for
agriculture. So, there is really a broad panorama of benefits
that we receive under the trade promotion agreement that we
simply don't have under the preference program today.
Mr. SHAW. Under the Andean free trade agreement, we got no
consideration for our exports; is that correct?
Mr. EISSENSTAT. That is right. It is a one way program.
This agreement will turn that one way program into a two-way
trade relationship.
Mr. SHAW. The Gentleman from Illinois spoke about the
tariffs that were placed on Caterpillar equipment going into
Peru. I would say that, and I would certainly guess that
Caterpillar and other American manufacturers, automobile
manufacturers, are going to be much more competitive and will
enjoy a much larger export into Peru because of this agreement.
Is this a logical assumption?
Mr. EISSENSTAT. Absolutely, Congressman, that is exactly
right. As you know, under the agreement 80 percent of consumer
and industrial goods will become duty free immediately. All
other industrial goods and consumer exports will be phased out
over 10 years, which is a very significant achievement; but I
would like to point out, in addition to just duty reductions,
this agreement provides for the elimination of non tariff
barriers.
For example, there are customs cooperation provisions,
transparency, anti corruption provisions, as well as enhanced
investment protection and elimination of a number of services
barriers. So, the agreement really provides new opportunities
and not just for big manufacturers. Today 80 percent of the
exporters to Peru are small businesses, which amounts to a
little over 4,000. For small businesses, elimination of these
nontariff barriers are very significant. This agreement creates
opportunities across the board for workers, farmers and
exporters in the United States.
Mr. SHAW. Finally, this agreement then would help us on our
end balance of trade, cut down on our trade deficit and promote
American jobs. Is that a correct assumption?
Mr. EISSENSTAT. Exactly right. This agreement, as the ITC
study demonstrates, would reduce our trade deficit with Peru by
25 percent.
Mr. SHAW. Thank you. I yield back, Mr. Chairman.
Chairman THOMAS. Thank the gentleman. Gentleman from New
York wish to inquire.
Mr. RANGEL. Thank you, Mr. Chairman, and congratulations
for assuming your new responsibilities.
Mr. EISSENSTAT. Thank you.
Mr. RANGEL. I am particularly impressed with the fact that
you worked for Chairman Jim Kolbe and Senator Grassley and
might able to be of some assistance to us to get over the
legislative problems that we have in presenting our views to
you.
I assume it makes your job easier when you are dealing with
the House and Senate in a bipartisan way.
Mr. EISSENSTAT. Ranking Member Rangel, it does. I have
enjoyed working in the House. I have enjoyed my work in the
Senate, and in fact, it is an honor to be here today. I hope
that the experience I have gained will enable me to work with
you on a bipartisan way to advance our common agenda through
the trade agreements.
Mr. RANGEL. How long have you been with the USTR?
Mr. EISSENSTAT. I started there in January of this year.
Mr. RANGEL. During that period of time, have you ever
hurried up the USTR meeting with Members of this Committee on
trade issues, Republicans and Democrats, together?
Mr. EISSENSTAT. Well, I have actually been focused on my
current portfolio----
Mr. RANGEL. Just have you ever heard of it? Anybody?
Mr. EISSENSTAT. I have certainly heard of meetings with
Members of Congress----
Mr. RANGEL. I know, Republican Members and Democratic
Members, the magic word is ``together.''
Mr. EISSENSTAT. I am confident those meetings have taken
place. I am confident they have.
Mr. RANGEL. You are? Based on what rumor?
Mr. EISSENSTAT. Congressman----
Mr. RANGEL. I am going leave that alone because we want to
start this thing off right.
Having said that, do you think that it is right for
Democratic Members of Congress to have to deal with foreigners
as it relates to their trade interests? Do you believe that the
proper people for us to basically deal with is your office? If
we have an interest in what you are negotiating with a foreign
country?
Mr. EISSENSTAT. Congressman, I know that during my work in
the Congress, we frequently consulted not only with foreign
governments, but also with the USTR. I think that is part of
the process.
Mr. RANGEL. Let's put it the other way around. Should we
not deal with the USTR and then also consult with foreign
governments?
Mr. EISSENSTAT. I certainly think that the consultation
process is very important on both fronts.
Mr. RANGEL. Well, if you really believe that, you can help
us to get closer together.
Do you think that the basic difference between Democrats
and Republicans on this Committee, and perhaps on the floor,
being the question of labor standards and environment, do you
think that is basically the issue?
Mr. EISSENSTAT. I think there is a lot to support in this
agreement. I think that when we have an opportunity to review
it, Members will find----
Mr. RANGEL. I said, do you think that basically the
difference that we have is in the area of labor standards?
Mr. EISSENSTAT. I think there is a lot of interest in labor
on both sides of the aisle----
Mr. RANGEL. Let me try it again. Do you think that the
basic difference between the Democrats and Republicans as
relates to this and any other trade bill is the inability to
get the language which we think is just basic and protecting
laborers, do you think that is the basic difference? Have you
known, read or experience where language has come into those
bills that protect basically the ILO standards, that Democrats
have voted for those for those bills? Isn't that a part of your
legislative memory?
Mr. EISSENSTAT. We have worked, and I worked, to find ways
to----
Mr. RANGEL. I asked a question. When language has been put
into those bills, albeit with a lot of resistance, have you not
seen an increase dramatically in Democrat support for those
bills that included this type of language?
Mr. EISSENSTAT. Well, we have seen different variations.
For example, in the Chile agreement there was strong bipartisan
support. There has been----
Mr. RANGEL. Hasn't it been based on labor standards that
you have seen the difference in the bipartisanship?
Mr. EISSENSTAT. Well----
Mr. RANGEL. Don't let me give up on you, Mr. Ambassador. I
am going to assume that what I am saying is correct unless you
can challenge it so that I can move on. Is it true that
President Toledo gave a public statement, certainly gave it to
us, he said it publicly, that he was willing to accept the
standards as outlined by the ILO, you know which area that I am
dealing with, and somehow that did not find itself into, the
agreement, is that a fact?
Mr. EISSENSTAT. My time has expired but with the permission
of the Committee, I am happy to answer. I think, we try to
address a lot of concerns raised by many different Members on
both sides of the aisle. President Toledo did not make an offer
to include ILO standards----
Mr. RANGEL. He did or did not?
Mr. EISSENSTAT. He did not.
Mr. RANGEL. It was reported that he did by Democratic
Members and by the press and by--gee, the assistant is more
difficult than I thought.
He made remarks in front of U.S. Chamber of Commerce in
early September, 16, I hope you have time to meet with us
privately, we haven't made much progress here today. Thank you.
Mr. EISSENSTAT. Thank you.
Chairman THOMAS. The Chair would now recognize the
gentleman from Connecticut. Prior to that would the gentleman
yield briefly?
Mrs. JOHNSON OF CONNECTICUT. The gentlewoman would yield.
Chairman THOMAS. In the short time that you have been with
USTR, are you familiar with the organized letter writing
campaign by the minority staff to every government official
that we have attempted to negotiate in an official and formal
way and the pen pal structure of continuing to bash foreign
officials if they don't write the letters exactly the way the
minority staff wants them written? Are you familiar with that
in your recent experience?
Mr. EISSENSTAT. Chairman Thomas, we have seen some letters
from Members of the Committee to foreign government officials
on specific issues, yes.
Chairman THOMAS. Thank you.
I thank the gentlewoman.
Mrs. JOHNSON OF CONNECTICUT. Mr. Eissenstat, in the
materials provided by your office to us, it makes clear that
eight of the ILO core conventions have been ratified. Is that
not so?
Mr. EISSENSTAT. That is right.
Mrs. JOHNSON OF CONNECTICUT. Those are the same eight that
were ratified by Chile?
Mr. EISSENSTAT. That is correct.
Mrs. JOHNSON OF CONNECTICUT. When those standards are
ratified, they become part of the Peruvian law, and therefore,
the provisions in the trade agreement to enforce our laws is
the equivalent of the requirement to enforce the ILO core
standards, is that correct?
Mr. EISSENSTAT. Yes, Congresswoman, that is correct.
Mrs. JOHNSON OF CONNECTICUT. It is difficult to really
understand what some of my colleagues on the other side of the
aisle are concerned about when it is very clear what progress
Peru has made on labor standards, has there been the same
effort in this agreement that there was in the CAFTA agreement
to address the issue of institutional capability to enforce?
Mr. EISSENSTAT. Congresswoman, that is an excellent point.
We have built into the agreement provisions for capacity
building and cooperation that mirror some of the CAFTA
provisions. We are committed to working with the Peruvian
government to increase their institutional capacity to enforce
their own laws. As you point out, they have a very strong labor
regime, having ratified all eight of the ILO core provisions as
well as taking additional steps to strengthen their labor laws.
Mrs. JOHNSON OF CONNECTICUT. Could you give us a little
flavor of what institutional building means? What is it that
the agreement requires of Peru that would give us confidence
that they will improve their ability to enforce their labor
laws? At the same time, so I can get my questions in and you
can manage the answer in the time remaining, my friend from
Michigan cites the compensation fund established by Peru.
Now, we have a parallel approach in American law through
the Trade Adjustment Assistance Act to help those areas of
industry or agriculture that are specifically disadvantaged by
the competition of foreign guides. We do that routinely. We
help those employees get retrained, we help that industry
strengthen itself to be able to compete and so on and so forth.
This compensation fund that the government of Peru has
established, according to my colleague from Michigan's
statement, which I didn't get a chance to read all of, but he
says that the small farmers see it as completely inadequate.
What is the discussion going on in Peru? What is the
commitment of the Peruvian government to a trade adjustment
approach so that those affected by trade negatively, as there
always will be as we open markets, will get the support they
need to assure that they can support their families and be
strong economic partners in their communities?
Mr. EISSENSTAT. Thank you. Excellent questions. First, let
me address the issue of what in the agreement will actually
enable us to move forward on labor issues with Peru.
First, as you know, any violations of a labor commitment--
their failure to enforce their own laws, which are quite
strong, will allow us to go to consultation under the dispute
settlement provisions if it is necessary and ultimately to
impose a fine, which we have some control over how that fine is
to be utilized. It actually goes to the root of the problem, to
remedy the underlying problem, which is a better result than
simply leaving the practice in place with sanctions, but there
are also are other constructive ways to solve labor problems in
the Agreement. For example, we have the formal consultation
mechanism, capacity building, a senior level labor affairs
council where we can consult on a number of issues to advance
labor rights in Peru. These mechanisms are going to be created
as a result of the Agreement.
Addressing quickly your point on what the Peruvian
government has done and what they intend to do to ensure that
the benefits of this agreement go to the broadest range of
people. First, let me point out if we do not pass this
agreement, they are going to lose many good export jobs that
will put a lot of people in very dire straits. So, I think they
are counting on our passage of this agreement to ensure that
they can keep those jobs.
In addition, the Peruvian government has passed a $160
million compensation program to help aid small farmers.
President-elect Garcia has undertaken a number of initiatives.
It is not just about being able to produce, but how you produce
and can you get financing and can you get your products to
market. These are the kinds of things we are going to be able
to work with the Peruvian government on.
President-elect Garcia has talked about building highways
from the highlands to the ports so they can actually get their
products from the poor areas of the country down to the
waterfront and to the export markets to be able to compete more
effectively. In addition President Garcia has talked about a
titling program that will enable a small farmer to be able to
get financing that they simply can't get today.
So, there are a number of ways we can work with them
through this agreement.
Mrs. JOHNSON OF CONNECTICUT. Thank you. My time has
expired. Thank you, Mr. Chairman.
Mr. SHAW. [Presiding.] Mr. Levin.
Mr. LEVIN. Thank you, Mr. Shaw.
Just quickly for you, Mr. Eissenstat, and I hope everybody
else, why this core labor standard issue matters to the United
States, in four respects: It matters to the workers in a
country if they have their rights; it matters to that Nation;
it matters to our businesses that need middle-classes to sell
to; and it matters to our workers who don't want to compete
with entities in nations where the workers don't have their
rights. So, that is why the emphasis on core labor standards
and how it affects the path of globalization.
It is not a narrow issue, it is not a special interest
issue, it is not pushing any buttons. It is a basic issue
relating to trying to make globalization work better.
Let me just say about what you said about this agreement
and the Generalized System of Preferences (GSP). Mr.
Eissenstat, we have dealt with each other, and I welcome you
and I congratulate you.
Look, under GSP, it is true that if they are not taking
steps to implement the core labor standards, under GSP, we have
the unilateral power to withdraw GSP, right?
Mr. EISSENSTAT. That is correct. Withdraw, suspend or
limit.
Mr. LEVIN. Okay. So, for you to say that enforce your own
laws is a stronger standard than is presently in GSP, is not
correct. You say ``effectively'' in your testimony, it is
effectively enforced. The agreement will require Peru to
enforce its laws effectively. They could make their laws worse
and they would be meeting the requirement of the FTA, right?
Mr. EISSENSTAT. Congressman, that is not the case with
Peru.
Mr. LEVIN. No, no, no, I am not saying Peru would do that.
Just answer the question. If a country under the standard
enforce your own laws makes them worse, we have no remedy,
right?
Mr. EISSENSTAT. First let me say that----
Mr. LEVIN. How about yes or no?
Mr. EISSENSTAT. We have multiple mechanisms, including the
consultation mechanism.
Mr. LEVIN. You can't do anything if the laws are made
worse, right? Except to consult?
Mr. EISSENSTAT. There are provisions and obligations in the
Agreement that strive to improve upon their labor regime.
Mr. LEVIN. That is not enforceable, right?
Mr. EISSENSTAT. It is subject to consultation.
Mr. LEVIN. But not enforceable. Here is my point. Look. We
have made some progress talking about this issue, but let's
have straight talk. There is nothing we can do if the laws are
made worse.
I want to read to you a quote from Toledo that the Chairman
talked about when he came before the Committee, he asked us not
to straitjacket. We are talking about last basic ILO standards,
the right to negotiate, the right to bargain, child labor,
forced labor and anti-discrimination. The basic standards. By
the way, the conventions themselves are not enforceable laws.
Those conventions have been signed in Peru when Fujimori
strangled the rights of workers in Peru. I want to read
Toledo's statement, the president, whom I had the privilege of
meeting with whom I admire. We failed to take him seriously on
this and create a bipartisan foundation for trade. This is an
exact quote from a Chamber of Commerce document of what the
President said.
``We can incorporate into the Andean free trade agreement a
page or a paragraph that includes meeting the international
standard of labor requirements. We are members of the ILO and
we have to comply with it so we can incorporate it.''
Let me just ask you quickly, to change the subject for a
moment, on the medicine issue and the provisions there, there
are a couple of side letters. We raised this issue with
Morocco, the ability of a county and its people--by the way, do
you know the rate of poverty today in Peru?
Mr. EISSENSTAT. It is around 50 percent.
Mr. LEVIN. Right. Extreme poverty?
Mr. EISSENSTAT. I believe if my memory is correct, it is
about 30 percent.
Mr. LEVIN. I believe actually it is not quite that high.
That is why this matters.
Including about medicines, there are two side letters. We
raised this issue when Morocco came up. Are those side letters
enforceable the same as other provisions in the agreement?
Mr. EISSENSTAT. I am sorry, could you identify which side
letters exactly?
Mr. LEVIN. It is on prescription medicine. It is on the
access to generics.
Mr. EISSENSTAT. The understanding is a bilateral
commitment, and it is a clarification of the agreement.
Mr. LEVIN. Is the language in those----
Mr. SHAW. The time of the gentleman has expired. The
Chairman said he is going to enforce the 5-minute rule.
Mr. Herger.
Mr. HERGER. Thank you, Mr. Chairman. Mr. Eissenstat, thank
you for joining us. As a result of the PTPA, U.S. exports stand
to grow by $1.1 billion with a corresponding growth in our GDP
of $2.1 billion. This is significant for business and growers
alike in my home State of California, which ranked fourth in
terms of highest exporting States to Peru in 2004 and third in
2005.
I am especially pleased to see that more than two-thirds of
U.S. agriculture exports to Peru will become duty free
immediately according to the business roundtable crop export
from California it could increase by 61.5 percent after
implementation of the agreement. This is critical to the
almond, wheat and other growers in my heavily agricultural,
rich, Northern California Congressional District. For other
agriculture, such as rice, which is similarly a key commodity
in my district, we will still see faceouts only stretched out
over a longer time. However, the end result will be the same:
Increased market access for U.S. growers.
I am also pleased that we have such a willing friend in
Peru, noting that the Peruvian congress overwhelmingly approved
the trade agreement on June 28th. There is no question that for
Peru, the impact of this agreement will extend beyond greater
access to less expensive goods from the United States.
Speaking generally, what, in your view, what is your view
on how this agreement will help foster greater economic and
political stability, both for Peru and the region?
Mr. EISSENSTAT. Thank you, Congressman. This agreement, as
you know, provides for significant benefits to the agriculture
community. Not only does it provide for immediate duty free
access for a lot of our products, but also, as you point out
for rice, preferential access under a pretty significant TRQ.
So, it is quite an impressive agreement on agriculture. As
far as stability in the region, I think there is no question
that passage of this agreement is critical to providing a
stable economic environment in Peru.
When you look at the alternative, which is the uncertainty
of a preference program versus the certainty of an agreement,
investors will know what the future is going to look like so
they can make business decisions, based upon open markets and
opportunities that they don't have today. It is going to create
new opportunities for Peruvians, it is going to help, as you
note, a lot of people that have been lifted out of poverty
because of the preference programs, and I believe that this
will help bring even more people out of poverty and create more
opportunities.
The institutional reforms that have been undertaken by
President Toledo are profound. The labor reforms are very
significant. He has worked to enhance the democratic
institutions. We believe President-elect Garcia is committed to
that as well.
Clearly, a cooperative arrangement through a trade
agreement provides us with a much better ability to continue to
work with the Peruvian government than were we to reject this
agreement, which President Toledo himself has strongly endorsed
and noted is very important to the future of his country. So, I
think it is quite significant in many different ways just
beyond trade. For stability in the region, it sends a strong
message to others in the region that if they make the right
choices, if they seek to engage with the United States, there
is opportunity and there is a benefit, which is a very
important factor today.
Mr. HERGER. Thank you. Let me ask another question. Some of
the concern that we hear from Members on the other side of the
aisle has to do with labor. Isn't it correct that as we look in
past decades, that agreements, as our trade has improved with
countries like Japan, looking to post-World War II, to China,
to a number of countries that were under developed at that
time, that we have seen by the natural process labor wages
increase just through competition in these countries?
Mr. EISSENSTAT. It has a very significant effect. I think a
profound example is countries like North Korea and South Korea.
If we look at the border between North and South Korea, the
difference is clear between the ability of the people to
participate in the economy and provide a working salary for
their family. Then you take a look in Latin America, a country
like Chile, that has embraced open market and democracy, it has
been able to bring many of its people out of poverty. We expect
that trend to continue.
Mr. SHAW. The time of the gentleman has expired. Mr.
McCrery.
Mr. MCCRERY. Mr. Eissenstat, you have already talked a
little bit about the prospect for increased job creation here
in the United States as a result of the Peruvian trade
agreement. Doesn't Peru already receive duty free access to the
United States market for most of its goods?
Mr. EISSENSTAT. That is correct.
Mr. MCCRERY. Does the United States currently enjoy duty
free access for most of its goods to Peru?
Mr. EISSENSTAT. No, we do not.
Mr. MCCRERY. As you stated, this agreement would provide
that duty free access to a wide range of goods and services
provided by the United States, is that correct?
Mr. EISSENSTAT. That is absolutely correct.
Mr. MCCRERY. Therefore, the logical could conclusion is
increased exports to Peru.
Mr. EISSENSTAT. Absolutely. In the ITC report, it
solidifies that conclusion.
Mr. MCCRERY. Generally, if we have increased exports, that
means increased jobs here in the United States, right?
Mr. EISSENSTAT. That is right.
Mr. MCCRERY. Isn't it true that those jobs associated with
trade exports are generally higher paying jobs than the average
jobs in our economy?
Mr. EISSENSTAT. That is correct, 13 to 18 percent higher.
Mr. MCCRERY. So, this is a good agreement for job creation
of high paying jobs in this country, right?
Mr. EISSENSTAT. That is correct, Congressman.
Mr. MCCRERY. Thank you. I want to talk just a minute about
the GSP and the Andean agreement and the labor question. Isn't
Peru already a member of the Andean agreement and the GSP?
Mr. EISSENSTAT. That is right. They receive benefits under
both preference programs.
Mr. MCCRERY. How long have they been members?
Mr. EISSENSTAT. The Andean preference program has been in
effect since 1991. It was enhanced in 2002. I am not clear how
long GSP has been in place, but I would suspect a similar
timeframe.
Mr. MCCRERY. Has Peru been eligible for those for quite
some time?
Mr. EISSENSTAT. Yes, Congressman, that is correct.
Mr. MCCRERY. As was pointed out by a Member of the
minority, under GSP, the administration here in the United
States can suspend or take other actions if they think a
country under the GSP, or the Andean trade agreement, has gone
backward in its labor rights, is that right?
Mr. EISSENSTAT. We can withdraw, suspend or limit benefits
under the preference programs.
Mr. MCCRERY. Has either Democratic or Republican
administrations taken such action with regard to Peru the
entire time they have been under GSP?
Mr. EISSENSTAT. They have not.
Mr. MCCRERY. So, why would one believe that the last 15
years experience would be any different going forward,
particularly when they agree under this agreement to enforce
their own laws and to have binding dispute settlement with this
country under this agreement?
Mr. EISSENSTAT. Well, we believe the better approach is
passage of this agreement and the right thing to do to ensure a
strong labor regime is to see the opportunities that have been
provided by the Toledo regime. They do have very strong labor
laws, and we are able to lock those in with the enforce your
own law standard and assure they will continue to do so as the
agreement continues.
Mr. MCCRERY. Thank you, Mr. Eissenstat.
Mr. SHAW. Mr. McDermott.
Mr. MCDERMOTT. Thank you, Mr. Chairman. I am sure my
colleague from Louisiana doesn't mean to imply that if
something hasn't happened, we should give it up and forget it.
If something is a good thing to do, maybe you should push a
little harder. There is oversight and questions that might be
raised about that, but let me move to something else, to
something that Mr. McCrery alluded to.
Presently, the Majority Leader in the Senate, Mr. Frist,
said we are going to be done in September and the Majority
Leader in the House of Representatives, Mr. Boehner, has said
we are going to be done in September. Being a little bit
practical and having hung around these halls for a while, I
sort of doubt this is going to get done by then. So, the
question is what happens to the Andean agreement and GSP? Both
of those are either set to expire, one on the 1st of October,
and the other the end of the year, and it is my question, do
you have a fallback plan or are you just going to let those
things hang or fall on the basis of this agreement?
What is the strategy of the Trade Representative? Usually,
and I will tell you that GSP has been here since 1971, usually
quite a bit in advance the administration puts forward an
extension bill. We see nothing coming out of you, nothing
coming out of the Committee. So, it looks like you are just
trying to get rid of GSP and force the Peruvians and some
others into these individual national agreements.
Mr. EISSENSTAT. Thank you, Congressman. We are trying to
take advantage of the opportunity the Trade Promotion Authority
provides to expand opportunities for workers, to advance labor,
intellectual property rights, and investment.
Mr. MCDERMOTT. I understand your talking points. I am
asking you what if you fail in this advancing and all the stuff
you are talking about? Just suppose the Congress doesn't act on
the Peruvian agreement. What happens then to the exporters and
importers from Peru, for instance, or Bolivia, or from Ecuador
or anywhere else?
Mr. EISSENSTAT. Congressman, as you know, both programs are
created by Congress. Congress is the final arbiter of what
happens with those programs. We have heard some Members of
Congress, both from the House and Senate, express skepticism
over the utility of these programs and their continued
viability.
What we hope to achieve through both the Doha round and
these agreements are opportunities that provide certainty to
investors and certainty to workers. On the expiration of the
programs, we certainly want to continue to consult with you and
other Members of Congress as to whether it is appropriate to
continue them, and, if so, in what form.
Mr. MCDERMOTT. So, what you are saying to me is that this
is a deliberate strategy to get rid of GSP as a structure that
the trading world can count on by forcing people either to go
with these individual things or to go for the Doha round, is
that right?
Mr. EISSENSTAT. The strategy is to provide opportunities
through these trade agreements that simply don't exist today.
Mr. MCDERMOTT. What is there in GSP--what additional to GSP
is there in this trade agreement?
Mr. EISSENSTAT. There are opportunities for our workers to
export to other markets here. This is a big part of what we are
seeking to do through these trade agreements. It also opens up
markets for service providers.
Mr. MCDERMOTT. You mean like jet engines and computers and
those kinds of things we will be exporting to Peru?
Mr. EISSENSTAT. There is a broad panorama----
Mr. MCDERMOTT. Textiles? We will start exporting textiles
to Peru?
Mr. EISSENSTAT. We expect to enhance a number of our
exports. Today we have exports of machines--somebody pointed
out Caterpillar mining equipment. Obviously Peru imports a lot
of those. Other exports that are likely to benefit beyond the
agricultural goods, include things such as plastic, cotton,
cord, grains, computer, high-tech equipment. There is quite a
bit.
Mr. MCDERMOTT. My time is almost up. I would like a yes or
no. Does the administration support the extension of GSP and
the ATPA?
Mr. EISSENSTAT. We are working with Congress to----
Mr. MCDERMOTT. Do you support it?
Mr. EISSENSTAT. Congressman, GSP is not in my portfolio,
and we are in a consultation process with the Congress
regarding the viability of the program.
Mr. MCDERMOTT. Well, I wonder why they didn't send up
somebody to talk about GSP, since is seems so integrally
related to this issue. Why would you dodge that question? Shaw
the time of the gentleman has expired.
Mr. Camp.
Mr. CAMP. Thank you, Mr. Chairman. Mr. Eissenstat, I am
going to sort of add to some of the comments that Mr. McCrery
made about the fact that Peru has unilateral trade preferences
into the United States and we have tariffs on our goods going
back to Peru. I understand that the agreement would eliminate
many of those tariffs, particularly on products in the Michigan
economy like machinery, computer and electronic products,
equipment, furniture, chemicals. Michigan's economy had last
year in 2005, an 11.4 million in exports to Peru and today
Peruvian tariffs add between 5 and 12 percent to the price of
our Michigan products that we are trying to export.
As has been pointed out, the United States has no tariffs
on equivalent product from Peru into the United States.
According to the U.S. Department of Commerce and the U.S. ITC,
a U.S.-Peru TPA would increase exports by the key industries I
mentioned earlier to Peru. Those would increase by between 41
and 71 percent, which is a stunning amount. Obviously, in a
State as hard hit as ours, looking for new markets is
absolutely critical.
I understand that 74 percent of Michigan's transportation
equipment exports would receive immediate duty free treatment,
about 84 percent of Michigan's machinery exports would get
immediate duty free treatment, and for chemical products, 76
percent of our exports would have immediate duty free treatment
into Peru. Obviously, the comment is not just on those numbers,
but the jobs that are supported by those exports.
Do you have some idea of how the job creation in the United
States might be improved as a result of this agreement?
Mr. EISSENSTAT. Well, thank you, Congressman, that is a
great question. The ITC has done an analysis of this agreement
that shows that we expect exports to grow by as much as $1.1
billion annually once the agreement is implemented. Those
numbers, of course, don't take into account service exports,
the elimination of non-tariff barriers, and the investment
protections that will be accorded to our innovative industries.
So, there are great opportunities for exports, both from
Michigan and other areas of the country as well.
Mr. CAMP. I think particularly we have had a great deal of
support for unilateral trade preferences to the Andean
countries. To have reciprocal benefits in this agreement would
seem to me to follow the logic of that very easily. Thank you
very much for your testimony and for being here today. I
appreciate it.
Mr. EISSENSTAT. Thank you, Congressman.
Mr. CAMP. I yield back.
Mr. SHAW. The gentleman yields back the balance of his
time. Mr. Lewis.
Mr. LEWIS OF GEORGIA. Welcome, Ambassador Eissenstat.
Welcome. It is good to see you. I wish you well.
I am a little troubled. I don't quite understand what type
of message do we send when you will fight tooth and nail to
protect pharmaceuticals, software, what type of message are you
sending to the community of nations, to workers around the
world, that you won't stand up and fight for poor, hard-working
human beings?
Mr. EISSENSTAT. Congressman Lewis, I think that the record
on our engagement through our trade policy with countries
around the world has shown that we send a message that if you
want to engage with us, we have certain expectations. We have
expectations on labor rights and we expect those rights to be
consistent with ILO standards. If you look at Peru's labor
regime, they have taken steps that are quite significant.
I just want to cite a couple of points that the ILO itself
has said about Peru's labor regime. They have been cited as a
``case in progress.'' The ILO noted with satisfaction the
adoption of their labor reforms in 2005. This year, the ILO
noted that this was a significant achievement during a regional
meeting of the Americas. They also cited Peru, and I would like
to quote this, ``is a country which has succeeded in rebuilding
a culture of dialog between workers, employees and the
government.''
When we engage with countries in the region, we do address
labor. We expect them to have stronger labor rights. We have
indicated to Panama and Ecuador that any country that wants to
engage with us in a trade agreement needs to have certain
standards. These countries recognize that, and they have moved
significantly to try to address our concerns.
Peru just recently made a number of very significant steps
on its labor reforms. In fact, just this month, Peru passed a
new labor inspections law that is quite promising, the law
creates separate office for fines and inspections. This will
obviously free up inspectors to go out and make sure the laws
are enforced. The law creates a national office of inspections
to harmonize the inspection processes throughout Peru and
professionalizes the labor inspection regime. This is in
addition to all of the reforms they undertook in 2003 and 2005.
Somebody had mentioned the Supreme Decrees that have been
recently adopted to address some of the ILO concerns that have
been raised. I think that is a broad sweep forward. Our
engagement on the trade front has had a lot to do with that,
and I think when the agreement becomes part of our dialog, we
will have further opportunities to advance labor issues.
Mr. LEVIN. Will the gentleman yield?
Mr. LEWIS OF GEORGIA. I yield to my friend.
Mr. LEVIN. Mr. Eissenstat, if you listen to your language,
they need to have certain standards, ILO standards. You expect
them to. You don't negotiate that they shall have them with
reasonable transition as part of the agreement. In fact, you
tabled the opposite, enforce your own laws, as the standard,
not what you say you expect or they need to have.
Could I ask Mr. Lewis to give me 30 seconds to ask you,
enforce your own laws, is that standard used in any other
section of our FTA, other than labor and the environment?
Mr. EISSENSTAT. Well, two points. First, we follow the
guidance----
Mr. LEVIN. I know, but answer my question, is that standard
used in any other part of the FTA?
Mr. EISSENSTAT. It is used in the environment and labor----
Mr. LEVIN. Other than the environment and labor. Is it used
in the FTA in any other provision?
Mr. EISSENSTAT. We follow the guidance. I don't believe the
guidance directs us to do that in other areas.
Mr. LEVIN. So, the answer is no?
Mr. EISSENSTAT. If you look at trade agreements around the
world and the labor and environment provisions, you will note
that the United States is one of the leaders in this area.
Mr. LEVIN. We have known each other a long time. Answer yes
or no: Is enforce your own laws used in any other section or
provision of the U.S.-Peru FTA? Yes or no?
Mr. EISSENSTAT. It is not to my knowledge. We follow the
guidance of Congress.
Mr. LEVIN. The answer is no?
Mr. EISSENSTAT. That is my understanding.
Mr. LEVIN. Thank you for yielding.
Mr. SHAW. The time of the gentleman has expired.
Mr. Ramstad.
Mr. RAMSTAD. Thank you, Mr. Chairman. Mr. Eissenstat, it is
nice to see you again. Congratulations on your new position.
In my judgment, the United States has no better ally in
South or Central America than Peru. There is no better champion
in the region of democracy, economic growth and stability than
President Toledo, and there is no better Ambassador to the
United States than Ambassador Ferrero. I know a lot of us who
worked closely with Ambassador Ferrero are going to be sorry to
see him leave in 2\1/2\ weeks when the new administration takes
over.
Over the last 5 years, I have seen firsthand President
Toledo's commitment to improving the lives of the people of
Peru and to substantially reducing poverty. My family and I
have traveled to Peru over the last dozen years at least three
times. Twenty other families in our community in Minnesota have
adopted Peru for our mission work, did adopt Peru for our
mission work many years ago.
I traveled at my own expense, I might add, because I
believe I have been able to get to know many of the people of
Peru a lot better than on any congressional delegation trip
where sometimes it becomes a dog and pony show and you see what
they want to show you.
I have been to Flores de Vios many, many times, the
shantytown on the outskirts of Lima where the poorest of the
poor live; dirt floors, cardboard shacks, average income, $400
a year for a family of four. I have been to Sima many times,
the orphanage for abandoned street children, where we have
established relationships with many of the children and Father
Louis and the staff there. So, I think I know Peru as well as
anybody on this Committee, the people of Peru.
I myself know and have seen that the living standards have
improved under President Toledo. I know that Peru's economy has
dramatically improved. Peru is much more stable than it was,
certainly than in the pre-Toledo years. I think there is no
question that the Peru FTA, trade promotion agreement, will
help achieve President Toledo's vision of a strong democracy,
strong economic growth and stability in the region. No question
in my mind. It is a win-win. Win for the United States and a
win for the people of Peru. It will increase the living
standards and decrease poverty in that country.
I want to ask you, Mr. Eissenstat, if seems to me that the
300 pound gorilla in the region is also relevant in this
discussion today in terms of the stability of that region,
certainly it is very relevant to this discussion today, and of
course, I am alluding to the president of Venezuela. No
question that we need a counterbalance to the Venezuelan
President's power in that region, his attempt to move South
American countries away from the democratic west and toward his
autocratic regime and his dictatorial practices.
Let me ask you this question: As President Chavez continues
to put intense political pressure on his South American
neighbors, as he continues to exert through sheer unabashed
bribery and other tactics such pressures, do you believe this
agreement will provide that counterbalance to Chavez's pressure
to move South American countries away from democracy and toward
more autocratic governments?
Mr. EISSENSTAT. Congressman Ramstad, that is an excellent
point. I think you have hit on a fundamental issue that I hope
doesn't get lost in this debate. There truly is a battle of
ideas in the region today. Countries are choosing how to engage
in the world economy and the kind of democracy that they want
to see. I am confident the agreement will help solidify the
institutional reforms that President Toledo has taken. I am
even more confident the rejection of this agreement will send a
signal to this region that are thinking about which way to go,
that if you undertake labor reforms, if you institutionalize
democracy, if you embrace your relationship with the United
States, it doesn't matter. This is not the message we need to
send to the region.
This is a very important time. There is a lot of
transition. We need to stand with our allies like President
Toledo that are ready to stand up and make the right decisions
and lead their economies and people toward stronger democracy
and more open markets and a better relationship with us as
well.
Mr. RAMSTAD. I appreciate your recognition of that
important factor in this discussion, and certainly President-
elect Garcia, his administration is counting on us as well. I
thank you for the good work you are doing, Mr. Eissenstat, and
look forward to working with you on this.
Chairman THOMAS. [Presiding.] The gentleman's time has
expired.
Mr. Neal.
Mr. NEAL. Mr. Eissenstat, in January, several Ways and
Means Democrats sent a letter to the prime minister of Peru
outlining concerns about aspects of the labor elements of this
agreement that appear to violate core ILO standards. The
Peruvian government responded with a document addressing these
concerns dated July 7th. The Peruvian government dismissed
several of these concerns by saying that they had been
addressed by ``Supreme Decree.'' The document also references
several laws the Peruvian constitution, constitutional court
decisions, constitutional tribunal cases, the criminal code,
and Peru's ratification of several ILO conventions.
Since we are relying on the sturdy necessary and steadiness
of the applicability and enforcement of these assurances and
knowing that Peru has a very strong executive, could you please
tell me more about these Supreme Decrees? First, how are they
passed and by whom?
Mr. EISSENSTAT. The Supreme Decrees are part of the
executive branch process to clarify provisions of the law and
to implement legislation.
Mr. NEAL. That wouldn't be similar to presidential
signings, would it?
Mr. EISSENSTAT. Honestly, Congressman, I would have to get
back to you on this particular point of procedure.
Mr. NEAL. Perhaps most importantly, what are the legal
effects?
Mr. EISSENSTAT. These become the law of the land and they
are directives and guidance to be followed in carrying out the
legislation.
Mr. NEAL. Are they subject to any sort of legislative
oversight or review?
Mr. EISSENSTAT. Congressman, if it is okay, I would really
need to analyze this a little bit. I would like to get back to
you in writing, if that is all right.
Mr. NEAL. Sure. A couple of others that are more yes or no
answers. How can they be amended?
Mr. EISSENSTAT. A Supreme Decree, again, I would prefer to
respond in writing.
Mr. NEAL. Is there a process for rescinding them?
Mr. EISSENSTAT. Again, I would prefer to get back in
writing.
Mr. NEAL. That is fair to get back to me on that. These are
very important considerations given the fact it seems the
executive is granted considerable authority in each instance
and whether or not he is subject to legislative review is an
argument that is across the whole hemisphere. So, you will get
back?
Mr. EISSENSTAT. Absolutely, Congressman.
Mr. NEAL. Thanks. Thank you, Mr. Chairman.
Chairman THOMAS. I thank the gentleman again. In the
written response, other Members of the Committee would be
interested in the answer as well.
Mr. EISSENSTAT. Thank you.
Chairman THOMAS. Does the gentleman from Texas wish to
inquire, and would he yield to the Chairman briefly?
Mr. JOHNSON OF TEXAS. Certainly.
Chairman THOMAS. I apologize for not being here the entire
time, but I did hear the tail-end of a discussion between the
gentleman from Michigan, I believe on the gentleman from
Georgia's time, in terms of the argument made quite often in
terms of enforce your own law regarding labor, and the
statement was made is there any other area like this.
I hope, Mr. Eissenstat, you will recall your time with the
Chairman of the Committee on Finance, since he is a gentleman
from Iowa is very concerned about agriculture products and
sanitary and phytosanitary problems.
I think there is a very close analogy, since we utilize the
scientific standards of the World Trade Organization (WTO), but
in no way could we appeal to a higher standard in terms of
trying to enforce upon Peru the acceptance of beef older than
30 months based upon the WTO standards, since you simply can't
deal with that kind of specificity, which is very similar to
the concerns in terms of labor. That is why those of us from
agricultural areas are very aggressive in making sure prior to
the agreement that the country with which we are entering into
agreement has adopted the scientific standards and gone to
specific details.
Oftentimes it requires a compromise. The Peru agreement is
a good example. Currently beef over 30 months is not part of
the agreement. We will work to change that.
So, there are many areas where, notwithstanding the fact
that----
Mr. POMEROY. Will the gentleman yield?
Chairman THOMAS. In a minute, but it is the gentleman from
Texas's time. We profess to want to have certain things in an
agreement and statements are made to that effect. The agreement
has to be carefully negotiated, and in front of us is an
agreement carefully negotiated in a number of areas. Our goal
is to get Peru to enforce its own laws in the area of sanitary/
FITO-sanitary, as well as other areas.
I thank the gentleman from Texas for yielding.
Mr. POMEROY. Would the gentleman from Texas allow me to ask
just a pointed question on beef imports?
Mr. JOHNSON OF TEXAS. I will not, unless I have extra time.
Mr. POMEROY. Mr. Chairman, will you give extra time to the
gentleman?
Chairman THOMAS. The gentleman will have time on his own
very shortly.
Mr. POMEROY. It is just my understanding that no beef is
coming in under the side letter. You mentioned beef
specifically. I thought this would be an opportune moment to
clarify that fact question.
Chairman THOMAS. I think there will be others, and the
Chair will make sure you have time to clarify that, because it
is of mutual concern, especially when we are looking at other
countries that, frankly, have been able to get away with a
whole lot more without us being very aggressive toward them in
responding to those factual issues.
The gentleman from Texas.
Mr. JOHNSON OF TEXAS. Thank you. I appreciate your presence
here. I know you are aware about the LeTourneau situation. As
you recall, for about 30 years, the company which, is from
Rowlett, Texas, has been battling in and out of court with the
government of Peru over work it performed without compensation.
They built a 40-mile highway in the Peruvian jungle and was to
be compensated 1 million acres. In 1970, Peru expropriated the
property and refused to pay the company what it was owed.
I spoke with Ambassador Portman many times, most recently
in February, and was told you were working on a resolution.
Well, the resolution came this past March. Seeing no chance
of full payment once this trade agreement becomes law,
LeTourneau was forced to settle out of court for one-third of
the amount it was owed. Not surprisingly, they haven't received
a dime yet, although it was promised payment by May. With the
upcoming change in administration in Peru, I suspect the check
will get lost in the shuffle.
By law, countries given unilateral trade benefits like Peru
must not have expropriated property owned by a U.S. citizen or
company unless they provide prompt and adequate compensation.
Clearly, it doesn't appear that any importance has been placed
on cases like this before entering into your trade
negotiations, and I would like to know why and how do you
explain going forward with trade agreements with countries that
are blatantly thumbing their noses at honest American
businesses?
Mr. EISSENSTAT. Thank you, Congressman. You are right, this
is a long-standing dispute. We have engaged with the government
of Peru for quite some time on this dispute as well as a few
others. We have made a lot of progress. I suspect we will
certainly work with you to ensure that LeTourneau does receive
satisfactory resolution. We raised this at very senior levels,
even as high as the President himself, and we will continue to
push and work and make sure the company is treated fairly.
One of the things that the agreement will enable us to do
is create an investor State arbitration panel that will provide
a remedy if there is unfair treatment. I think it is a good
path forward. We don't anticipate situations like this. We want
to work with you to see that all investment disputes are
resolved. We appreciate your interest in this very much, and
would like to continue to work with you and the other Members
to ensure that the LeTourneau case is resolved in an
expeditious and fair manner.
Mr. JOHNSON OF TEXAS. Thank you.
Thank you, Mr. Chairman.
Chairman THOMAS. I thank the gentleman for the time.
The gentleman from California, Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman. Mr. Eissenstat,
thanks for being with us. I hope at some point we do have an
opportunity to vote for a trade agreement with Peru. I know the
Peruvian government and its representatives have worked
diligently to try to get us to that point. A number of us still
hope at some point that President Toledo's pledge to
incorporate protections for workers would be in the agreement
and be enforceable so we can make sure that not just for
American workers, but for Peruvian workers, this deal is a good
deal for them as well.
I want to pose a question, if I may, and put it in context.
Today we just got the numbers on the size of the trade deficit
for this country, and once again, it has gone up. It is
approaching $64 billion for this past month of May. That is the
third highest monthly deficit we have ever experienced in this
Nation's history.
We are on a path to have a trade deficit this year that
will show more than $800 billion difference in what we collect
from our exports versus what we pay for the imports that we are
taking. So, a deficit of over $800 billion. That is about 14
percent higher than it was last year.
Our deficit with China is growing again. It will probably
surpass easily $200 billion for the year. That is again up from
last year. We are importing about $2 billion worth more of
goods than we are exporting on a daily basis. My understanding
is that for every six ships that China sends laden with goods
that we are buying, of those six ships that go back to China,
only one of those six ships has any American products that
China will buy. Then when you finally put on top of all of that
the fact that this administration in its so far more than 5
years has initiated only 13 cases in the WTO for unfair labor
practices--excuse me, trade practices, by our trading partners,
in comparison to, say, the Clinton administration, which
averaged about 11 cases per year, not total, but per year.
How do we move forward with an agreement that even the
Peruvians will admit does not satisfy basic worker rights
standards and protections for workers in America or in Peru and
given these trade deficits and the fact that these trade
agreements haven't offset these massive trade deficits, why
should we now move forward with a trade agreement which even
the Peru vans agree does not meet the basic ILO standards for
workers rights?
Mr. EISSENSTAT. Thank you for the question. There are a
couple of questions there. I will try to address them all. If I
can on the trade deficit, it is significant. However, it is not
necessarily a measure of our economic health. It is something
that we watch closely. Over the past 12 months, our real GDP
has increased by 3.5 percent. Between 2004 and 2005----
Mr. BECERRA. Mr. Ambassador, I didn't pose a question on
the trade deficit. I just stated a fact. We could talk about
the trade deficit. It is larger than it has ever been, and
while it may mask some realities out there economically, I
think no one will deny it is the largest trade deficit we have
ever had.
More to the point, why with our trade deficits growing in
the face of all these trade agreements we recently signed, why
would we want to move forward with a trade deal where even our
trading partner who would be a signatory to this acknowledges
that its labor protections for its workers are not up to the
standards that some of us on this Committee have been asking?
Mr. EISSENSTAT. First on the trade deficit and its effect
on our FTAs, there has been quite a significant increase in
exports to all of our FTAs that have been entered into.
Mr. BECERRA. Wait a minute. If you are going to say there
has been a significant increase in exports, there has been a
greater increase in imports.
Mr. EISSENSTAT. That is correct in two cases and not
correct in two cases. I will get to the situation with Peru at
the end, but I think that with Jordan, we have had a slight
increase in our deficit. The same is true with Chile. However,
with Singapore, our trade surplus grew by $4.1 billion.
If you compare those two agreements in a period of time in
which the trade deficit is growing, you will see that in the
countries that we have FTAs with, we have a positive balance on
those four agreements.
Mr. BECERRA. My understanding is that most of these trade
agreements, take, for example, Mexico, which is an agreement
that has been in force for quite some time, our trade deficit,
in fact, it was a trade surplus with Mexico before we passed
the North America Free Trade Agreement (NAFTA) (P.L. 103-182).
Today we have a trade deficit that is larger than it ever has
been with Mexico.
Mr. EISSENSTAT. As you know, the trade deficit is due to
macroeconomic factors. If I could address Peru quickly, the ITC
report points that this will lead to a decrease in our deficit
with Peru by 25 percent. Obviously, that number does not take
into account, as I say, services, the elimination of non-tariff
barriers and enhanced intellectual property rights protection.
Mr. BECERRA. Workers rights?
Mr. EISSENSTAT. On worker rights, I believe they have many
times noted that their laobr regime is consistent and very
strong.
Mr. BECERRA. So, then why did we just get this letter from
the Peruvian government saying that they are going to make some
changes to their existing laws? If they are okay, why would
they need to send us a letter saying they are going to change
their laws?
Mr. EISSENSTAT. I think it goes to a point that was made
earlier today that countries recognize these are high priority
issues, and they are willing to make clarifications even if
they are not necessary. If you look at this letter carefully
and see some of the commitments or clarifications they have
made, they haven't necessarily made changes in each case.
Mr. BECERRA. So, is it your opinion this letter is
unnecessary?
Chairman THOMAS. The gentleman's time is now 1 minute over.
I am just trying to focus you, because we are going to have a
vote here shortly and all Members wish to inquire.
Mr. BECERRA. Mr. Chairman, I will conclude just asking if
Mr. Eissenstat believes that this letter that the Peruvian
government send us to address some of their labor issues is
unnecessary?
Mr. EISSENSTAT. Congressman, it was sent in response to
inquiries from a number of Members, and I think it demonstrates
their commitment to see this agreement become law, and their
willingness to put in writing efforts to address concerns
raised by the Members. I think that is a valuable thing to do,
and I hope that we will have an opportunity to talk about that
and other aspects of this agreement as we go forward.
Chairman THOMAS. The gentleman's time has expired.
The Chair will indicate that we are going to have a series
of votes on the floor, and I believe a number of Members,
including the gentleman from North Dakota, wish to inquire.
Does the gentleman from Pennsylvania wish to inquire?
Mr. ENGLISH. Yes, Mr. Chairman, briefly. I won't ask for
equal time.
Mr. Eissenstat, your presentation has been very
illuminating. Perhaps you could help me clarify some of my
confusion with regard to aspects of the labor rights and
enforcement embedded in this agreement.
It strikes me that from what I have been able to determine
so far, that Peru actually has stronger labor protections and
stronger labor laws on the books than in some instances Chile
did, and our agreement with Chile was seemingly substantially
less controversial.
Is it fair to say that Peru has a more comprehensive right
to strike provision than Chile in that it extends those
protections to public workers, for example?
Mr. EISSENSTAT. That is right.
Mr. ENGLISH. Also, as you know, I have been concerned with
the issue of child labor. Can you describe for us the programs
that Peru employs with regard to enforcing child labor laws and
their use of designated child labor inspectors?
Mr. EISSENSTAT. That is a very good point. As you know,
President Toledo himself rose from poverty and worked his way
to become president of peru, which is quite significant.
They have undertaken a number of initiatives on worker
rights and especially relating to children, including increased
inspections, and new legislation to enhance penalties for the
exploitation of children should that occur. They have had more
numerous raids and they have undertaken more institutional
reforms to ensure that the rights of children are respected.
Mr. ENGLISH. These things suggest that maybe the way Peru
is being represented here is, well, perhaps a little unfair.
Much of the benefit of the agreement that you have presented in
your testimony, Mr. Eissenstat, is directed to agricultural
producers. I have I know we have a number of agricultural
districts represented here.
I wonder if you can describe how this agreement is going to
benefit a manufacturing district like mine in northwestern
Pennsylvania?
Mr. EISSENSTAT. Congressman, that is an excellent point. It
is not just about the agricultural exports, but for
manufacturers, as I noted, 80 percent will become duty free
immediately. The phaseout for the remaining exports is over 10
years, which is a rapid phaseout period. That will immediately
reduce costs to exporters to Peru, particularly from
Pennsylvania. I will give you an example. This is from a
business association that has done some analysis of the benefit
of the agreement. It noted that for manufacturing, particularly
machinery, they expect an increase in exports of 55.1 percent
under this agreement. It is very significant. That means a lot
of jobs in Pennsylvania and that is just exemplary of the types
of benefits that will accrue to workers in Pennsylvania and
throughout the country.
Mr. ENGLISH. Well, I appreciate your analysis. Of course,
my district isn't exclusively manufacturing. We do have a
significant agriculture component. Getting back to some of the
issues that have been raised here previously, I notice that
Peru currently has a price band system on trade with the United
States. Could you explore in a little more detail what that
means to agricultural exports into Peru and how will this
agreement effect the price band system?
Mr. EISSENSTAT. It is an excellent point. It is one of the
most significant aspects of the agreement, is that it does
eliminate application of the price band to our exports. Peru is
the first country to make that commitment.
The price band is a variable tariff that depends on the
price of a commodity worldwide. So, an exporter that is looking
for a market opportunity, if they tried to export to Peru under
the present regime, they would have a variable tariff. They
wouldn't have certainty as to what the profit margin would be,
whether it would be in their interest to do the export.
What the agreement does is eliminate that uncertainty and
lets the exporter know what the market is going to look like.
The tariff eventually gets to zero, and that provides
opportunities that are not only better than what we have today,
but better than a lot of our competitors in the region. So, it
is a very significant aspect of this agreement, and I
appreciate your raising it today.
Mr. ENGLISH. Mr. Chairman, you have been generous yielding
me time, even as Mr. Eissenstat has been very generous with his
observations. We are very grateful for the presentation. I
yield back the balance of my time.
Chairman THOMAS. Does the gentleman from Illinois wish to
inquire?
Mr. WELLER. Yes. Thank you, Mr. Chairman. I appreciate the
opportunity, considering you were very generous with time
earlier.
Mr. Eissenstat, welcome. I think this is your first time
before this Committee so we are pleased that you are with us
today.
Some have advocated just abandoning and walking away from
this agreement that was put forth by President Toledo, his
negotiators, as well as our negotiators, and just extending the
current Andean trade preferences that Congress created in
preparation for negotiating these bilaterals. We now have a
signed agreement with Peru, we have a signed agreement with
Colombia. Ecuador, we have had negotiations with on a bilateral
basis, but with the issue of $1 billion in U.S. assets having
been seized by the government, that has been stalled. Bolivia,
its new government has chosen to listen to the siren song of
the Marxist rhetoric of the current president of Venezuela and
to place its economic future on a medieval-style barter system
between Cuba and Venezuela and Bolivia.
So, let me ask this question: Compare when it comes to
labor. You know, we have talked about the fact that when it
comes to the core conventions of the ILO that Peru has ratified
all eight of them; that they have enacted 30 reforms; just in
the last few years, they have ratified 71 ILO conventions; and,
of course, they have made tremendous progress considering what
occurred before in the Fujimori years. President Toledo has
made that a real priority.
My understanding is, just looking at the facts, that the
Andean Trade Preference Act, which gives special preferences to
Peruvian products, for example, 98 percent of their products
enter the United States duty free, whereas the vast majority of
our manufactured and farm products enter their market with an
average of 8 percent tariff. So, U.S. workers suffer, while
Peruvian workers have an opportunity.
As a result of that, it has created a deficit because they
have had these advantages while we have not. So, should we fail
to ratify this agreement, U.S. workers would be shorted.
Again, those who advocate just extending the current
situation, the current Andean Trade Preference Act, also
advocate that we put in provisions regarding labor.
Tell me again, under the Andean Trade Preference Act, are
there any requirements that countries enforce labor laws or
live up to the ILO standards under the Andean Trade Preference
Act? Should it be extended, rather than ratifying this
agreement?
Mr. EISSENSTAT. No, it is, I believe, a strive-to standard.
They are to make progress toward those, but there is no
guaranty that they will meet them or that that will occur.
Mr. WELLER. So, there is no so-called enforcement
mechanism.
Mr. EISSENSTAT. There is an ability to withdraw or suspend
preferences, but, as has been noted, that has not occurred and,
frankly, would result in harming many of the workers who were
trying to see their livelihoods improved. So, it is not a very
effective tool in our view.
Mr. WELLER. Could you explain under the Peruvian Trade
Preference Act how the Chapter 21 in the agreements dispute
settlement procedures regarding labor--how they would work and
when it comes to enforcing enforcement of laws----
Chairman THOMAS. The Chair would request that that
information be provided in writing. The Chair has at least two
additional Members who wish to inquire, and the Chair is
planning on recessing following this panel and reconvening at
1:30. I am interested in those specifics as well, but perhaps
they could be transmitted in writing.
Mr. EISSENSTAT. Thank you. I would be happy to.
[The information was not received at time of printing.]
Chairman THOMAS. Then would ask the gentlewoman from Ohio
if she has a desire to inquire.
Ms. TUBBS JONES. Mr. Chairman, I do; and I thank you very
much.
We are kind of leaning trying to see each other, Mr.
Ambassador.
Exports from Ohio to Peru have increased substantially over
the last 5 years. In 2001, the exports from Ohio to Peru
totaled $17.9 million. In 2005, they totaled $32.8 million, a
substantial increase that I hope will continue, which is good
for Ohio because we need to employ thousands of workers who
have lost their manufacturing jobs over the past several years.
From the USTR's perspective, what sectors do you see
benefiting the move from the Peru FTA?
Mr. EISSENSTAT. Many of our industrial and consumer exports
will gain a competitive advantage under this agreement. For
Ohio in particular their production of machinery,
transportation equipment, chemicals, and plastics products all
stand to benefit; and we expect to see increases in the export
of those products to Peru as well as the agricultural
commodities produced in your State.
Ms. TUBBS JONES. Free trade agreements should benefit all
groups, particularly medium-sized businesses owned by--smaller
medium-sized businesses owned by Latinos and African Americans.
How do you foresee these agreements helping those minority
groups?
Mr. EISSENSTAT. Congresswoman, that is an excellent
question. I think whenever we establish a cooperative and
growing relationship with a country in Latin America it
enhances opportunities for people with cultural affinity in
those countries to engage in ways that wouldn't have been
possible without this agreement. It reduces non tariff
barriers, it enhances digital commerce, it enables a small
business exporter to seize opportunities and enhances certainty
that they don't have today. I think for minority workers it is
a good opportunity and a good market and one that they will
find quite attractive once the agreement is implemented.
Ms. TUBBS JONES. With thanks to the Committee, I had an
opportunity to visit Peru, Ecuador and Colombia last year and
had a great opportunity to meet President Toledo. All of that
being said and all the benefit that inures to Ohio businesses,
I still have concerns with regard to labor standards, but
because my colleagues have done such a good job on that issue,
Mr. Chairman, I am going to forgo any further questioning on
the issue. I just want to put those in on the record; and, Mr.
Chairman, I yield back the balance of my time.
Chairman THOMAS. The Chair thanks the gentlewoman from
Ohio.
Gentleman from Colorado wish to inquire.
Mr. BEAUPREZ. Thank you, Mr. Chairman. Mr. Eissenstat,
thanks for your patience and for your consideration here today.
My subject is beef, and I am interested in the side letter
dated January 5, 2006, to Ambassador Portman from his
counterparts in Peru wherein it appears to me that Peru has
acknowledged that the United States has complied both in beef
and in poultry with World Organization for Animal Health (OIE)
guidelines. I would assume that that means that they are going
to accept unrestricted, appropriately certified beef from the
United States.
Is that the condition, though, that the circumstances that
are actually in the trade agreement, or are we talking about a
different target?
Mr. EISSENSTAT. Congressman Beauprez, that is a good
question. As it was pointed out earlier today, the SPS
agreement is a bilateral commitment between us and the
government of Peru. We expect them to meet that commitment.
They have made substantial progress. They are now consulting
with the OIE and we are consulting with the OIE to make sure
that the regulatory regime is consistent with those standards.
I would note that on a number of SPS issues we have made
some progress, including on beef where they have agreed to not
only boneless beef under 30 months but recently bone-in beef
under 30 months. We have also had the avian influenza ban
lifted on poultry, we have had the nontariff barrier to rice
removed through these negotiations, and we are going to
continue to work to ensure that equivalence is recognized,
which it is under the current regime, as well as to make sure
that the beef standards apply to their beef imports are OIE
consistent. We would be very happy to work with you and Members
of the Congress that are interested in those issues to ensure
that those commitments are----
Mr. BEAUPREZ. By the time this comes back for final
ratification I hope progress is made. You know full well the
frustration we have had with many other countries around the
world on what I believe has been a political discussion as
opposed to one based on sound science. While we in Congress get
frustrated by that, it is the producers in places like I live
in, in Colorado, Nebraska, Kansas, Texas, that are producing
this beef that are suffering the penalty of which I think is
unfounded.
I would encourage you again to continue your work before
this agreement comes back for final ratification because we
very much would like to have ratification. I would be remiss if
I didn't say our beef producers are very encouraged, as is all
of agriculture, by this agreement, but we very much would like
to see progress continue to be made.
Mr. EISSENSTAT. Thank you. I appreciate those comments and
look forward to working with you.
Chairman THOMAS. Gentleman yield?
Prior to recessing, the Chair would like to underscore the
gentleman from Colorado's comments could be decidedly more
pointed.
This Committee and this Congress has had it with Japan. An
excuse to go back to the former relationship in terms of
refusing to accept beef is now the position that Japan holds,
with all kinds of promises that something will happen.
I want to assure the gentleman from Colorado that, as we
see Peru with great difficulty able to move to a minimally
reasonable position and show interest in moving forward, that
Japan should do so likewise immediately. Her failure to do so
will be reckoned with by this Committee and this Congress, and
I want to underscore that point.
Thank the gentleman for yielding.
Mr. BEAUPREZ. Absolutely. Yield back all my time.
Chairman THOMAS. The Chair thanks the Members for the
second panel.
We will recess now until 1:30 and reconvene at 1:30.
[Recess.]
Chairman THOMAS. The Committee will reconvene; guests will
find seats. The Chair wants to thank panel members. I hope no
one has been unduly inconvenienced by virtue of the time
factor. It is just that sometimes business intervenes.
The panel: Mr. Richard Norman, Human Resources, Coats North
America, Charlotte North Carolina; Ray Souza, owner and
operator, Mel-Delin Dairy, Turlock, California, just north of
my district; Daniel H. Jara, President and Chief Executive
Officer, statewide Hispanic Chamber of Commerce of New Jersey;
Patricia Forkan, President, Humane Society International; Frank
Santeiro, Managing Director For Global Trade Services; Sarah
Lilygren, Vice President for Federal Government Relations,
Tyson Foods, otherwise known as poultry hindquarters; and Brett
Gibson, Legislative Representative of American Federation of
Labor, AFL-CIO.
You have all submitted written testimony. It will be made a
part of the record. You can address the Committee in any way
you see fit in the time that is made available to you. I will
just start my left, your right; and we will go across the
panel. Mr. Norman.
You have to turn the microphone on. They are a little more
unidirectional than they used to be.
STATEMENT OF RICHARD NORMAN, VICE PRESIDENT FOR HUMAN
RESOURCES, COATS NORTH AMERICA, CHARLOTTE, NORTH CAROLINA, ON
BEHALF OF U.S. CHAMBER OF COMMERCE AND U.S.-PERU TRADE
COALITION
Mr. NORMAN. Chairman Thomas, Ranking Member Rangel, Members
of the Committee, thank you for the opportunity to testify
before you about the PTPA. I am Richard Norman, Vice President
For Human Resources of Coats North America. Our company has
been doing business in the United States since 1864 and in Peru
since 1957. I am looking forward to sharing our thoughts on the
impact of this important agreement for our business and others
like us.
I appear today on behalf of my company, the U.S. Chamber of
Commerce and the U.S.-Peru Trade Coalition. This is a broad-
based group of companies representing all sectors of our
economy. This includes U.S. companies, farmers and business
organizations.
My company, Coats, employs 25,000 employees worldwide and
has manufacturing locations in more than 60 countries. Coats is
the largest supplier of sewing thread in the world. Here in the
United States, we employ over 1,800 workers in the Carolinas,
Georgia, Nevada, and New Hampshire. While some may think that
the textile business is not high tech, I am proud to say that
our R&D facility in North Carolina creates threads that hold
together everything from space suits used by NASA, to the
fiberoptic cables to even the airbag that cushioned the landing
of the Mars Rover.
We have a business in Lima, Peru, that employs 260 people,
producing thread for the local market, half of which is
exported back to the United States through ATPDEA in the form
of apparel. We export specialty thread to Peru from our
factories in the Carolinas for use in industrial applications.
Our thread is also used in a host of other manufactured
products, from electronics to airplanes, that are also sold
throughout the world. So, when industry tariffs go down, our
business benefits.
On behalf of my company and also the business organizations
I represent today, I would like to voice strong support for
PTPA. Free trade agreements like PTPA will do much for
companies like mine to slash barriers to our exports. They will
also improve protection for U.S. investments in South American
countries, and they will strengthen our position and make us
more competitive in a global economy.
Currently, 90 percent of all U.S. exports to Peru are
manufactured goods like Coats' thread. Many of these goods face
an average tariff range of 12 to 25 percent. The PTPA will
eliminate 80 percent of all tariffs on manufactured goods as
soon as it enters into force, and then the rest of the products
will become duty free within 10 years.
Peruvian apparel exports reached almost $1 billion in 2005;
and exports of U.S. thread, fabric and cotton have grown hand
in hand.
Having a source for apparel manufacturing in South America
allows for replenishment of styles during the same fashion
season, something you can't get from China due to its distance
from our market. This is extremely important for U.S. clothing
retailers who can replenish more of their hottest sellers
before the season ends and fashions roll over.
Development of the Peruvian market allows for
diversification of sources of supply for U.S. retailers,
ensuring that neither one country nor one region can dominate
any market segment exporting into the United States.
Our farm products face tariffs ranging from 12 to 52
percent, while nearly all Peruvian agriculture sales to the
United States enjoy duty-free, quota-free treatment under the
existing Andean Trade Preferences and Drug Eradication Act.
Today, 97 percent of all U.S. imports from Peru enter this
country duty free because of preferential market access
programs; and that is why Peru has increased its exports here
by 157 percent in the last 3 years. American products and
services still face tariffs and other restrictions in Peru;
and, as a result, our exports to Peru within the same timeframe
increased by only 38 percent. In other words, we have a trade
deficit with Peru.
According to the U.S. ITC, after PTPA enters force, our
exports to Peru are expected to increase by $1.1 billion
anually, while our imports are only expected to rise by $439
million. Leveling the playingfield through PTPA not only helps
us sell more but it helps reduce our trade deficit.
The U.S. ITC predicts that PTPA will add $2.1 billion per
year to U.S. GDP. Mr. Chairman, we can't afford to leave $2.1
billion on the table. Trade agreements work. Just look at Chile
as an example. U.S. exports to Chile have risen 91 percent
since 2004. Caterpillar, for example, has doubled its sales to
Chile since 2004 and added some 5,000 new jobs in Illinois.
Now, that is the kind of success we would like to achieve.
Coats itself, with operations in the United States, saw a
30 percent increase from 2004 to 2005 with our Chile shipments.
The PTPA will not only open markets to U.S. businesses, but
it will send a strong message that we are in business and the
United States stands by its friends, particularly in a region
where we have leaders like Hugo Chavez and Evo Morales who are
vying for influence. I would just like to say, give U.S.
manufacturers and farmers a level playingfield with zero
tariffs and we can compete anywhere in the world. I urge
Congress to approve this legislation as soon as possible.
Thank you.
[The prepared statement of Mr. Norman follows:]
Statement of Richard Norman, Vice President for Human Resources, Coats
North America, Charlotte, North Carolina, on behalf of U.S. Chamber of
Commerce and U.S.-Peru Trade Coalition
On behalf of the U.S. Chamber of Commerce (Chamber) and the U.S.-
Peru Trade Coalition, I would like to voice strong support for the
U.S.-Peru Trade Promotion Agreement (PTPA). My name is Dick Norman, and
I am Vice President of Human Resources for Coats North America, based
in Charlotte, North Carolina. Our company employs over 1,800 workers in
the Carolinas, Georgia, Nevada and Maine and has been engaged in the
textile business with Peru for many years.
First a word about our organizations:
The U.S. Chamber of Commerce is the world's largest
business federation, representing three million businesses of every
size, sector, and region.
The U.S.-Peru Trade Coalition is a broad-based group of
U.S. companies, farmers, business organizations and other groups
representing the largest and most dynamic sectors of our economy. With
over 100 companies and associations taking part, this new coalition is
growing very rapidly.
With more than 60,000 employees worldwide, and manufacturing
locations in more than 60 countries, Coats is the largest global
supplier of sewing thread. Our business is divided into two parts:
industrial and consumer. The industrial group, Coats American, was
incorporated in 1898 in New Jersey under the name of American Thread
Company. Coats American manufactures several different types of thread
for use in apparel sewing, embroidery, and specialty products. The
consumer business creates sewing and quilting products, hand knitting
and crochet yarns, crochet thread, hand embroidery and needlepoint
threads and implements. Coats home sewing products, used for mending
and sewing projects, can be found in millions of households worldwide.
My company and the business organizations I represent today believe
that international trade plays a vital part in the expansion of
economic opportunities for American workers, farmers and businesses.
PTPA is a critical step in U.S. efforts to promote sustainable economic
growth in the Western Hemisphere through trade rather than aid, and it
follows in the footsteps of the successful U.S.-Chile Free Trade
Agreement (FTA). Indeed, PTPA is a front-loaded, ambitious and
comprehensive agreement that promises considerable benefits to both the
United States and Peru.
The agreement will substantially improve market access for American
farm products, industrial and other non-agricultural goods, and
services in Peru. The opportunities created by lowering tariff and non-
tariff barriers to U.S.-Peru trade and investment promise to expand
two-way trade opportunities and lift living standards in both
countries.
Beyond its purely commercial benefits, the agreement offers
critical support and stronger ties to a close ally in the Andes, a
region where political and economic instability poses a real threat to
U.S. and regional security. The election on June 4 of Alan Garcia to
succeed Alejandro Toledo as President of Peru marks a clear victory by
a candidate endorsing closer ties to the United States at a time when
some countries in the region are taking a different course. At this
writing, two key committees in Peru's legislature have overwhelmingly
approved the agreement, and the national Congress is likely to do so
this week--with President-elect Garcia's party lending its full
support.
In addition, PTPA will bolster the rule of law, investor
protections, internationally recognized workers' rights, and
transparency and accountability in business and government. The
agreement's strong intellectual property and related enforcement
provisions not only protect U.S. innovation-based industries but
contribute to the fight against counterfeit and pirated products,
denying an important source of funds for groups engaged in narco-
trafficking and terrorism.
Looking forward, the agreement with Peru is an important step in
the U.S. strategy to promote trade liberalization and economic
integration with the Andean region. U.S. trade with Peru and its Andean
neighbors reached nearly $30 billion in 2005. This region represents a
significant potential market, with a population approaching 100 million
and a collective GDP near $500 billion when measured on a purchasing
power parity basis. We welcome the conclusion of negotiations for a
similar trade agreement with Colombia as the next step in this
important strategy.
Opening Markets
Above all else, PTPA further opens Peru's market to products and
services made by American workers, farmers, and companies. Equally
important, the agreement makes it easier for U.S. consumers to buy
products made by Peru's workers, farmers and companies. Total two-way
trade between U.S. and Peru has doubled over the past three years,
reaching $7.4 billion in 2005. However, due to U.S. trade preference
programs, growth in U.S. exports to Peru reached 38% from 2000-2005,
while Peruvian exports to the U.S. grew 157% during the same time
period.
The United States unilaterally opened its market to Peru and its
neighbors through the Andean Trade Preference Act (ATPA) in 1990 and
its successor ATPDEA. According to the U.S. International Trade
Commission (USITC), fully 97% of all imports from Peru already enter
the U.S. market duty-free; the report continues: ``While most of Peru's
average tariff rates range from 12% to 25%, most of the U.S. average
tariff rates are zero, with only one (sugar, 46.3%) exceeding 3%.'' In
other words, Peru enjoys nearly free access to our marketplace while
Peru taxes the products that U.S. companies and farmers ship there.
PTPA will cut Peru's taxes on U.S. products and as a result make
this trade relationship a more mutually beneficial, reciprocal
partnership. The day the agreement enters into force, eighty percent of
U.S. consumer and industrial products and more than two-thirds of
current U.S. farm exports will enter Peru duty-free. Consider the
following examples of the current imbalance in tariff treatment and the
impact of PTPA on this discrepancy:
------------------------------------------------------------------------
Without PTPA With PTPA
--------------------------------------- -------------
They Products We They
We Pay Pay Pay Pay
------------------------------------------------------------------------
12-20% 0-6% Processed Foods 0% 0%
------------------------------------------------------------------------
12% 2.5% Automobiles 0% 0%
------------------------------------------------------------------------
12% 0% Furniture 0% 0%
------------------------------------------------------------------------
12% 0% Audiovisual 0% 0%
products (film
and DVDs)
------------------------------------------------------------------------
12% 0% Chemicals, 0% 0%
Plastics, Mineral
Fuels and Coal
------------------------------------------------------------------------
12% 5% Cotton 0% 0%
------------------------------------------------------------------------
12% 0% Metal Products 0% 0%
(copper, zinc,
gold, silver)
------------------------------------------------------------------------
20%,12% and 4% 0% Cereals (oats, 0% 0%
corn, soybeans)
------------------------------------------------------------------------
4% 0% Other 0% 0%
transportation
equipment
------------------------------------------------------------------------
4% 0% Computers and 0% 0%
related products
------------------------------------------------------------------------
Manufacturing: PTPA offers immediate opportunities for the U.S.
manufacturing sector. Manufactured goods represented 90% of U.S.
merchandise exports to Peru in 2005. The fastest-growing categories
among U.S. manufactured exports to Peru have been petroleum and coal
products; other furniture-related products; and boilers, tanks, and
shipping containers. PTPA promises to not only accelerate this growth
by reducing the landed cost of U.S. goods to Peru considerably but open
up opportunities in new product categories. The benefits of the
agreement are significantly front-loaded. When the agreement goes into
effect, 80% of U.S. exports of consumer and industrial goods will
become totally duty-free. The remainder will be duty-free within ten
years.
As a result of the agreement, Peru will become a full member of the
World Trade Organization's Information Technology Agreement,
eliminating tariffs on information technology products and providing
substantial new opportunities for U.S. high-tech exporters.
Agriculture: U.S. ranchers and farmers should reap substantial
benefits from PTPA. According to the Agriculture Coalition for U.S.-
Peru Trade, the United States exported an annual average of $227
million in agricultural products to Peru in 2000-2004. U.S.
agricultural exports to Peru include wheat ($78 million), feed grains
($20 million), cotton ($38 million), oilseeds and products ($13
million), rice ($9 million), and dairy products ($6 million).
As noted, more than two-thirds of U.S. agricultural exports to Peru
will be duty free upon implementation of the agreement, and tariffs on
remaining U.S. farm exports will be phased out over 15-17 years. As a
result, the Agriculture Coalition estimates the agreement will bring an
increase in U.S. agricultural exports to Peru of more than $700 million
by the end of the implementation period. The agreement is comprehensive
in its coverage, providing commercially meaningful access for U.S.
agricultural priorities while taking into account both U.S. and
Peruvian agricultural sensitivities. The agreement also creates a
mechanism for sanitary and phytosanitary cooperation and should ease
related non-tariff barriers to U.S. agricultural exports to Peru.
Services: Service providers will also benefit significantly from
the agreement. PTPA's services commitments cover both the cross-border
supply of services and the right to invest and establish a local
service presence and are strengthened by a set of detailed disciplines
on regulatory transparency--which is fundamental to meaningful market
access to services. In fact, as a result of PTPA, Peru has agreed to a
series of new commitments that extend beyond Peru's existing
commitments under the General Agreement on Trade in Services (GATS).
Specifically, PTPA extends trade disciplines to services such as
computer and related services, real estate, construction,
environmental, and pipeline transport services.
While the agreement clearly levels the playing field for U.S.
business and agriculture, it is a balanced one with significant
benefits for Peru as well. While Peru has enjoyed virtually duty-free
access to our market to their products under unilateral preference
programs set-up to encourage alternatives to the drug trade, these
preferences have always been subject to re-authorization by Congress
with no guarantees. For example, both the ATPDEA and GSP benefits are
set to expire in December 2006. Together, they represent half of all
Peruvian exports that enter the United States duty-free, i.e. almost
$2.45 billion, with the ATPDEA accounting for most of that sum. Without
the extension of these preferential programs, Peru stands the risk of
immediately losing a significant part of its exports. Moreover, most of
the goods that have been exported under the ATPA/ATPDEA represent
sectors that have previously not existed (e.g., fresh asparagus) and
have flourished only because of these trade preferences.
Losing access to the U.S. market would mean losing millions of
dollars in revenue and thousands of Peruvian jobs that depend on it.
Without these jobs, many Peruvian workers will be forced to find other
employment opportunities in a country that still has a very high
unemployment rate and where nearly half of the population lives in
poverty. However, the PTPA makes Peru's favorable access to our markets
permanent and provides additional benefits in the form of improved
market functioning and enhanced economic growth. In other words, PTPA
will provide continuity in a long-term U.S. policy with regard to
Peru--one that calls for economic development and democratic
consolidation.
The Rule of Law
The agreement will strengthen protection and enforcement of U.S.
trademarks, patents and copyrights, creating new opportunities for U.S.
innovation-based and creative industries in Peru. In specific terms,
PTPA includes strong intellectual property enforcement mechanisms and
penalties provisions, including the criminalization of end-user piracy
and counterfeiting and the authority to seize and destroy not only
counterfeit goods but also the equipment used to produce them. The
agreement also provides necessary mechanisms to fight the problem of
trans-shipment of counterfeit goods with specific provisions that are
aimed at goods-in-transit.
In addition, U.S. direct investors in Peru will benefit from the
strong investment chapter in the agreement, particularly the sections
dealing with investment protections and dispute settlement. As noted by
the Advisory Committee for Trade Policy and Negotiations in its report
to President Bush, PTPA goes beyond earlier agreements in this regard
and sets the gold standard for future free trade agreements. Indeed,
the agreement enables binding third party arbitration for investor-
state disputes not only for investments concluded after the agreement
goes into effect, but also for many types of investments that pre-date
the agreement.
The agreement provides for rights that are consistent with U.S. law
and also contains fully transparent dispute settlement procedures that
are open to the public and allow interested parties to provide their
input. As such, these trade agreements provide an opportunity for the
partner countries to improve their investment climate by undertaking
legal and judicial reforms and resolving investment disputes (e.g., the
criminalization of commercial disputes).
Growth, Income, and Jobs
PTPA is a great step forward in the evolution of our trading
relationship with Peru from one based on unilateral trade preferences
to reciprocal market access. As such, the economic, employment, and
pocketbook impact of the agreement are quite positive. Indeed, PTPA is
expected make modest but nonetheless valuable contributions to economic
growth, incomes, and employment opportunities in cities and towns
across the country.
According to the U.S. Department of Commerce, Peru was the 43rd
largest market for U.S. goods in 2005, out of a total of 228 markets.
Texas and Florida were the top state exporters, with California,
Louisiana, Illinois, South Carolina, New York, Georgia, Pennsylvania,
Tennessee, Washington, and New Jersey also posting significant export
totals to Peru in 2005.
According to the USITC's June 2006 report on economy-wide effects
of PTPA, the agreement is likely to result in a much larger increase in
U.S. exports than in U.S. imports given the substantially greater
tariffs faced by U.S. exporters to Peru than Peruvian exporters to the
United States. The USITC estimates U.S. exports to Peru will increase
by $1.1 billion, while imports will only increase by $439 million.
Furthermore, the USITC predicts that PTPA will add $2.1 billion per
year to U.S. gross domestic product.
The Chamber has begun preparing state-specific economic impact
studies in order to gauge the impact of the agreement. Our initial
findings for Texas and Florida provide an idea of how the agreement
will impact local economies. The studies show moderate but real gains
for industrial output, household earnings, and employment for both
states. In the first year, our model shows a potential increase in
output across all industries of $155 million in Texas and $143 million
in Florida; increased earnings for employees in all industries of $35
million in both states; and the creation of 1,055 and 931 new jobs in
Texas and Florida, respectively.
Of course, the real impact of the agreement becomes clearer as we
look further into the future. In nine years, our model \1\ shows a
potential increase in output across all industries of $829 million in
Texas and $768 million in Florida; increased earnings of employees in
all industries of $188 million in Texas and $186 million in Florida;
and the creation of 4,141 and 4,970 jobs, respectively.
---------------------------------------------------------------------------
\1\ This study uses the U.S. Department of Commerce's Bureau of
Economic Analysis Regional Input-Output Modeling System (RIMS II) to
offer a vision of the potential impact of the Peru TPA.
---------------------------------------------------------------------------
Additional Benefits
In addition to contributing strongly to the expansion of trade and
economic relations between the United States and Peru, PTPA will lend a
helping hand for a close ally in the Andes and will enhance U.S.
efforts to strengthen democracy in the region. The embrace of
democratic norms throughout the hemisphere over the past 25 years has
been remarkable. But in some countries, poor economic policy and weak
political parties, among other factors, have recently endangered this
progress. The recent surge in populist victories, especially in South
America, underscores the fact that democratic elections do not by
themselves guarantee the rule of law.
While questions of the rule of law in the region may legitimately
be addressed in a number of ways, we believe that the promulgation of
ambitious and comprehensive free trade agreements would do more to
enhance the rule of law and transparent governance in the region than
any other possible step the United States could take. While the
commercial benefits are substantial, they go beyond just opening
overseas markets for America's workers, farmers and companies. These
agreements assist in the creation of a transparent, rules-based
economic environment, which is a critical element in the success of
democratic institutions and market-based economic policies.
Like much of Latin America, the Andean region is struggling against
corruption, which undermines growth, security, and stability. PTPA
contains critical provisions to enhance transparency and accountability
in governance, providing the countries with important tools to fight
the scourge of corruption. As an example, the agreement provides for
the criminalization of bribery in government procurement, providing for
more efficient procurement and a more competitive marketplace.
PTPA also promotes U.S. security interests by forging a deeper
partnership with Peru through a framework for government-to-government
relationships that is grounded in the tangible national interests of
all parties. Such a framework is vital to enhancing cooperation in the
fight against terrorism and narcotics trafficking; it also sets an
example for other countries around the world as we pursue our global
security goals. By promoting economic growth in Peru, PTPA will help
stabilize its economy and provide its citizens with long-term
alternatives to narcotics trafficking or illegal immigration.
Conclusion
In sum, it is worth noting that the commercial benefits of recent
free trade agreements have surpassed all expectation. Consider the
U.S.-Chile FTA, which was implemented on January 1, 2004, and
immediately began to pay dividends for American businesses and farmers.
U.S. exports to Chile surged by 33% in 2004, and by a blistering 85% in
2005. While the USITC had forecast total export growth of 18-52% for
the first 12 years of the agreement's implementation, U.S. exports to
Chile nearly doubled in just two years--a combined 91% increase over
just 24 months. Given the similarities between PTPA and the U.S.-Chile
FTA, we may surely expect impressive benefits from this new agreement
as well.
While exports are important, it is worth reporting that imports
from Chile have also increased. In the end, trade is about more than
just exporting--it is about more choices at lower costs for consumers,
and as a result a higher standard of living. Sometimes, as is the case
with Chile, free trade is about having access fresh grapes in the
winter and more crushed grapes (i.e., wine) year-round. With Peru, our
consumers will benefit from more access to healthy foods and vegetables
like asparagus and fish. This is especially appreciated during the
winter.
We appreciate this opportunity to share our strong support for
PTPA. We believe that trade expansion is an essential ingredient in any
recipe for economic success in the 21st century, and PTPA is an
excellent model in this regard. If U.S. companies, workers, and
consumers are to thrive amidst rising competition, new trade agreements
such as PTPA are critical. U.S. business is more than capable of
competing in the global marketplace when trade barriers are removed and
markets are open.
Thank you very much.
Chairman THOMAS. Thank you. Mr. Souza, before I call on
you, my friend and colleague, Mr. Nunes, is here. He may want
to make some statement. I would only ask you, not knowing, were
your ancestors from the Azores, Mr. Souza?
Mr. SOUZA. Yes, they were.
Chairman THOMAS. Then, with pleasure, I will yield to the
gentleman from California, Mr. Nunes.
Mr. NUNES. Thank you, Mr. Chairman.
I want to welcome my Azorean brother here to the Committee.
He is not from my district but from a little bit north. So,
welcome, Mr. Souza; and I look forward to your testimony.
I yield back, Mr. Chairman.
Chairman THOMAS. Thank you.
Mr. Souza.
Mr. SOUZA. First of all, I may not be from your district,
Congressman Nunes, but we are from the same island in the
Azores.
Chairman THOMAS. For those of you who don't understand, I
will explain the inside joke.
The Portuguese have been a very significant and important
people in the development of California and in the Central
Valley, as is the case with some of the former Yugoslavians,
all from the island of Split, apparently. Most of those of
Portuguese ancestry are from the Azores, who have been an
enormous resource and pool of talent for us in this country.
For any of you who want to learn more about this, any time
during July or August if you will go to Pismo Beach,
California, all of the Central Valley Azoreans, Portuguese
Americans, are over there; and it is just a lot of fun.
Nice to have you with us, Mr. Souza.
Mr. SOUZA. Thank you, Congressman. It is a pleasure to be
here.
First of all, before I go on, I am assuming that there is
no questions from my----
Chairman THOMAS. We will go through the entire panel and
then offer questions up so the panelists could have an
opportunity to respond all together.
STATEMENT OF RAY SOUZA, OWNER AND OPERATOR, MEL-DELIN DAIRY,
TURLOCK, CALIFORNIA, ON BEHALF OF WESTERN UNITED DAIRYMEN
Mr. SOUZA. Very well. Once again, thank you, Chairman
Thomas, for holding this hearing today and inviting me to
testify representing the California dairy industry.
Mr. Chairman and Members of the Committee, my name is Ray
Souza; and I am a dairy producer from Turlock, California. I
have formerly served as president of Western United Dairymen
and currently hold the position of vice president. I am a
former president of the Western States Dairy Producer Trade
Association. I ship to California Dairies, Incorporated,
California's largest cooperative.
California milk production growth has averaged 3 percent
year over year during the past 5 years. Continued production
growth is expected in California and nationwide as dairy
farmers continue to increase efficiencies. Growth in domestic
demand is unlikely to keep pace with the growth in domestic
milk production. To remain viable, the U.S. dairy industry must
expand markets for dairy products.
California is well aligned to be a major supplier of dairy
products around the world. According to data released by the
University of California Agricultural Issues Center, the export
value of California dairy products increased by 35 percent in
2004; and the U.S. export value of nonfat dry milk increased by
75 percent, with Mexico being a strong market for nonfat dry
milk. As a result, dairy made the list of top five agricultural
commodities exported in 2004 in terms of value.
Though we have witnessed some success, greater market
access will be critical to the future growth and economic
health for the California and U.S. dairy industries alike.
I am glad to be here today to provide our enthusiastic
support for this agreement, the PTPA. This is an example of an
agreement that is balanced because it offers the opportunity to
grow U.S. dairy exports without potential for a third-party
country to exploit the agreement and to disadvantage U.S. dairy
farmers. Peru has a considerable amount of domestic production
but, along with that, a much larger and more developed domestic
dairy market than some other countries in the region have.
As more open trade improves the local economy in Peru,
California dairy farmers will be positioned to supply that
market as it continues to grow. National Milk Producers
Federation estimates that the benefits of this agreement to the
U.S. dairy industry over the next several years could grow by
as much as $100,000,000 per year on average; and with 21
percent of U.S. milk production coming from California, you can
see why this agreement is so important to Californians.
The duty free access for cheese, butter, milk powders and
dairy protein products will be a significant benefit to us. Our
industry in California has a history of supplying manufactured
dairy products such as those on the list, and we believe demand
for those products will continue to grow in countries like
Peru.
I would also like to applaud the fact that no features of
the U.S. milk marketing regulatory system or the dairy producer
safety net are affected by this agreement. I would also note
that as long as the European Union continues to use export
subsidies to sell to Peru, the United States must still use the
Dairy Export Incentive Program (DEIP), to help build these
markets there. This would be a good time to note that the
United States Department of Agriculture (USDA) has not used
DEIP anywhere in the last 2 years. With farm milk prices now
nearing historic lows, right now would be a good time to use
the tool that Congress has authorized, a tool that is fully WTO
legal, and get the DEIP program fired up, moving dairy products
to foreign markets and building demand instead of moving
domestic dairy products to CCC.
I do want to emphasize, however, that whereas having a Peru
Trade Promotion Agreement is something we support, U.S. dairy
farmers want to be sure that their government is going to fight
for them and make sure that the terms of the agreement are
enforced. We need to be sure that the Rules of Origin, which in
this agreement mirrors those of the NAFTA, are enforced to the
letter.
We in the U.S. dairy industry have too much experience with
lack of enforcement of agreements. The dairy industry of
California is bearing the brunt of an excessive regulatory
action taken by Mexico in a trade dispute over another
commodity. In other cases of lack of enforcement, the
government there has delayed issuing powder quota licenses that
should have been available to the U.S. exporters since the
first of the year. If we are going to have these agreements, we
need to have them in force so that our markets gain the access
that they should have while we are at the same time giving Peru
market access here.
We have also had significant disagreements over the years
with Canada over the access to their heavily protected market
for milk and dairy products. The reality is that these
agreements look balanced at the time they are negotiated, but
without aggressive enforcement by the U.S. Government, we will
continue to be the only ones who routinely hold up our end of
the bargain.
Also in the enforcement arena are Sanitary and
Phytosanitary issues that are often raised by our trading
partners to deny access to U.S. dairy products. USDA maintains
a list of U.S. dairy plants approved to ship products in the
export market. The plants on that list should be able to sell
their products to other countries without unfounded SPS
barriers thrown up by the receiving countries.
Thank you again, Mr. Chairman, for allowing me to be here
today and voice the enthusiastic support of the California
dairy industry for the Peru Trade Promotion Agreement.
[The prepared statement of Mr. Souza follows:]
Statement of Ray Souza, Owner and Operator, Mel-Delin Dairy, Turlock,
California, on behalf of Western United Dairymen
Mr. Chairman and members of the subcommittee, my name is Ray Souza
and I am a dairy producer from Turlock, California. My dairy was
started by my grandfather who emigrated from the Azores to the United
States and was then passed on to my father, and subsequently purchased
by me. We now milk about 800 cows on the dairy that my grandfather
started with 17 head.
Thank you Chairman Thomas for having this hearing and inviting me
to testify representing the California dairy industry. I formerly
served as president of Western United Dairymen and currently hold the
position of first vice-president. I was a former president of the
Western States Dairy Producer Trade Association. I currently serve on
the administration's Agricultural Trade Advisory Committee (ATAC). I
ship to California Dairies, Incorporated (CDI), the largest California
based cooperative.
California milk production growth has averaged 3% year-over-year
during the past five years. Continued production growth is expected in
California and nationwide as dairy farmers continue to increase
efficiencies and produce more milk. Growth in domestic demand is
unlikely to keep pace with growth in domestic milk production. To
remain viable, the U.S. dairy industry must expand markets for dairy
products.
California is well-aligned to be a major supplier of dairy products
around the world. According to data released by the University of
California Agricultural Issues Center, the export value of California
dairy products increased by 35 percent in 2004. The U.S. export value
of nonfat dry milk increased 75 percent with Mexico a strong market for
California's nonfat dry milk. As a result, dairy made the list of the
top five California agricultural products exported by value in 2004.
Though we have witnessed some success, greater market access will
be critical to the future growth of the California and U.S. dairy
industry alike.
I am glad to be here today to provide our enthusiastic support for
this agreement for United States-Peru Trade Promotion. This is an
example of an agreement that is balanced because it offers us the
opportunity to grow U.S. dairy exports without the potential for a 3rd
party country to exploit this agreement to the disadvantage of U.S.
dairy farmers. Peru has a considerable amount of domestic production
but along with that a much larger and more developed domestic dairy
market than some other countries in the region.
As more open trade improves the local economy in Peru, California
dairy farmers will be positioned to supply that market as it continues
to grow. National Milk Producers Federation estimates that the benefits
of this agreement to the U.S. dairy industry over the next several
years should grow to $100 million per year on average. With 21% of U.S.
milk production coming from California, you can see why this agreement
is important to Californians.
The duty-free access for cheese, butter, milk powders and dairy
protein products will be a significant benefit to us. Our industry in
California has a history of supplying quality manufactured dairy
products, such as those on that list, and we believe demand for those
products will continue to grow in countries like Peru.
I would also applaud the fact that no features of the U.S. milk
marketing regulatory system or the dairy producer safety net are
affected by this agreement. I would also note that as long as the
European Union uses export subsidies to sell product to Peru, the U.S.
must still use its Dairy Export Incentive Program (DEIP) to help build
that market there. This would be a good time to note that the USDA has
not used the DEIP anywhere in more than two years. With farm milk
prices nearing historic lows, right now would be a good time to get
that tool the Congress has authorized, a tool that is fully WTO-legal,
by the way, and get DEIP fired up moving dairy products to foreign
markets and building demand, instead of moving domestic dairy products
to the CCC.
I do want to emphasize, however, that whereas having a Peru Trade
Promotion Agreement is something we support, U.S. dairy farmers want to
be sure that their government is going to fight for them to make sure
the terms of the agreement are enforced. We need to be sure that the
Rules of Origin, which in this agreement mirror those in the North
American Free Trade Agreement, are enforced to the letter.
We in the U.S. dairy industry have too much experience with lack of
enforcement of agreements. The dairy industry in California is bearing
the brunt of an excessive retaliatory action taken by Mexico in a trade
dispute over another commodity. In another case of lack of enforcement,
the government there has delayed issuing milk powder quota licenses
that should have been available to U.S. exporters since the first of
the year. If we're going to have these agreements we need them enforced
so our market access gains are realized along with the increased access
we've given Peru to the market here.
We've also had significant disagreements over the years with Canada
over access to their heavily protected market for milk and dairy
products. The reality is that these agreements look balanced at the
time they're negotiated but without aggressive enforcement by the U.S.
government, we'll continue to be the only ones who routinely hold up
our end of the bargain.
Also in the enforcement arena are Sanitary and Phytosanitary (SPS)
issues that are often raised by our trading partners to deny access to
U.S. dairy products. USDA maintains a list of U.S. dairy plants
approved to ship products in the export market. The plants on that list
should be able to sell products in other countries without unfounded
SPS barriers being thrown up in the receiving countries.
Thank you again, Mr. Chairman, for allowing me to be here today to
voice the enthusiastic support of the California dairy industry for the
Peru Trade Promotion Agreement. I'd be happy to answer questions on
this matter.
Chairman THOMAS. Thank you, Mr. Souza, as long as we
maintain close watch on point of origin. Mr. Jara.
STATEMENT OF DANIEL H. JARA, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, STATEWIDE HISPANIC CHAMBER OF COMMERCE OF NEW JERSEY,
JERSEY CITY, NEW JERSEY, ON BEHALF OF HISPANIC ALLIANCE FOR
FREE TRADE
Mr. JARA. Chairman Thomas, Ranking Member Rangel, Members
of the Committee on Ways and Means and guests, buenas tardes.
On behalf of the statewide Hispanic Chamber of Commerce of
New Jersey and on behalf of the Hispanic Alliance For Free
Trade, I am pleased to represent our collective Hispanic voices
at today's hearing and in this debate.
I am also speaking from the perspective of a small
businessowner. I am the owner of Rimac Agency, Inc., an
insurance, Hispanic market and international trade consulting
firm located in Hackensack, New Jersey.
My name is Daniel Jara. I was born in Lima, Peru. I moved
to New Jersey at age 14. I received my secondary, university
and graduate education from New Jersey schools. I am proud to
testify in support of the agreement from the perspective of a
Peruvian Hispanic American hailing from the Garden State of New
Jersey.
This agreement is of critical importance for Hispanic
Americans and particularly to the Hispanic American business
community.
Please permit me to briefly mention my two organizations.
The statewide Hispanic Chamber of Commerce of New Jersey is
a network of local Hispanic chambers and businesses that
represent the economic interests of over 40,000 small
businesses in the State of New Jersey and the Philadelphia
area.
The Hispanic Alliance For Free Trade, HAFT, is a national,
umbrella organization organized in support of free trade. HAFT
is comprised of a cross section of 130 of the leading and most
influential Hispanic organizations, including the largest
Hispanic business organization, the U.S. Hispanic Chamber of
Commerce, representing over 2 million Hispanic businesses and
now spanning over 225 local Hispanic chambers across the United
States and the Commonwealth of Puerto Rico. HAFT was visible
and instrumental in its support of Domincan Republic-Central
America Free Trade Agreement (DR-CAFTA) and is now refocused in
its support of the Peru Trade Promotion Agreement.
My career in the Hispanic arena spans 18 years at senior-
most local, State and national levels.
In a relatively short time, our Hispanic community has
evolved and grown tremendously in both importance and
influence. According to the U.S. Census, Hispanics are
currently the largest minority in the United States, with an
estimated population of nearly 43 million--over 14 percent of
the total U.S. population--and estimated to grow by 1.7 million
a year. More than one-eighth of the people of the United States
are of Hispanic origin and by mid century 25 percent of them,
that means one of every four people in the United States, will
be of Hispanic descent.
Hispanics have particularly distinguished themselves in the
economic and commercial arena. Hispanics as a community wield a
great economic power. Hispanic purchasing power is projected to
reach $1 trillion by 2008.
It is estimated that there are now over 2 million Hispanic-
owned businesses in the United States. These 2 million
Hispanic-owned businesses generated almost $300 billion in
annual gross receipts. By 2010, it is estimated there will be
3.2 million Hispanic firms, generating $465 billion and making
them among the fastest-growing business segments in the Nation,
according to the U.S. Small Business Administration.
The U.S. Census data shows that the number of Hispanic-
owned businesses has grown at a rate of three times greater
than the national average. Furthermore, businesses owned by
Hispanic women grew at the rate nearly six times that of the
national average. By 2007, one of every ten small businesses
will be Hispanic businesses.
Hispanic Americans of Peruvian descent, such as myself,
will particularly benefit from this agreement. Currently, the
total Peruvian population in the United States is estimated at
about one and a half million, many of which reside in New
Jersey area where I hail and have my business. For example, in
New Jersey alone, there are 49,846 Hispanic businesses, many of
them of Peruvian origin. For we Peruvian Americans, PTPA
represents an increased economic opportunity for our businesses
here as well as for our family and friends in Peru.
New Jersey itself has and will benefit tremendously from
this agreement. In 2005, New Jersey benefited from $33 million
in total exports to Peru; and, with this new agreement, exports
to Peru by New Jersey businesses in key industries will rise
between 45 and 57 percent.
This agreement is a win-win situation.
In conclusion, Mr. Chairman and Committee Members, my
company and the Hispanic organizations, the statewide Hispanic
Chamber of Commerce of New Jersey and the Hispanic Alliance for
Free Trade, representing hundreds of the leading Hispanic
organizations, millions of Hispanic businesses, respectfully
appreciate the opportunity to come before you today.
We believe that Hispanic Americans, especially Hispanic
American businesses, have an edge, a leg up when seeking
commercial opportunities with this hemisphere. Hispanics are
able to leverage language, culture and family ties in competing
for commercial relationships with this hemisphere. As
Hispanics, we want to see more opportunities being created by
Hispanics for other Hispanics. The passage of this agreement
will provide tremendous opportunity for these businesses and
contribute to continued growth and success of Hispanics in the
United States.
Of equal importance, Hispanic Americans--Peruvian Americans
in particular--very much care about the fate of Peru, its
people as well as the stability and well-being of this
hemisphere. Hispanics care and want to give back by providing
for our families and supporting our countries of origin. We are
a passionate and hard-working people. We vitally care about
eradicating poverty by creating economic growth as well as a
stable and prosperous Western Hemisphere. Support of the Peru
Trade Promotion Agreement is an important step in this
direction. We urge your support. Muchas gracias.
[The prepared statement of Mr. Jara follows:]
Statement of Daniel H. Jara, President and Chief Executive Officer,
Statewide Hispanic Chamber of Commerce of New Jersey, Jersey City, New
Jersey, on behalf of Hispanic Alliance for Free Trade
Chairman Thomas, Ranking Member Rangel, Members of the Ways and
Means Committee and Guests. Buenos Dias!
On behalf of the Statewide Hispanic Chamber of Commerce of New
Jersey (SHCC) and on behalf of the Hispanic Alliance for Free Trade
(HAFT), I am pleased to represent our collective ``Hispanic'' voices at
today's hearing and in this debate. I am also speaking from the
perspective of a small business owner. I am the owner of Rimac Agency,
Inc., an insurance, Hispanic market and international trade consulting
firm located in Hackensack, New Jersey.
My name is Daniel Jara and I was born in Lima, Peru and moved to
New Jersey at age 14 and received my secondary, university and graduate
education from New Jersey schools. I am proud to testify in support of
the agreement from the perspective of a Peruvian/Hispanic American and
hailing from the great ``Garden State'' of New Jersey. This agreement
is of critical importance to Hispanic Americans and particularly to the
Hispanic American business community.
Please permit me to briefly mention my two organizations:
The Statewide Hispanic Chamber of New Jersey (SHCC) is a
network of local Hispanic Chambers and businesses that represents the
economic interests of over forty thousand small businesses from the
State of New Jersey and the Philadelphia area.
The Hispanic Alliance for Free Trade (HAFT) is a
national, umbrella organization organized in support of free trade.
HAFT is comprised of a cross section of 130 of the leading and most
influential Hispanic organizations including the largest Hispanic
business organization--the U.S. Hispanic Chamber of Commerce--
representing over 2 million Hispanic businesses with over 210 local
Hispanic chambers. HAFT was visible and instrumental in it's support of
the DRCAFTA and is now refocused in its support of the Peru Trade
Promotion Agreement.
HISPANIC COMMUNITY
My career in the Hispanic arena spans 18 years at senior-most
local, state and national levels. In a relatively short time, our
Hispanic community has evolved and grown tremendously in both its
importance and influence. According to the U.S. Census: Hispanics are
currently the largest minority in the U.S. with an estimated population
of nearly 43 million (over fourteen percent of the total U.S.
population) and estimated to grow by 1.7 million a year; more than one
eight of the people in the United States are of Hispanic origin and by
mid-century, 25 percent (or one out of every four) people in the United
States will be of Hispanic descent. Hispanics have particularly
distinguished themselves in the economic and commercial arena.
Hispanics as a community wield great economic power. Hispanic
purchasing power is projected to reach $1 trillion by 2008!
HISPANIC BUSINESSES
It is estimated that there are now over 2 million Hispanic-owned
businesses in the U.S. These 2 million Hispanic owned businesses
generate almost $300 billion in annual gross receipts. By 2010, it is
estimated that there will be 3.2 million Hispanic firms generating $465
billion and making them among the fastest growing business segments in
the nation according to the Small Business Administration. U.S. Census
data shows that the number of Hispanic-owned businesses has grown at a
rate that is three times greater than the national average. Further,
businesses owned by Hispanic women grew at a rate that was nearly six
times that of the national average. By 2007, 1 out of every 10 small
businesses will be Hispanic business. (Source Hispanic Trends).
PERUVIAN BUSINESSES / NEW JERSEY AREA
Hispanic Americans of Peruvian American descent, such as myself,
would particularly benefit from this agreement. Currently, the total
Peruvian population in the United States is estimated at about one and
a half million, many of which reside in the New Jersey area from where
I hail and have my business. For example, in New Jersey alone, there
are 49,846 Hispanic businesses many of them of Peruvian origin. For we
Peruvian Americans, the PTPA represents increased economic opportunity
for our businesses here as well as for our family and friends in Peru.
New Jersey, itself, has and will benefit tremendously from this
agreement. In 2005, New Jersey benefited from $33 million in total
exports to Peru and with the new agreement, exports to Peru by New
Jersey businesses, in key industries, will rise between 45% and 57%.
This agreement is a win-win situation.
CONCLUSION
Mr. Chairman and Committee Members, my company and the Hispanic
organizations--the Statewide Hispanic Chamber of Commerce of New Jersey
and the Hispanic Alliance for Free Trade representing hundreds of
leading Hispanic organizations and millions of Hispanic businesses,
respectfully appreciate the opportunity to come before you today. We
believe that Hispanic Americans, especially Hispanic American
businesses, have an edge--a ``leg up'' when seeking commercial
opportunities with this hemisphere. Hispanics are able to leverage
language, cultural and family ties in competing for commercial
relationships with this hemisphere. As Hispanics, we want to see more
opportunities being created by Hispanics and for other Hispanics. The
passage of this agreement would provide tremendous opportunity for
these businesses and contribute to the continued growth and success of
Hispanics in the U.S.
Of equal importance, Hispanic Americans (Peruvian Americans in
particular) vitally care about the fate of Peru, its people as well as
the stability and well-being of this hemisphere. Hispanics care and
want to give back by providing for our families and supporting our
countries of origin. We are a passionate and hardworking people. We
vitally care about eradicating poverty by creating economic growth as
well as a stable and prosperous Western Hemisphere. Support of the Peru
Trade Promotion Agreement is an important step in this direction. We
urge your support. BUENOS DIAS.
Mr. SHAW. [Presiding.] Thank you. Ms. Forkan.
STATEMENT OF PATRICIA FORKAN, PRESIDENT, HUMANE SOCIETY
INTERNATIONAL
Ms. FORKAN. Mr. Chairman, Members of the Committee on Ways
and Means, I am pleased to be here today to speak on the PTPA
but specifically the environmental provisions.
My name is Patricia Forkan. I am President of Humane
Society International (HSI). We are the international arm of
The Humane Society of United States (HSUS). Founded in 1954,
HSUS today is the largest animal protection organization in the
United States with over 9.5 million members and constituents.
Through HSI, we maintain a significant global presence and have
offices on four continents.
As President of HSI, I have served on Treasury Employees
Political Action Committee (TEPAC) for a number of years and
work closely with USTR and other U.S. Government agencies on
trade and environmental issues. We have participated in three
WTO ministerial conferences, and I was on the U.S. delegation
in Hong Kong.
In 2005, I appeared before the Senate Committee on Finance
to testify on CAFTA and discussed our support of the
environmental provisions of that agreement. It is our view that
each FTA signed by the United States should be judged on its
individual provisions and through an objective lens. I don't
propose to testify today that each and every aspect of PTPA
will further the aims most important to my organization, that
is, protecting the environment and promoting the protection and
humane treatment of all animals, but what I will say is HSI
views the environmental provisions of this agreement as
providing needed opportunities and incentives to enhance
environmental protection in Peru and in the United States.
I also commend the U.S. Congress for including specific
environmental negotiating objectives in the Trade Act of 2002,
the TPA, and in mandating side environmental cooperation
agreements. We applaud the commitment of the United States to
include the consideration of the environment along with
economic and trade policy, something that no other country in
the world does.
Turning to the environment chapter of the PTPA, I would
like to highlight certain provisions.
First, the environment chapter includes the obligation for
parties to effectively enforce their environmental laws,
including MEAs such as CITES. This obligation is subject to
dispute settlement, providing a very strong incentive for both
parties to enforce their laws, an incentive sadly lacking in
most MEAs themselves.
Second, the parties have agreed to set up an independent
secretariat to accept information from the public concerning
environmental enforcement activities. If a country is failing
to enforce its laws, the public will have a specific mechanism
to bring these failures to light through access to an
independent entity not controlled by the government. Increased
public participation and empowering civil society to monitor
governments is perhaps one of the best and most low-cost ways
to ensure effective enforcement.
Third, as a member of TEPAC, I particularly recognize the
importance of public participation. For this reason, HSI
believes that the provision of the PTPA requiring Peru to set
up and consult an advisory Committee at the national level is
extremely important. We hope this provision will serve to
provide Peruvian civil society with a say in their country's
environmental policies, programs and enforcement regimes.
Fourth, for the very first time in a trade agreement, the
United States included a commitment to protect and conserve
biodiversity. Peru is one of the most biologically diverse
countries in the world. It is home to very unique species such
as alpacas, vicunas, river dolphins, as well as some endangered
species.
We are perhaps most excited about this biodiversity
provision. It underscores the U.S. and Peruvian commitment to
the environment and conservation of biodiversity, including
endangered species and other animals. Through innovative
programs and efforts, including through the Environmental
Cooperation Agreement (ECA), such protections may be increased
and enhanced.
Lastly, we are hopeful that the ECA will provide a strong
basis for ongoing environmental cooperation. I strongly
encourage Congress to ensure that the ECA is adequately funded
to be able to achieve the lofty aims originally envisioned by
TPA. We all are aware of the need to be fiscally responsible,
but cooperation is an area where we can achieve a great deal of
good and improve the life and health of people and animals in
addition to increasing economic opportunities. I recommend that
Congress set aside a specific amount of funding for
environmental cooperation with Peru, as you did in the case of
the CAFTA-DR.
In summation, HSI and HSUS are strongly encouraged that the
PTPA will support increased environmental protection in both
countries. Thank you for allowing me to testify.
[The prepared statement of Ms. Forkan follows:]
Statement of Patricia Forkan, President, Humane Society International
Chairman Thomas, Ranking Member Rangel, Members of the Ways and
Means Committee, and Ladies and Gentlemen--Good Morning.
It is my pleasure to be here today to testify on the U.S.-Peru
Trade Promotion Agreement (PTPA), specifically the environmental
provisions.
INTRODUCTION
My name is Patricia Forkan and I am the President of Humane Society
International (HSI), the international arm of The Humane Society of the
United States (HSUS). Founded in 1954, today HSUS is the largest animal
protection organization in the United States with over 9.5 million
members and constituents. With HSI, we maintain a significant global
presence and have offices on four continents.
As President of HSI, I have served on the Trade and Environment
Policy Advisory Committee (TEPAC) for a number of years now and work
closely with USTR and other U.S. government agencies on trade and
environment issues. In addition, HSI and HSUS have participated as
accredited Non-Governmental Organizations at three WTO Ministerial
Conferences. Indeed, at the most recent Ministerial meeting in Hong
Kong, I had the honor of being named as an official member of the U.S.
delegation. As a result of this experience, I believe that I bring a
unique and balanced perspective to trade and environmental policy
discussions.
About fifteen months ago, I sat before the Senate Finance Committee
and testified on the Free Trade Agreement with Central America and the
Dominican Republic (CAFTA--DR) and discussed HSI and HSUS's support of
the environmental provisions of that Agreement. It is our view that
each free trade agreement signed by the Untied States should be judged
on its individual provisions and through an objective lens. I do not
propose to testify today that each and every aspect of the PTPA will
further the aims most important to my organization--protecting the
environment and promoting the protection and humane treatment of all
animals. But, what I will say is that HSI and HSUS view the
environmental provisions of this Agreement as providing needed
opportunities and incentives to enhance environmental protection in
Peru and the United States.
I commend the U.S. Congress for including specific environmental
negotiating objectives in the ``Trade Act of 2002'' or Trade Promotion
Authority (TPA) and in mandating side environmental cooperation
agreements. HSI and HSUS applaud the commitment of the United States to
include environment along with other areas of economic and trade
policy--something no other country in the world does.
PTPA ENVIRONMENT CHAPTER
Turning to the Environment Chapter of the PTPA, I would like to
highlight certain provisions.
First, the Environment Chapter includes the obligation for Parties
to effectively enforce their environmental laws--including Multilateral
Environmental Agreements (MEAs) such as the Convention on the
International Trade in Endangered Species of Wild Fauna and Flora
(CITES). This obligation is subject to dispute settlement providing a
strong incentive for both Parties to enforce their laws, an incentive
sadly lacking in most MEAs themselves.
Second, the Parties have agreed to set up an independent
secretariat to accept information from the public concerning
environmental enforcement activities. If a country is failing to
enforce its laws, the public will have a specific mechanism to bring
these failures to light through access to an ``independent entity'' not
controlled by the government. Increased public participation and
empowering civil society to monitor governments is perhaps one of the
best and most low-cost ways to ensure effective enforcement.
Third, as a member of TEPAC, I particularly recognize the
importance of public participation in the development of trade and
environmental policy. For this reason, HSI and HSUS believe that the
provision of the PTPA requiring Peru to set up and consult an advisory
committee at the national level is important. We hope this provision
will serve to provide Peruvian civil society, NGOs, and the private
sector with a say in their country's environmental policies, programs,
and enforcement regimes.
Fourth, for the first time in a trade agreement, the United States
included a commitment to protect and conserve biodiversity. Peru is one
of the most biologically diverse countries in the world. It is home to
unique species such as alpacas, vicunas and Andean river dolphins as
well as a number of endangered species including the yellow-tailed
woolly monkey, yellow-eared parrot, Andean mountain cat, and the Andean
tapir. We are perhaps most excited about this biodiversity provision.
It underscores the U.S. and Peruvian commitment to the environment and
conservation of precious biodiversity, including endangered species and
other animals. Through innovative programs and efforts, including
through the Environmental Cooperation Agreement (ECA), such protections
may be increased and enhanced.
Lastly, we are hopeful that the ECA will provide a strong basis for
ongoing environmental cooperation. I strongly encourage Congress to
ensure that the ECA is adequately funded to be able to achieve the
lofty aims originally envisioned by TPA. We all are aware of the need
to be fiscally responsible, but cooperation is an area where we can
achieve a great deal of good and improve the life and health of people
and animals in addition to increasing economic opportunities. I
recommend that Congress set aside a specific amount of funding for
environmental cooperation with Peru as you did in the case of CAFTA-DR.
CONCLUSION
HSI and HSUS support the efforts of the United States and Peru in
including the effective enforcement, public participation, and
biodiversity provisions in the Environment Chapter of the PTPA. The
Environmental Cooperation Agreement illustrates the strong commitment
by both Parties to work together to protect the environment and
conserve precious natural resources including biodiversity. For all of
these reasons, HSI and HSUS are strongly encouraged that the PTPA will
support increased environmental protection in both countries.
Thank you very much for the opportunity to speak with you today.
Mr. SHAW. Thank you. Mr. Santeiro.
STATEMENT OF FRANCISCO X. SANTEIRO, MANAGING DIRECTOR FOR
GLOBAL TRADE SERVICES, LATIN AMERICA AND CARIBBEAN DIVISION,
FEDEX EXPRESS, MIAMI, FLORIDA, ON BEHALF OF AMERICAN CHAMBER OF
COMMERCE IN PERU AND THE ASSOCIATION OF AMERICAN CHAMBERS OF
COMMERCE IN LATIN AMERICA
Mr. SANTEIRO. Mr. Chairman, Members of the Committee, it is
an honor for me to testify today in strong support of the PTPA.
My name is Francisco Santeiro, Frank. I am Managing
Director for Global Trade Services, Latin America and Caribbean
Division of FedEx Express.
I am testifying today on behalf of two organizations. The
first is the Association of American Chambers of Commerce of
Latin America (AACLA). The AACCLA is the premier advocate for
U.S. businesses in Latin America and the Caribbean, and its 23
member-AmChams represent more than 20,000 companies and over 80
percent of U.S. investment in the region.
Second, the American Chamber of Commerce of Peru, which
represents more than 450-member companies that comprise over 90
percent of U.S. investment in Peru.
FedEx is a proud member of both of these organizations and
a strong supporter of PTPA. FedEx is a $32 billion company,
offering global express delivery services and other related
transportation services. FedEx offers a broad range of express
delivery services to accommodate the widest range of shipments
to more than 220 countries and territories, often within 24 to
48 hours. FedEx Express is the largest U.S. company in Latin
America and the Caribbean and employs more than 3,000 people
throughout the region.
Let me quickly echo comments made throughout the day.
The PTPA will allow U.S. and Peruvian companies to better
take advantage of a booming bilateral trade relationship, U.S.
trade with Peru has doubled over the past 3 years, reaching 7.4
billion last year. I am happy to say that FedEx is carrying a
good percentage of that freight.
More than 5,000 U.S. companies export their products to
Peru. Of these, more than 4,000, or about 80 percent, are small
or medium-sized businesses. Sales by these smaller companies
represent more than 40 percent of all U.S. exports to Peru,
well above the 27 percent share of U.S. exports that America's
smaller companies contribute globally.
FedEx knows how important smaller companies are to
international trade. We help these small and medium-sized firms
grow by providing access to booming markets such as Peru and
the access that opportunities to those markets present.
My company's success is bound to the success of America's
small companies, just as Peru's development is tied to growth
in trade with the United States; and PTPA is the partnership
that can bring us together in a stronger, more effective team.
The commercial relationship is critical to Peru, as well.
Consider the findings of a November, 2005, study conducted by
AmCham Peru with Lima-based APOYO consulting:
In 2004, U.S. companies employed over 100,000 Peruvians
directly and generated at least three times as many jobs
indirectly. Far from leading a race to the bottom, these
companies are paying wages that are triple the average in
Peru's urban areas and many times those in rural areas.
Peruvian exports to the United States supported an
impressive 800,000 jobs in 2005, three times the number a
decade earlier. This figure represents more than one-third of
Peru's formal sector employment, underscoring how economic ties
to the United States are providing Peru with critically needed
jobs, income and tax revenues. Peruvian exporters using FedEx
sell value-added competitive products. Those companies are
creating jobs--critically needed jobs for Peru.
The opening of cross-border trade and investment in
services through agreements such as PTPA is critical for the
U.S. economy, because the service represents an area of
competitive advantage for U.S. companies.
For the specific sector FedEx represents, the express
delivery services, which has a reference in the treaty, PTPA is
an outstanding agreement. PTPA has a chapter on customs
administration and trade facilitation. PTPA will make the flow
of bilateral trade faster, cheaper and more efficient by
streamlining the administration of customs and ports.
Studies have shown that inefficient customs procedures in
Latin America and the Caribbean add anywhere from 5 to 15
percent to the cost of trade. At a time when the simple average
tariff in the region has fallen to about 10 percent, it is
clear the cost of inefficient customs and ports looms as a
significant barrier to trade to American companies operating,
selling to Peru, more significant than tariffs in many places.
Speed matters, too. In today's competitive global market,
speed to markets and reduced transaction costs are key success
factors for any company involved in international trade.
Nowhere is this clearer than in the express delivery
business. An express shipment in Taiwan can clear customs
sometimes in under 15 minutes. In Latin America, the clearance
times are considerably longer. We need to fix this for our
American shippers.
Slow customs procedures represent a missed opportunity to
take advantage of one of the region's key competitive
advantages over Asia, namely its proximity to consumer markets
in United States and Canada.
While customs reform need not wait for a trade agreement,
PTPA's approach to trade facilitation offers the advantages of
certainty, stability and enhanced commonality as well as
permanence of the reforms. In other words, this kind of reforms
work best when done in concert, as we have seen in recent FTAs
implemented by the United States.
We urge you to bring PTPA up for congressional
consideration as soon as possible and urge you to cast a
favorable vote. Thank you very much.
[The prepared statement of Mr. Santeiro follows:]
Statement of Francisco X. Santeiro, Managing Director for Global Trade
Services, Latin America and Caribbean Division, FedEx Express, Miami,
Florida, on behalf of American Chamber of Commerce in Peru and the
Association of American Chambers of Commerce in Latin America
On behalf of the Association of American Chambers of Commerce in
Latin America (AACCLA) and the American Chamber of Commerce of Peru
(AmCham Peru), it is a high honor for me to appear before the U.S.
House of Representatives Committee on Ways and Means to testify in
strong support of the U.S.-Peru Trade Promotion Agreement (PTPA). My
name is Francisco X. Santeiro, and I am Managing Director for Global
Trade Services, Latin America and Caribbean Division, FedEx Express.
I am testifying here today on behalf of two organizations:
The Association of American Chambers of Commerce in Latin
America (AACCLA). For nearly a century, the American Chambers of
Commerce (AmChams) have been the most influential voice of U.S.
business in Latin America and the Caribbean. Today, these 23 AmChams
represent more than 20,000 companies and over 80% of U.S. investment in
the region. With the mission of promoting trade and investment between
the United States and the countries of the region through free trade,
free markets, and free enterprise, AACCLA has become the premier
advocate for U.S. business in the Americas.
The American Chamber of Commerce of Peru. AmCham Peru
represents more than 450 member companies that comprise over 90% of
U.S. investment in Peru. AmCham promotes free enterprise and free
markets while working to strengthen trade and investment between Peru
and the United States within a framework of social responsibility and
the highest business ethics.
My company is a proud member of both of these organizations and a
strong supporter of the PTPA. FedEx is a $32-billion network of
companies, offering a mix of transportation, information, document
management and supply chain solutions. FedEx offers the widest range of
transportation services--express, ground, freight and expedited--to
accommodate the widest range of shipments to more than 220 countries
and territories, often within 24 to 48 hours. FedEx Express is the
largest FedEx company in Latin America and the Caribbean, and it
employs more than 3,000 people throughout the region.
PTPA promises growth, hope, and opportunity for Peru and the United
States. It will open markets, foster growth and development, enhance
the rule of law, and lend support to a close ally. The same is true of
the recently concluded U.S.-Colombia Trade Promotion Agreement, which
we also strongly endorse. I will elaborate on these points but wish to
focus the bulk of my comments on PTPA's benefits for service providers
and, in particular, for the express delivery industry as an example of
the agreement's many virtues.
The Agreement with Peru: Growth, Hope, and Opportunity
First, we would like to give a summary of the arguments in favor of
PTPA from the perspective of AACCLA, AmCham Peru, and FedEx.
Growth: A Burgeoning Trade Relationship
PTPA will allow U.S. and Peruvian companies to better take
advantage of a booming bilateral trade relationship. U.S. trade with
Peru has doubled over the past three years. Two-way commerce reached
$7.4 billion in 2005, sustaining tens of thousands of U.S. jobs.
More than 5,000 U.S. companies exported their products to Peru in
2003, the most recent year for which data is available. Of those, more
than 4,000, or about 80%, were small and medium-sized companies. Sales
by these smaller companies represented 42% of all U.S. exports to Peru,
well above the 27% share of U.S. exports that America's smaller
companies contribute globally.
U.S. farmers and ranchers sell more than $250 million worth of
agricultural products to Peru each year, and the Agriculture Coalition
for U.S.-Peru Trade estimates the agreement will boost U.S.
agricultural exports to Peru by more than $700 million per annum upon
full implementation.
Nonetheless, this commercial relationship is even more important to
Peru. Consider the eye-opening findings of a November 2005 study
conducted by AmCham Peru with Lima-based APOYO Consulting:
In 2004, U.S. companies employed over 100,000 Peruvians
directly and generated at least three times as many jobs indirectly.
Far from leading a ``race to the bottom,'' these companies are paying
wages that are triple the average in Peru's urban areas (and many times
those in rural areas).
Peruvian exports to the United States supported an
impressive 800,000 jobs in 2005--three times the number a decade
earlier. This figure represents more than one-third of Peru's formal
sector employment, underscoring how economic ties to the United States
are providing Peru with critically needed jobs, income, and tax
revenues.
Hope: A Helping Hand for a Close Partner
The agreement will enhance U.S. efforts to strengthen democracy in
the Andean region and lend support for the rule of law, investor
protections, internationally recognized workers' rights, and
transparency and accountability in business and government. The
agreement's strong intellectual property and related enforcement
provisions against trafficking in counterfeit or pirated products will
help combat organized crime.
PTPA will promote economic growth in Peru, stabilizing its economy
and providing its citizens with long-term alternatives to narcotics
trafficking or illegal immigration. It will promote U.S. security and
economic interests by forging a deeper partnership with a valued ally
and setting an example for other countries around the world as we
pursue our global security and economic goals.
Like much of Latin America, the Andean region is struggling against
corruption, which undermines growth, security, and stability. PTPA
contains critical provisions to enhance transparency and accountability
in governance, providing Peru with important tools to fight the scourge
of corruption.
Opportunity: A Level Playing Field in Trade
To foster democracy and development in the Andean region, the
United States unilaterally opened its markets to most imports from Peru
and its neighbors through the 1991 Andean Trade Preference Act, which
was renewed and expanded in 2002. As a result, fully 97% of all imports
from Peru already enter the U.S. marketplace duty-free, and the average
U.S. duty on imports from Peru is just one-tenth of one percent.
By contrast, the U.S. International Trade Commission reports that
``most of Peru's average tariff rates range from 12% to 25%.'' In other
words, Peru enjoys nearly free access to our marketplace while our
access to theirs remains limited.
PTPA will fix this imbalance by making this trade relationship a
mutually beneficial, reciprocal partnership. Four-fifths of U.S.
consumer and industrial products and more than two-thirds of current
U.S. farm exports will enter Peru duty-free immediately upon
implementation of PTPA.
Services: A Great Agreement for Key Growth Industries
In sum, PTPA is an outstanding agreement whether considered from a
commercial perspective or on the basis of its foreign policy
implications. However, its benefits for service providers in the United
States and Peru deserve further attention. The commitments that Peru
has made in the agreement to liberalize its service industries hold the
promise of economic development, higher standards of living, and
enhanced global competitiveness. This is a win-win agreement for Peru
and for U.S. service industries.
According to the Coalition of Service Industries--an active leader
of the U.S.-Peru Trade Coalition--services represent nearly 78% of U.S.
economic output, and a similar proportion of private employment. U.S.
services exports exceeded $323 billion in 2005, and the United States
enjoys a services trade surplus of approximately $65 billion. As such,
the liberalization of cross-border trade and investment in services
through agreements such as PTPA is particularly significant for the
U.S. economy precisely because services represent an area of
competitive advantage for U.S. companies.
Under PTPA, Peru will open up substantial portions of its services
market, subject to few exceptions. Peru has agreed to significant
commitments on regulatory transparency and principles to guide
independent regulatory authorities. Key sectors where new opportunities
will be created for U.S. companies include telecommunications, banking,
insurance, distribution, computer, audiovisual and entertainment,
energy, transport, construction, real estate, construction,
environmental, professional and other services.
From a policy perspective, PTPA's services commitments cover both
the cross-border supply of services and the right to invest and
establish a local service presence. These obligations are strengthened
by a set of detailed disciplines on regulatory transparency, which is
fundamental to meaningful market access to services. In fact, as a
result of PTPA, Peru has agreed to a series of new commitments that
extend beyond Peru's existing commitments under the General Agreement
on Trade in Services (GATS).
Express Delivery Services: An Example of PTPA's Strength
For the specific service sector FedEx represents--express delivery
services--PTPA is an outstanding agreement. I'd like to call particular
attention to PTPA's chapter on customs administration and trade
facilitation. Trade facilitation is a term of art for reforms to make
the flow of international commerce faster, cheaper, and more efficient
by streamlining the administration of ports and customs.
Why do customs administration and trade facilitation matter to the
business customers who are moving their merchandise through ports and
customs, whether by express shipment or other means? Studies have shown
that relatively inefficient customs clearance procedures in Latin
America and the Caribbean add anywhere from 5% to 15% to the cost of
trade. At a time when the simple average import tariff in Latin America
and the Caribbean has fallen to about 10%, it's clear that the cost of
inefficient customs and ports looms as a significant barrier to trade--
more significant than tariffs in many places.
In addition to direct costs, speed is a critical success factor in
international trade. Nowhere is this clearer than in the express
delivery business. An express shipment in Taiwan can clear customs in
less than 15 minutes, but in some Latin American countries the average
clearance time is best measured in days. For Latin America, slow
customs procedures represent a missed opportunity to take advantage of
one of its key competitive advantages vis-`-vis Asia--namely, the
region's proximity to the rich markets of the United States and Canada.
Inefficient customs and port procedures squander this advantage. In
essence, they move Latin America farther away from its key export
markets.
It's true that governments may implement customs reforms and see
benefits for their own competitiveness immediately, regardless of
whether they sign a trade agreement or other nations reciprocate.
However, a rules-based approach as exemplified by PTPA offers the
advantages of certainty, stability, and enhanced commonality. In other
words, these kinds of reforms work best when done in concert, as we've
seen in recent free trade agreements implemented by the United States.
PTPA's chapter on customs administration and trade facilitation is
actually quite simple. It includes simple obligations for each party to
publish its customs-related laws, regulations, and procedures on the
Internet, as well as publish in advance any new regulations that are
proposed. It provides for the release of goods ``within a period no
greater than that required to ensure compliance with--customs laws, and
to the extent possible release the goods within 48 hours of arrival''.
This language keeps customs administrators focused on the need for
speed and efficiency, both of which are central to international
competitiveness in today's global economy.
PTPA will also put Peru on the path toward greater automation and
efficient use of information technology in its customs procedures.
Customs automation will assist Peruvian customs officials as they seek
to employ modern risk management systems and focus inspections on
``high-risk goods and simplify the clearance and movement of low-risk
goods, while respecting the confidential nature of the information it
obtains through such activities.'' In today's uncertain international
security environment, such simple steps can ensure that resources are
focused on safeguarding against real threats.
These provisions cover customs generally, but for the express
delivery industry, PTPA is also a model. The agreement specifically
instructs each party to maintain ``a separate and expedited customs
procedure for express shipments'' and allow the ``processing of
information necessary for the release of an express shipment before the
express shipment arrives.'' These and other provisions lighten the
burden of paperwork.
Most importantly, PTPA instructs the parties to ``provide for
clearance of express shipments within six hours after submission of the
necessary customs documents, provided the shipment has arrived.''
Having a time-specific benchmark is incredibly useful. As customs
experts often point out, if you can't measure customs clearance times,
you can't improve them; and if you don't have a goal, you never will.
Conclusion
Mr. Chairman, Mr. Ranking Member, we greatly appreciate this
opportunity to testify before this committee in support of an agreement
that is so clearly in the commercial interest and the national interest
of the United States. It also will bring real benefits for our friends,
allies, and neighbors in Peru. Despite the many commitments and
pressures of the legislative calendar, we urge you to bring PTPA up for
Congressional consideration as soon as possible--and to cast a
favorable vote. We urge this for the sake of your constituents, but
also for the sake of our friends in Peru.
Thank you very much.
Mr. SHAW. Thank you. Ms. Lilygren.
STATEMENT OF SARA LILYGREN, VICE PRESIDENT FOR FEDERAL
GOVERNMENT RELATIONS, TYSON FOODS, INC., ON BEHALF OF NATIONAL
CHICKEN COUNCIL
Ms. LILYGREN. Thank you, Chairman Thomas and Members of the
Committee, for the opportunity to present the views of the
National Chicken Council, the USA Poultry and Egg Export
Council, the National Turkey Federation and the United Egg
Producers on the PTPA.
I am Sara Lilygren, Vice President of Federal Government
Relations for Tyson Foods. Tyson is the leading processor of
chicken in the United States, with more than 6,500 family farms
producing the live birds for our production. We are also a
leading processor of beef and pork, and exports are vital to
both Tyson Foods and the poultry and egg industry.
The U.S. poultry associations have long been strong
supporters of this administration's efforts to liberalize
international trade, in particular FTAs with certain developing
and emerging economies in the Western Hemisphere. The U.S.-Peru
TPA clearly represents one of the best market access
arrangements for poultry ever negotiated in a FTA.
The arrangement recognizes interests on both sides of the
table, providing immediate or near-term market access for
nearly all poultry products while liberalizing trade in the
most sensitive product which is chicken leg quarters. The trade
of chicken leg quarters is addressed through the use of a
tariff rate quota over a longer period of time. Appropriately,
the U.S. industry will gain immediate market access duty free
for 12,000 metric tons of chicken leg quarters.
The agreement also has a growth factor so that over 10
years the amount of duty free access will grow to approximately
24,000 metric tons. The United States has never exported, by
the way, more than 2,400 metric tons of poultry, including all
poultry products to Peru in any year. It is a tremendous
advantage for us.
In the meantime, the tariffs on all other products will be
eliminated immediately or will be reduced and eliminated over
the next 5 years.
In reaching agreement on the Peru TPA, U.S. government
negotiators also achieved a number of improvements over past
agreement TPAs. Most notably, the U.S. government obtained
specific commitments on the part of the Peruvian government to
recognize and accept the Animal and Plant Health Inspection
Service, or APHIS, system for determining disease status and
the Food Safety and Inspection Service, or SFIS, system for
approving poultry slaughter and processing facilities.
In the past, U.S. poultry exports to Peru have been blocked
by Peruvian government regulators on grounds that the U.S.
product allegedly posed some threat of avian flu or New Castle
disease or even salmonella. Hopefully, the commitments that
Peru has now made to respect the decisions of U.S. animal
health regulators will ensure that the U.S. industry benefits
immediately from the market access provisions and won't have
those benefits blocked by the imposition of nontariff barriers
in the form of dubious SPS requirements.
In this regard, the Peruvian agreement is a further
improvement on past agreements in that our government
negotiators have anticipated some of the basic implementation
problems that we have experienced in the past and taken
measures to eliminate them.
Economic studies have shown that when the economies of
developing countries improve and their low-income citizens
become middle class, the first thing that they spend their
extra income on is an improved diet with additional farm
agriculture animal protein; and the least costly and most
dependable source of dietary protein in the world is poultry
and egg products. In other words, in the context of a FTA, the
U.S. poultry and egg industry and the domestic industry of our
free trade partner aren't competing over a fixed pie with the
result that increased imports displace domestic production. In
fact, the greater economic prosperity occasioned by a
successful FTA can mean a larger market for both domestic and
imported poultry and eggs.
In conclusion, Mr. Chairman, the U.S. poultry and egg
industry, especially its export segment, has worked long and
diligently to support the administration in its free trade
initiatives, particularly those in the Western Hemisphere.
Those efforts have clearly paid dividends with the conclusion
that the U.S.-Peru TPA represents the best package of market
access commitments obtained thus far for our sector of the
economy. We congratulate the USTR and USDA negotiators in their
work, and we respectfully ask this Committee and its Members to
fully support the USPTPA when it is ultimately submitted for
congressional approval.
[The prepared statement of Ms. Lilygren follows:]
Statement of Sara Lilygren, Vice President for Federal Government
Relations, Tyson Foods, Inc., on behalf of National Chicken Council
Thank you, Chairman Thomas, Ranking Member Rangel, and Members of
the Committee for the opportunity to present the U.S. poultry and egg
producers/processors views, comments, and recommendations regarding the
implementation of the U.S.-Peru Trade Promotion Agreement. On behalf of
the National Chicken Council, the USA Poultry and Egg Export Council,
the National Turkey Federation, and the United Egg Producers, I am
pleased to share the position of these organizations on the important
issue of today's hearing.
I am Sara Lilygren, Vice President of Federal Governmental
Relations for Tyson Foods. I am pleased to represent the organizations
supporting the comments being presented. Tyson Foods is the leading
processor of chicken in the United States with more than 6,500 family
farms producing the live birds for the company. Tyson is also a leading
processor of beef and pork. Exports are a vital part of the economic
well-being of Tyson Foods and the U.S. poultry and egg industry.
U.S. poultry associations have long been strong supporters of this
Administration's continuing efforts to liberalize international trade
and, in particular, of its efforts to forge free trade arrangements
with certain developing and emerging economies in the Western
Hemisphere. The U.S. poultry industry was a strong supporter of the
NAFTA agreement and has worked diligently with both the United States
government and with its counterpart industry in Mexico to ensure a
successful and mutually acceptable implementation. Several years ago,
when difficulties arose with respect to Mexico's implementation of its
original NAFTA poultry access commitment on chicken leg quarters, the
U.S. poultry export industry met with its Mexican counterparts and
developed a joint proposal to resolve the issue through a mutually-
acceptable exercise of the NAFTA safeguard provisions. That proposal
was eventually accepted by both governments and liberalization of the
NAFTA poultry markets continued without unnecessary trade disruption.
Similarly, the U.S. poultry and egg export industries were active
in assisting the U.S. government to achieve a successful resolution of
poultry market access during the CAFTA negotiations. All the Central
American countries had identified poultry products and, specifically,
chicken leg quarters, as particularly sensitive. Rather than allow
poultry issues to undermine the negotiations, the U.S. poultry and egg
industry met with representatives of its counterpart industries in
Central America and, through a series of meetings over more than a
year, forged a mutually-acceptable proposal for CAFTA poultry market
access that was similar in many respects to the solution that had been
achieved in NAFTA. The proposal was also accepted by the respective
governments and became the basis for the poultry market access
commitments in the CAFTA.
The U.S. poultry industry has not yet realized the benefits of the
CAFTA negotiations. Full CAFTA implementation has been delayed while
the parties work to resolve disagreements about the methods of
implementation for some agricultural products, for intellectual
property, and for textiles. However, industry leaders are hopeful that
significantly improved market access will be achieved soon. The CAFTA
came into force with respect to El Salvador, Honduras and Nicaragua
earlier this year, and with Guatemala on the first of this month.
Guatemala is now officially in CAFTA and is a key player in poultry
trade. The U.S. industry will begin to benefit from a new 21,800 metric
ton Tariff Rate Quota (TRQ) for chicken leg quarters, as well as
immediate liberalization or significantly lower tariff rates for all
other poultry and egg items. A joint arrangement for an export trading
company is a key component in the process involved in filling the TRQ
for leg quarters.
In recent months there have been certain significant steps taken by
some of our CAFTA partners to recognize and accept USDA regulatory
systems. In particular, certain progress has been made involving
APHIS's system for determining the prevalence of animal diseases and
FSIS's system for approving and inspecting poultry processing
facilities. However, more needs to be achieved in that area. For
example, El Salvador continues to block imports of U.S. shell eggs and
poultry by imposing questionable sanitary inspection requirements and
that issue needs to be resolved quickly before other countries
implement similar measures, like the ones published by Honduras last
month. More progress needs to be achieved for the market access for
U.S. eggs and poultry negotiated in the agreement. Some progress is
being achieved with CAFTA partners on Sanitary/Phytosanitary (SPS),
issues. The U.S. government continues to press for additional
improvement on these issue.
As in the cases of NAFTA and CAFTA, the U.S. poultry industry has
supported the Administration's efforts to forge free trade agreements
with the countries of the Andean region. In anticipation of Andean FTA
negotiations, representatives of the U.S. poultry industry met on
several occasions with their counterpart industries in that region,
once in Atlanta and once in Cartagena, Colombia. They were never able
to develop a joint proposal as they had in the NAFTA and CAFTA cases.
Nonetheless, the U.S. industry has continued its dialogue with the
Andean region poultry industries during the course of the negotiations.
Moreover, the industry has worked very closely with our government
negotiators both at the Office of the U.S. Trade Representative and
within the U.S. Department of Agriculture to ensure that they fully
understood the poultry and egg industries' interests in the
negotiations as well as the areas in which it was possible to construct
compromise solutions and longer-term liberalization scenarios in order
to ensure successful negotiations.
Those close working relationships have been advantageous both to
our industry and to the U.S. government, as is evident by the results
recently achieved in the U.S.-Peru Trade Promotion Agreement (TPA). The
U.S.-Peru FPA clearly represents one of the best market access
arrangements for poultry ever negotiated in a free trade agreement. The
arrangement recognizes interests on both sides of the table, providing
immediate or near term market access for nearly all poultry products,
while liberalizing trade in the most sensitive product--chicken leg
quarters. The trade of chicken leg quarters is addressed through the
use of a tariff rate quota over a longer period of time. Appropriately,
the U.S. industry will gain immediate market access, duty-free, for
12,000 metric tons of chicken leg quarters. Initially, any additional
CLQ imports will be subject to a reasonable over-quota duty of 25
percent, but that duty will be slowly reduced and eliminated over time.
The agreement also has a growth factor so that, over ten years, the
amount of duty free access will grow to approximately 24,000 metric
tons. This approach presents a considerable opportunity. The United
States has never exported more than 2,400 metric tons of poultry, and
that includes all poultry products, to Peru in any year.
In the meantime, the tariffs on all other products will be
eliminated immediately, or will be reduced and eliminated over the next
five years. A few issues remain to be clarified. For example, the U.S.-
Peru TPA calls for TRQ access on a ``first-come-first-served'' basis.
The industry awaits further information on how such a system will
operate. However, for the most part, the U.S.-Peru TPA negotiations
have been a great success and, hopefully, will provide the model for
poultry market access negotiations in future free trade agreements.
In reaching agreement on the Peru TPA, U.S. government negotiators
also achieved a number of improvements over past agreements TPA's. Most
notably, the U.S. government obtained specific commitments on the part
of the Peruvian government to recognize and accept the APHIS system for
determining disease status and the FSIS system for approving poultry
slaughter and processing facilities. In the past, U.S. poultry exports
to Peru have been blocked by Peruvian regulators on grounds that the
U.S. product allegedly posed a threat of avian influenza and Newcastle
disease or even Salmonella. Hopefully, the commitments that Peru has
now made to respect decisions of U.S. animal health regulators will
ensure that the U.S. industry will benefit immediately from the market
access provisions of the agreement and will not have those benefits
blocked by the imposition of non-tariffs barriers in the form of
dubious SPS requirements. In this regard, the Peruvian agreement is a
further improvement on past agreements in that our government
negotiators have anticipated some of the basic implementation problems
that we have experienced in the past and have taken additional measures
to try to ensure implementation occurs more quickly and smoothly in the
case of Peru.
There have been concerns voiced by some that a trade agreement with
the United States could be ruinous to industries in less developed
countries. In the case of poultry trade, we do not believe that will be
true for several reasons. First, the U.S. poultry and egg industries
have made it their practice to accommodate particularly sensitive
situations when they occur so that mutually acceptable terms can be
incorporated into these agreements. In short, our industry sees that it
is in their interest to be accepted as welcome participants in these
markets. Secondly, a free trade area with the United States provides a
developing country with the opportunity to significantly raise the
standard of living for many of its citizens and thereby to increase the
consumption of poultry products to the benefit of both the domestic and
the U.S. poultry industries. Economic studies have shown that when the
economies of developing counties improve and their low-income citizens
become middle class, the first thing that they spend their extra income
on is an improved diet with additional farm agriculture animal protein.
And, the least costly and most dependable source of dietary protein in
the world is poultry and egg products. In other words, in the context
of a free trade agreement, the U.S. poultry and egg industry and the
domestic industry of our free trade partner are not competing over a
fixed pie with a result that increased imports simply displace domestic
production. The greater economic prosperity occasioned by a successful
free trade agreement can mean a larger market for both domestic and
imported poultry and eggs.
In conclusions, Mr. Chairman, the U.S. poultry and egg industry,
especially its export segment, has worked long and diligently to
support the Administration in its free trade initiatives, particularly
those in the Western Hemisphere. In the course of achieving NAFTA and
CAFTA, we have developed an excellent working relationship with our
government negotiators, and have reached out to our counterpart
industries in those countries to help guarantee a successful
negotiations and also to achieve mutually acceptable results for both
industries. Those efforts have clearly paid dividends with the
conclusion of the U.S.-Peru TPA that represents the best package of
market access commitments obtained thus far. We congratulate the USTR
and USDA negotiators on their work in that agreement. We respectfully
ask this committee and its members to fully support the U.S-Peru TPA
when it is ultimately submitted for congressional approval.
U.S. Poultry and Egg Exports to Peru--2001 to Present
[GRAPHIC] [TIFF OMITTED] T1576A.001
[GRAPHIC] [TIFF OMITTED] T1576A.002
[GRAPHIC] [TIFF OMITTED] T1576A.003
The National Chicken Council (NCC) represents companies
that produce and process about 95 percent of the young meat chickens
(broilers) in the United States.
The USA Poultry & Egg Export Council (USAPEEC) represents
companies that export over 95 percent of U.S. poultry and eggs sold
into international markets.
The National Turkey Federation (NTF) represents 98
percent of the U.S. turkey industry, including processors, growers,
breeders, hatcheries, and allied industry companies.
The United Egg Producers (UEP) represents companies that
produce over 90 percent of the shell eggs.
Mr. SHAW. Thank you. Mr. Gibson.
STATEMENT OF BRETT GIBSON, LEGISLATIVE REPRESENTATIVE, AMERICAN
FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
Mr. GIBSON. Good afternoon, Mr. Chairman, Members of the
Committee. I thank you for the opportunity to testify today on
behalf of the nine million working men and women of the AFL-CIO
on the U.S.-Peru Free Trade Agreement.
Like the other FTA's negotiated by this administration, the
Peru FTA provides the wrong answers to the challenges faced in
Peru and United States. This failed model neither addresses the
problems confronted by workers in Peru nor contributes to the
creation of good jobs and decent wages at home.
The workers' rights provisions are entirely inadequate to
ensure the workers' fundamental rights are respected. At the
same time, flawed provisions on services, investment,
government procurement and intellectual property rights will
undermine the development and ability of both governments to
protect public health, communities and the environment.
Inclusion of these weak labor provisions in this agreement is
inexcusable.
In 2005, then President Alejandro Toledo publicly expressed
his support for the inclusion of ILO core labor standards in
the trade agreement and a mechanism to enforce them. Moreover,
following the contentious CAFTA debate, then U.S. Trade
Representative Robert Portman also promised to consider the
concerns raised by Congress in future trade agreements. Yet we
continue to see the same weak language again and again.
Workers in Peru and in the United States deserve
protections at least as strong as those afforded commercial
interests; and until these provisions are included in trade
agreements, they will continue to face strong opposition.
In addition to the weak provisions included in the FTA, we
have very serious concerns about Peru's labor laws. As the ILO
has observed, Peru's laws fall short of compliance with ILO's
core labor standards, especially freedom of association and the
right to organize and bargain collectively.
Moreover, existing laws are not respected and practiced.
Employers can and often do avoid unions by employing workers on
short, fixed-term contracts, commercial contracts or by hiring
workers through a management-dominated service cooperative.
Should a worker with a fixed-term contract attempt to organize
or join a union, the contract is simply not renewed upon its
expiration.
Protections against employer interference or anti-union
discrimination are weak. Even when workers do have a collective
bargaining agreement, employers may unilaterally modify the
terms and the conditions by negotiating a new contract.
Most troubling, the law gives the employer the power to
fire any worker without cause. This effectively eliminates the
protections for workers to organize, bargain collectively and
strike.
Even if Peru's laws were brought fully into compliance with
ILO standards, the U.S. government would have absolutely no
recourse to dispute settlement or enforcement if a future
government were to reverse these gains under this FTA. Labor
provisions included in the Peru FTA do not include any
enforceable provisions preventing the weakening of or
derogation from domestic labor laws. This is not an academic
point with regard to Peru, whose government in the nineties
harshly repressed organized labor and substantially weakened
the labor code.
The commercial provisions of the agreement also raise some
concerns. Our trade deficit with Peru alone has already climbed
from $335 million in 2000 to $2.8 billion in 2005. The
agreement will likely result in a deteriorating trade balance
in specific sectors, including sensitive sectors such as
apparel and metals.
American workers are willing to support increased trade if
the rules that govern it promote fairness, stimulate growth,
create jobs and protect fundamental rights. AFL-CIO is
committed to fighting for better trade policies that benefit
U.S. workers and the U.S. economy. We urge Congress to reject
this U.S.-Peru Free Trade Agreement and begin work on a more
just, economic, and social relationship with Peru.
Thank you again, Mr. Chairman.
[The prepared statement of Mr. Gibson follows:]
Statement of Brett Gibson, Legislative Representative, American
Federation of Labor and Congress of Industrial Organizations (AFL-CIO)
Mr. Chairman, members of the Committee, thank you for the
opportunity to testify today on behalf of the nine million working men
and women of the AFL-CIO on this very important topic.
The trade debate in the United States continues to be more
contentious than necessary. It does not have to be this way. We in the
labor movement, along with our allies in the environmental, family
farm, small business, development, and faith communities, have
repeatedly communicated our substantive and concrete concerns about the
direction of U.S. trade policy to the Administration--through
testimony, advisory committee reports, and meetings. Yet our concerns
have been completely ignored, and the Administration continues to
barrel ahead with ill-advised bilateral trade deals that will only
further exacerbate our current trade imbalance, and erode the living
standards of American workers and our counterparts overseas.
Mr. Chairman, members of the Committee, we ask you to reject the
Peru FTA and urge the administration to renegotiate this deeply flawed
deal.
In our view, the Peru FTA provides precisely the wrong answers to
the challenges faced in Peru and the United States. The agreement is
based on a failed model that neither addresses the problems confronted
by workers in Peru, nor contributes to the creation of good jobs and
decent wages at home. Once again, the workers' rights provisions are
entirely inadequate to ensure that fundamental human rights are
respected, and the dispute settlement mechanism for workers' rights and
environmental protections is far weaker than that available for
commercial provisions. At the same time, flawed provisions on services,
investment, government procurement, and intellectual property rights
will undermine the ability of both governments to protect public
health, strong communities, and the environment.
In addition to the problems outlined above, which are common to all
of the trade agreements negotiated by this Administration, we continue
to have very serious concerns about the labor laws of Peru. As the
International Labor Organization (ILO) recently observed, many of
Peru's labor laws still do not comply with ILO core labor standards.
Moreover, existing laws are not respected in practice. Despite
improvements made to Peru's legal framework in 2003, labor laws today
do not provide for the full exercise of the most important and
fundamental workers' rights: freedom of association and the right to
organize and bargain collectively.
Workers in Peru suffer from a labor relations system that makes the
entire employment relationship precarious and unfair. Employers can and
often do avoid unions by employing workers on short, fixed-term
contracts, commercial contracts, or by hiring workers through a
management-dominated service cooperative. Should a worker with a fixed-
term contract attempt to organize or join a union, the contract is
generally not renewed upon expiration. Those workers hired through a
cooperative are not considered employees but members of the
cooperative; thus, they are completely denied the ability to exercise
their basic labor rights.
Workers fortunate enough to be in a union are largely unprotected
from employer interference or from anti-union discrimination, further
limiting the ability of workers to organize and bargain for better,
dignified working conditions. Even if a worker does have a collective
bargaining agreement, employers may unilaterally modify its terms as a
condition for negotiating a new contract. Most troubling, the law gives
the employer the power to fire any worker without cause, and without
the right to legally challenge the action. This effectively eliminates
the rights for workers hired under direct, permanent contracts to
organize, bargain collectively, and strike.
Labor law reform is currently stalled in the Peruvian Congress. But
even if these reforms were fully implemented, the labor provisions
included in the Peru FTA do not include any enforceable provisions
preventing the weakening of or derogation from domestic labor laws.
This means that even if Peru's labor laws are brought fully into
compliance with ILO standards, the U.S. government would have
absolutely no recourse to dispute settlement or enforcement if a future
government were to reverse those gains and weaken or gut Peru's labor
laws after Congressional passage of the FTA.
In addition to our concerns on Peru's labor situation, any vote on
the Peru FTA must take into account the broader economic reality that
we are facing today. Our trade deficit hit a record-shattering $726
billion last year; we have lost more than three million manufacturing
jobs since 1998; and average wages have not kept pace with inflation
this year--despite healthy productivity growth. The number of people in
poverty continues to grow, and real median family income continues to
fall. Offshore outsourcing of white-collar jobs is increasingly
impacting highly educated, highly skilled workers--leading to rising
unemployment rates for engineers and college graduates. Together,
record trade and budget deficits, unsustainable levels of consumer
debt, and stagnant wages paint a picture of an economy living beyond
its means, dangerously unstable in a volatile global environment.
The AFL-CIO Executive Council adopted a statement in March calling
for a moratorium on all new free trade agreements, including with Peru,
until we can rewrite them to protect and advance workers' interests.
Labor Provisions of the Peru FTA
Like CAFTA, the Peru FTA's labor provisions constitute a
significant step backwards from existing labor rights provisions in the
U.S.-Jordan FTA and in our Generalized System of Preferences (GSP)
program. In the Peru agreement, only one labor rights obligation--the
obligation for a government to enforce its own labor laws--is actually
enforceable through dispute settlement. All of the other obligations
contained in the labor chapter, many of which are drawn from
Congressional negotiating objectives, are explicitly excluded from the
dispute settlement system and are thus completely unenforceable.
The USTR has no legitimate excuse for continuing to negotiate these
weak and inadequate labor provisions. During a visit to Washington,
D.C., in 2005, President Alejandro Toledo expressed support for
including an enforceable commitment to comply with ILO core labor
standards in the trade agreement. Our government has consciously chosen
not to include this provision in the final text, despite the
willingness of the Peruvian government to do so. It is no longer
credible for USTR to claim that other governments are not willing to
include meaningful worker rights provisions in FTAs.
The labor provisions of the Peru FTA, like those in all the FTAs
negotiated by this Administration, are simply inadequate to ensure that
workers' fundamental human rights will be protected. These weak labor
provisions:
do not contain any enforceable requirements that domestic
labor laws comply with the international standards established by the
International Labor Organization (ILO). While the labor chapter
includes a commitment to respect the ILO core labor standards, this
commitment is not subject to the enforcement mechanisms of the trade
agreement.
do not prevent a government from ``weakening or reducing
the protections afforded in domestic labor laws'' to ``encourage trade
or investment.'' A government could roll back its labor laws without
threat of sanction or fine. This is a very real problem. In 2005, for
example, the Mexican government drafted and attempted to pass
legislation that would have substantially weakened its labor code.
Unfortunately, this is an all-too-common occurrence.
do not include any requirement that countries effectively
enforce non-discrimination laws, even though this is an ILO core labor
standard. The Andean governments expressed willingness to include non-
discrimination within the definition of internationally recognized
worker rights, but USTR refused to make this important change.Penalties
are Insufficient
Penalties are Insufficient
Even for the one labor obligation in the FTA that is subject to
dispute resolution--the requirement to effectively enforce domestic
laws--the procedures and remedies for addressing violations are
significantly weaker than those available for commercial disputes in
the agreement. This directly violates Trade Promotion Authority, which
instructs our negotiators to seek provisions in trade agreements that
treat all principle negotiating objectives equally and provide
equivalent dispute settlement procedures and equivalent remedies for
all disputes.
The labor enforcement procedures cap the maximum amount of fines
and sanctions available at an unacceptably low level, and allow
violators to pay fines that end up back in their own territory with
inadequate oversight. These provisions not only make the labor
provisions of the agreement virtually unenforceable, they also differ
dramatically from the enforcement procedures and remedies available for
commercial disputes:
In commercial disputes, the violating party can choose to
pay a monetary assessment instead of facing trade sanctions, and in
such cases the assessment will be capped at half the value of the
sanctions. In labor disputes, however, the assessment is capped at an
absolute level, no matter what the level of harm caused by the
offending measure.
Not only are the caps on fines much lower for labor
disputes, but any possibility of trade sanctions is much lower as well.
In commercial disputes, a party can suspend the full original amount of
trade benefits (equal to the harm caused by the offending measure) if a
monetary assessment (capped at half that value) is not paid. In a labor
dispute, the level of trade benefits a party can revoke if a monetary
assessment is not paid is limited to the value of the assessment
itself--capped at $15 million.
Finally, the fines are robbed of much of their punitive
or deterrent effect by the manner of their payment. In commercial
disputes under the Peru FTA, the deterrent effect of punitive remedies
is clearly recognized--it is presumed that any monetary assessment will
be paid out by the violating party to the complaining party, unless a
panel decides otherwise. Yet for labor disputes, the violating country
pays the fine to a joint commission to improve labor rights
enforcement, and the fine ends up back in its own territory. No rules
prevent a government from simply transferring an equal amount of money
out of its labor budget at the same time it pays the fine. And there is
no guarantee that the fine will actually be used to ensure effective
labor law enforcement, since trade benefits can only be withdrawn if a
fine is not paid. If the commission pays the fine back to the offending
government, but the government uses the money on unrelated or
ineffective programs so that enforcement problems continue un-
addressed, no trade action can be taken.
The labor provisions in the Peru FTA are woefully inadequate, and
clearly fall short of the TPA negotiating objectives. They will be
extremely difficult to enforce with any efficacy, and monetary
assessments that are imposed may be inadequate to actually remedy
violations. Given Peru's failure to respect core workers' rights and
the huge inadequacies in its labor laws, it is especially problematic
to implement an FTA with weak labor protections at this time.
Labor Rights in Peru
Workers continue to face legal and practical obstacles to the
exercise of their rights to freely associate, to join a trade union and
to bargain collectively in Peru. Under the autocratic rule of President
Alberto Fujimori, which lasted from 1990 to 2000, trade unionists
suffered heavy losses. Collective bargaining agreements were abrogated,
harsh industrial policies were enacted, and political repression became
the norm. As a result, there was a sharp drop in the union density in
Peru, from 21.9% in 1990 to 4.6% in 2002. Similarly, the percentage of
workers covered by collective bargaining agreements dropped from 37.9%
to 11.7%, during the same period.\1\ Although the outgoing
administration of President Toledo took some steps to moderate the
Fujimori era ``reforms,'' serious problems still persist in the labor
laws and practices in Peru. Additional reforms to the General Labor
Law, which would have made additional steps towards bringing the
country's labor code into compliance with ILO labor standards, have
been drafted but unfortunately never enacted.
---------------------------------------------------------------------------
\1\ ILO, Peru: Proposal of the National Program for Decent Work
2004-2006 (Dec. 2003), p.70.
---------------------------------------------------------------------------
With the coming of a new administration, it seemed possible that an
improved General Labor Law could pass soon. However, we are deeply
troubled by recent remarks made by Congressman Jorge del Castillo, the
Secretary General of APRA--the political party of president-elect Alan
Garcia. In the June 22 issue of Gestion, he explains that the current
congress would not approve the revised General Labor Law. Even worse,
he goes on to say that the labor reforms do not constitute a priority
for the new congress, but that they will focus instead on austerity
reforms and investment policy. His remarks clearly do not bode well for
Peruvian workers and the prospect for needed labor law reforms.
Right to Organize and Bargain Collectively:
In 1992, President Fujimori decreed that collective bargaining
agreements would expire within a year and would thereafter be subject
to renegotiation. With unions already on the defensive, the gains won
through years, and in some cases decades, of negotiation were wiped
away. Today's collective bargaining agreements contain only a fraction
of the rights and benefits of pre-1992 contracts. Unfortunately, not
much has changed as to collective bargaining.
Section 9 of Legislative Decree 728 allows employers to introduce
changes unilaterally to the content of previously concluded collective
agreements, a practice denounced by the ILO.\2\ At the expiration of a
collective bargaining agreement, all previously negotiated agreements
must be ratified in order for the previously established terms and
conditions to continue in force. Employers often introduce
modifications unilaterally as a ``condition'' to move forward with re-
negotiation of an existing agreement.
---------------------------------------------------------------------------
\2\ CEACR: Individual Observation Concerning Convention No. 98,
Right to Organize and Collective Bargaining, Peru (2005).
---------------------------------------------------------------------------
The ILO has also found that legal procedures for addressing anti-
union discrimination and employer interference are so slow as to be
ineffective. It recently recommended that ``the legislation--make
express provision for rapid appeal procedures and effective and
dissuasive sanctions against acts of interference by employers against
workers' organizations and that cases concerning issues of anti-union
discrimination and interference should be examined promptly so that the
necessary remedial measures can be really effective.'' \3\
---------------------------------------------------------------------------
\3\ Id.
---------------------------------------------------------------------------
Freedom of Association_Right to Strike
Article 73(b) of the Industrial relations Act of 1992 requires that
a majority of the workers in a workplace vote in favor of a strike
before it can be held. The ILO has found such a requirement to be
excessive, as ILO standards only call for the support of a majority of
those voting.\4\ The right to strike is further restricted for those
workers employed in ``essential public services.'' However, the
government's list of ``essential services'' is vast and goes far beyond
what is deemed essential under international law.\5\
---------------------------------------------------------------------------
\4\ CEACR Individual Observation Concerning Convention No. 87,
Freedom of Association and Protection of the Right to Organize, Peru
(2005)
\5\ According to the Public Service Law, essential services are
defined as: a) health services; b) waste collection and public
sanitation; c) electricity, water, drainage systems, gas and fuel
services; d) funeral and burial services; e) prison system; f)
communications and telecommunications; g) transportation; h) national
security, national defense and strategic services; i) justice system as
decided by the Supreme Court; j) others determined under the law.
---------------------------------------------------------------------------
The ILO has also held that an independent body should determine the
legality of a strike. In the case of a strike in an essential public
service, an independent body should also determine how many workers are
needed to maintain minimum services. In Peru, the Ministry of Labor
makes these determinations.\6\
---------------------------------------------------------------------------
\6\ See id, supra, n. 4.
---------------------------------------------------------------------------
According to the State Department's 2005 Report on Human Rights
Practices, there was a single legal strike and 45 illegal strikes
between January and August. Labor leaders alleged that it was difficult
to get approval for a legal strike and believed that the Ministry of
Labor was reluctant to do so for fear of hurting the economy.
Use of Short-Term Contracts and Labor Cooperatives to Frustrate Labor
Rights:
Under the laws of Peru, employers may hire new employees through
renewable, fixed-term contracts, which are typically for no longer than
a few months. Employees may be employed for years on such contracts,
despite their temporary nature. However, if an employee attempts to
form or join a union, the contract is typically not renewed. Further,
it is more difficult to prove anti-union discrimination in the
termination of a temporary three-month contract, as the employer can
justify the dismissal on the basis that the work was temporary and that
the worker is no longer needed.
Some workers are also hired through a service cooperative. Workers
hired by such cooperatives, which are often set up and controlled an
employer, are not considered employees of the establishment but rather
are deemed members of the cooperative. Thus, since the relationship
with the employer is indirect, the employee is not protected by the
terms of the General Labor Law. Such workers also do not receive
legally established benefits and protections either.
Forced Labor
Forced labor continues to be practiced in rural areas of Peru,
affecting primarily the indigenous populations of Atalaya and Ucayali.
In 2004, the ILO published the report, Forced Labor In The Extraction
Of Timber In Peruvian Amazonia as a product of the ILO's special action
program to combat forced labor. The report found the ``existence of
forced labor, particularly in work related to the unlawful extraction
of timber in various regions of the Peruvian Amazon basin. . . . The
number of persons affected is reported to be around 33,000, mainly
belonging to various ethnic groups of Peruvian Amazonia.'' \7\ The
report found extreme cases in which indigenous workers are actually
captured and forced to work in timber camps, although forms of debt
bondage is a more common practice. The document also reported that
major international corporations and powerful timber industry groups
provided the financing of timber extraction activities.
---------------------------------------------------------------------------
\7\ CEACR: Individual Observation Concerning Forced Labor
Convention, No. 29, Peru (2006).
---------------------------------------------------------------------------
Following the release of the report, the government prepared a
National Plan of Action for the Eradication of Forced Labor. However,
the ILO reported that the government did not receive any legal
complaints concerning forced labor. Given that forced labor is known to
exist, the absence of any penalties was found to be ``indicative of the
incapacity of the judicial system to prosecute such practices and
penalize those who are guilty.'' In accordance with Article 25 of the
Convention, the Government is under the obligation to ensure that the
penalties imposed on those found guilty of the exaction of forced labor
are really adequate and strictly enforced.
Child Labor
The 2005 U.S. Department of State Report on Human Rights Practices
notes that although the law generally restricts child labor ''the law's
provisions were violated routinely in the informal sector.'' The
National Institute for Statistics and Information (INEI) estimated that
``2.3 million children between 6 and 17 years of age were engaged in
work, of which 1.9 million labored in the informal sector.''
Child labor in the mining sector, a ``worst form'' due to the
hazards it poses to the health and welfare of children, persists in
Peru. We note that ILO/IPEC has established programs in Peru to help
raise awareness of the problem and to expand health and education
services. However, there is a long way to go before the problem is
resolved, as thousands of children continue to labor in the mines. Peru
must take the necessary measures to eradicate the exploitation of
children in the mining sector and to improve the conditions of work for
adult miners.
Conditions of Work--Export Agriculture and EPZs
Workers in the export agriculture sector enjoy fewer benefits, by
law, than their non-agricultural counterparts. Under Law 27,360 of
2000, workers are entitled to less vacation, do not receive
compensation for holidays, and in the case of arbitrary dismissal are
eligible to collect only up to 15 days wages for each year of service.
Workers, largely women, who enter this line of work are usually
between 18 and 25. They work long days, between 9 and 12 hours daily
and up to 18 to 20 hours during harvest or during the shipment of
product. In general, they do not receive overtime pay. This situation
is even worse for those who are transported from their homes to work in
the fields, as they are unable to return home until the company agrees.
Fieldworkers are also exposed to toxic pesticides and experience a
range of occupational health problems, including loss of sight,
gastritis, fungal infections, breathing problems and back problems. In
the processing factories, workers are required to stand the entire day
in highly physical labor without the ability to move about or change
position. Additionally, workers are not provided adequate protective
gear and are subject to frequent changes in temperature.
In the four Export Processing Zones (EPZs), special regulations
``provide for the use of temporary labor as needed, for greater
flexibility in labor contracts, and for setting wage rates based on
supply and demand.'' \8\
---------------------------------------------------------------------------
\8\ U.S. Department of State, Country Reports on Human Rights
Practice--Peru (2005).
---------------------------------------------------------------------------
Trade Impacts of the Peru FTA
The overall trade relationship with Peru is small relative to the
economy of the United States. However, the trade agreement will likely
exacerbate the already enormous and growing U.S. trade deficit. In
fact, the U.S. trade deficit with Peru has grown eightfold in just five
years: from $335 million in 2000 to $2.8 billion in 2005. In the first
four months of 2006, the trade deficit reached $900 million, up 27%
over the previous year at the same time. The agreement is likely to
result in a deteriorating trade balance in specific sectors, including
sensitive sectors such as apparel. Imports of cotton apparel from Peru
doubled in the last five years and are expected to increase. Imports in
other sectors, especially metals (e.g., gold, copper, and aluminum),
are projected to increase enough to impact U.S. output and employment,
according to the recent U.S. ITC study, ``U.S.-Peru Trade Promotion
Agreement: Potential Economy-Wide and Selected Sectoral Effects.'' Even
where the market access provisions of the agreement themselves may not
have much of a negative impact on our trade relationship, these
provisions when combined with rules on investment, procurement, and
services could further facilitate the shift of U.S. investment and
production overseas, harming American workers.
Investment: In TPA, Congress directed USTR 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.'' Yet the investment provisions of the
Peru FTA contain large loopholes that allow foreign investors to claim
rights above and beyond those that our domestic investors enjoy. The
agreement's rules on expropriation, its extremely broad definition of
what constitutes property, and its definition of ``fair and equitable
treatment'' are not based directly on U.S. law, and annexes to the
agreement clarifying these provisions also fail to provide adequate
guidance to dispute panels. As a result, arbitrators could interpret
the agreement's rules to grant foreign investors greater rights than
they would enjoy under our domestic law. In addition, the agreement's
deeply flawed investor-to-state dispute resolution mechanism contains
none of the controls (such as a standing appellate mechanism,
exhaustion requirements, or a diplomatic screen) that could limit abuse
of this private right of action. Finally, the marked difference between
the dispute resolution procedures and remedies available to individual
investors and the enforcement provisions available for the violation of
workers' rights and environmental standards flouts TPA's requirement
that all negotiating objectives be treated equally, with recourse to
equivalent dispute settlement procedures and remedies.
Intellectual Property Rights: In TPA, Congress instructed our trade
negotiators to ensure that future trade agreements respect the
declaration on the Trade Related Aspects on Intellectual Property
Rights (TRIPs) agreement and public health, adopted by the WTO at its
Fourth Ministerial Conference at Doha, Qatar. The Peru FTA contains a
number of ``TRIPs-plus'' provisions on pharmaceutical patents,
including on test data and marketing approval, which could be used to
constrain the ability of a government to issue compulsory licenses as
permitted under TRIPs and the Doha Declaration.
Government Procurement: The FTA's rules on procurement restrict the
public policy aims that may be met through procurement policies at the
federal level. These rules could be used to challenge a variety of
important procurement provisions including domestic sourcing
preferences, prevailing wage laws, project-labor agreements, and
responsible contractor requirements. We believe that governments must
retain their ability to invest tax dollars in domestic job creation and
to pursue other legitimate social objectives, and that procurement
rules which restrict this authority are inappropriate.
Safeguards: Workers have extensive experience with large
international transfers of production in the wake of the negotiation of
free trade agreements and thus are acutely aware of the need for
effective safeguards. The safeguard provisions in the Peru agreement,
which offer no more protection than the limited safeguard mechanism in
NAFTA, are not acceptable. U.S. negotiators should have recognized that
much faster, stronger safeguard remedies are needed. The Peru FTA has
failed to provide the necessary import surge protections for American
workers.
Services: NAFTA and WTO rules restrict the ability of governments
to regulate services--even public services. Increased pressure to
deregulate and privatize could raise the cost and reduce the quality of
basic services. Yet the Peru agreement does not contain a broad,
explicit carve-out for important public services. Public services
provided on a commercial basis or in competition with private providers
are generally subject to the rules on trade in services in the Peru
FTA, unless specifically exempted.
Conclusion
Congress should reject the Peru FTA, and send a strong message to
USTR that future agreements must make a radical departure from the
failed NAFTA model in order to succeed.
American workers are willing to support increased trade if the
rules that govern it stimulate growth, create jobs, and protect
fundamental rights. The AFL-CIO is committed to fighting for better
trade policies that benefit U.S. workers and the U.S. economy as a
whole. For the reasons stated above, we urge the Congress to reject the
U.S.-Peru FTA and begin work on a more just economic and social
relationship with Peru.
Mr. SHAW. Thank you, Mr. Gibson. Can you give us specific
examples of labor infractions, giving us the name of the
company?
Mr. GIBSON. I would be happy to provide that in writing. I
don't have any specific companies right now but do know----
Mr. SHAW. You don't have that information with you?
Mr. GIBSON. I don't have that information with me, but I
would be more than happy to provide a written copy.
[The information follows:]
August 4, 2006
The Honorable Clay E. Shaw, Jr
1236 Longworth House Office Building
Washington, DC 20515
Re: Violations of internationally recognized labor rights in Peru
Dear Representative Shaw:
I write regarding your request at the Ways and Means Hearing on
Peru of July 12, 2006 to provide information as to companies violating
internationally recognized labor rights in that nation. Below are
summaries of three recent cases involving serious violations of the
right to freely associate, to organize and bargain collectively, all of
which were committed by prominent multinational corporations. As more
information becomes available, we will be sure to provide you with
updates and any additional cases.
You will note that each of these cases involve the use of third
party contractors as a means of weakening the union. As we have
explained in the attached fact-sheet, the law permits the use of third
party contractors to perform the regular, permanent work of an
enterprise. If a worker so hired tries to organize a union or undertake
some other concerted activity, s/he is simply not rehired upon the
expiration of the contract. Further, an employer may just simply fire
the employee and risk payment of minimal compensation to the worker.
The ability of an individual worker of limited means to use the
judicial process to win reinstatement for anti-union dismissal is very
low.
Moreover, the ability to employ third-party contractors has led to
an all out attack on existing trade unions, as employers have sought to
dismiss their organized workers and rehire them or others indirectly.
As long as this legal loophole exists, workers in Peru will continue to
face insurmountable obstacles to their ability to exercise their most
fundamental labor rights. Most cases of labor conflict in Peru today
arise from employers' efforts to avoid or destroy unions through
subcontracting. The three cases provided below are in no way unique;
rather they are exemplary of increasingly standard practices.
1. Maple Gas Corp.
Maple Gas Corporation is a Texas-based energy company with
significant investments in the gas and oil sector in Peru. The workers
at Maple Gas formed a union on October 25, 2003. The company has tried
to break the union ever since through threats and intimidation of the
union's members. After slowly reducing the number of members employed
at Maple Gas, the company brought a lawsuit against the union seeking
its dissolution using the argument that the union no longer had the
minimum number of members. The company's request was ultimately
rejected because it had relied on false information; the union still
had the requisite minimum number of workers.
On July 7, 2006, pursuant to a court order, Maple Gas was directed
to reinstate Mr. Alex Ruiz Ushinahua, who held the union position of
Secretary of Organization. In the sentence, the judge indicated that
the reason for his dismissal was the formation of the union and
therefore just cause for his dismissal did not exist. The union reports
that the company continues with its antiunion policies. Maple Gas is
currently offering members up to 16,000 soles ($5,000) to resign from
the company and to accept employment in a labor services company, Orus
Service, created by the company. The workers who have refused to accept
this proposal have been prevented from entering the worksite, which
constitutes an arbitrary dismissal prohibited under the laws of Peru.
2. JR Lindley / Coca-Cola / Inca Kola
JR Lindley, S.A.is a leading bottling company of non-alcoholic
beverages, such as its flagship product, Inca Kola. After JR Lindley
purchased 60 % of the shares of ELSA in May 2004, it then became the
exclusive bottler of Coca Cola in Peru. Through its subsidiary, Peru
Beverage Limited, Coca Cola owns 38.52% of JR Lindley. Upon the
purchase of ELSA, JR Lindley restructured the company and undertook a
mass dismissal. Of the 233 workers who were immediately dismissed, 133
were union members. The company even dismissed the union's General
Secretary, Julio Falla Juarez, who had legal protection from dismissal
(``fuero sindical''). The union alleges that the objective of the
reorganization and the subsequent dismissals was to break the union and
to reduce to the maximum extent possible the number of direct employees
in order to make use of service companies. JR Lindley had done the same
thing a few years earlier at Inca Kola, when it fired roughly 2,000
workers. The subcontracted workers there earn far less and have little
chance of unionizing.
Although Peruvian law required the company to negotiate with the
union regarding the terms on which the affected workers would leave
their jobs and over the measures necessary to limit the personnel
reduction, the company failed to do so. Subsequently, the Ministry of
Labor disapproved of the mass dismissal and ordered the reinstatement
of the dismissed workers. The company refused to accept the finding of
the Ministry of Labor, prompting the union to file a lawsuit in court
demanding the reinstatement of the workers. The union won the case, but
the company disobeyed the judicial order.
Later that year, the union attempted to bargain collectively with
the company. However, the negotiations were marked by a delay of almost
7 months due to the company's refusal to present a final proposal to
the union. This led the union to eventually break off talks and
initiate a strike. On September 30, 2004, the union struck in protest
of the company's lack of attention to the collective negotiation and
the unjustified dismissal of the workers. During the strike, workers
were attacked by the police, who tried to enter the union premises
without judicial order. By day's end, 8 trade unionists were detained
and 4 were injured.
Since then, the company bought the ``voluntary'' resignations of
most of the remaining union members such that today the union has
nearly disappeared. Of the ten remaining members, including the General
Secretary, they are awaiting the final decision in their cases.
Although the cases arose out of the same facts, the initial decisions
have been inconsistent.
3. Phelps Dodge (Cerro Verde)
Phelps Dodge-Cerro Verde has for several years contracted with
services companies to provide labor services to the company. Recently,
the company unjustly dismissed two workers, Agapito Manuel Miranda and
Roque Somata Gomez, after 3 years of solid employment with the company.
It is alleged that the two were dismissed after the company learned
that a group of workers, headed by the two, had begun to organize a
union in the company. This case is representative of numerous other
cases in Peru where workers are fired for attempting to form a union.
Thank you again for your inquiry.
Sincerely,
Brett Gibson, Representative
Department of Legislation
Mr. SHAW. Mr. McCrery, I understand that you do not have
any questions? Gentleman from Louisiana.
Mr. MCCRERY. Yes, Mr. Chairman. Thank you.
Mr. Gibson, I continue to be somewhat perplexed by your
organization's positions on these FTAs, given that clearly the
weight of the evidence is contrary to one of your statements,
which implied that this agreement will be bad for jobs in the
United States, when all of the evidence seems to be on the
other side of that, that as we create more opportunities for
trade through these FTAs, we actually increase the number of
jobs and generally they are higher paying jobs than jobs in the
general economy.
Also, I want to probe just a little bit this question of
the labor portions of these agreements, because you are an
American citizen, right?
Mr. GIBSON. Yes, sir.
Mr. MCCRERY. Do you believe that the United States should
have sovereignty over its own laws?
Mr. GIBSON. It certainly should.
Mr. MCCRERY. We should. Well, if you were a citizen of some
other country, you would probably feel the same way about that
country, wouldn't you?
Mr. GIBSON. Perhaps.
Mr. MCCRERY. Well, at least you are saying that, as an
American citizen, you think the U.S. Government ought to have
sovereignty over its own laws, which means we reserve the right
to make our own laws, right? That is what sovereignty is all
about, right?
Mr. GIBSON. Yes.
Mr. MCCRERY. Well, it seems to me that you are suggesting
we build into these trade agreements a provision that would
give up some of our sovereignty. You are saying, okay, let's
make Peru not only agree to enforce their labor laws, but they
can't change any of their laws that would go backward, in your
view, in terms of labor rights. That is giving up their
sovereignty.
I assume that if we got Peru to agree to that, they would
want the same agreement for the United States, which would be
if we were to go backward in their view on our labor laws that
they could object and bring it to some tribunal and get a
judgment, thereby restricting the sovereignty of the United
States.
Surely, that is not what you as an American citizen would
want for our country, just as a Peruvian citizen would not want
the United States to impose something on his country that would
diminish the sovereignty of Peru; and yet that seems to be what
you are suggesting.
Mr. GIBSON. Can I respond to that?
Mr. MCCRERY. Sure.
Mr. GIBSON. I would say what we are asking for here is,
first of all, I wouldn't want the United States to lower its
labor laws at any point in the future. Secondarily, what we are
looking for here is an international standard and international
norms in these FTAs. With respect to the sovereignty issue, we
make demands of these other countries in the commercial
provisions of the agreements, the pharmaceutical provisions of
these agreements.
If you look back toward NAFTA chapter 11, our laws have
been challenged under chapter 11. Let's just take the case of
Methanex and methyl tertiary-butyl ether (MTBE), a gasoline
additive, challenging the--a Canadian company challenging a
California State law banning MTBE. That is another challenge to
our sovereignty as well.
So, there is other areas where I think the sovereignty
issue comes up in a more disturbing manner, but, like I said,
we are looking for international labor standards here.
Mr. MCCRERY. Well, I am advised that that case has been
dismissed, but you get my point: this is not as easy a question
as you would have some believe, that it is just a matter of
upholding labor rights around the world. It does have questions
of sovereignty; and everybody, I would submit, in every country
feels pretty strongly about protecting the sovereignty of their
own country.
So, I would urge you to continue to work with this
administration and any succeeding administration to get
agreements that do create job opportunities here in this
country, as I believe this one would.
Thank you.
Thank you, Mr. Chairman.
Mr. SHAW. Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman; and thank you all for
your testimony.
Let me ask, before I ask a couple of questions to my friend
from Louisiana, I had mentioned that it seems to me that the
United States did impose on the sovereign Nation of Peru that
it do change its laws. If you take a look at our provisions
with regard to intellectual property, we said that they cannot
move forward in this deal unless they conformed their laws to
the provisions that are on this deal which would require them
to have stronger laws in place to protect our intellectual
property and stronger laws to enforce our rights within our
intellectual property. I think all us of us would agree we are
pleased that we did that.
So, with regard to labor, with regard to any produce or any
service or with regard to intellectual property, it is clear
that each side is making demands on the other's sovereignty in
existing laws. So, I think we have to be real clear that what
we are asking with regard to protection of workers' rights is
nothing different than what we are requesting with regard to
protection of intellectual property.
Let me see if I can ask all of the panelists who represent
an industry a question, whether it is poultry, whether it is
textile, whether it is a service, whether it is dairy. If Peru
had been required in this agreement simply to follow its
current practices and standards with regard to, say, poultry,
dairy, service sector, textiles, would you be supporting this
agreement?
Anyone who would support this agreement with existing laws
that Peru has on your industry, please raise your hand if you
would support this agreement.
Your industry is?
Mr. NORMAN. I am in the textile industry.
Mr. BECERRA. So, if the textile laws remained the same for
Peru, you would still be supporting this agreement?
Mr. NORMAN. I would at this point, yes.
Mr. BECERRA. Anyone else?
Mr. SANTEIRO. The changes in the customs procedures that I
referred to are coming perhaps more slowly. There is an
international tendency in that direction. I think, given the
fact that FedEx is a strong supporter of free trade, we would
like to look at the specific issue being discussed before
making a statement whether we would support it or not.
Mr. BECERRA. I am just trying to check, because that is an
instance of what we are telling the countries when it comes to
protecting their workers and our workers, that just go ahead
and do whatever you are doing right now with your laws. You
don't need to change them. I want to make sure that I do--is it
Mr. Norman?
Mr. NORMAN. Yes, it is.
Mr. BECERRA. I want to make sure I understand that, because
my understanding was when it came to textiles in the CAFTA
agreement, when it came to NAFTA, when it came to Chile, when
it came to everything else, you all fought very hard to make
sure there were changes. So, I am surprised to hear you say
today that you could live with the current practices and laws
in place for Peru. That hasn't been your past practice when it
comes to defending the interests of the industry.
I would be interested to chat with the folks in your
industry, in your association, given that you are saying you
would have been pleased with the existing laws in place in Peru
when it came to textiles.
Mr. NORMAN. The ones that are in place today. I do think
that this agreement gives us the chance to really accelerate
what we are doing.
Mr. BECERRA. Well, it does accelerate it, but that is not
existing law. So then, you do prefer what is in the agreement
versus keeping what is currently in practice?
Mr. NORMAN. Yes, we do.
Mr. BECERRA. I think most of us who argue that we should
have done the same with regard to protecting worker rights are
saying simply that, that we can't afford to just ask people to
stay with the status quo. We want to make sure all of our
workers are protected, just the way our intellectual property
should be protected, and just the way we should make sure
poultry, dairy, textiles, sector services, should also be
treated, in a way that is as free and fair as possible.
I have a question for Ms. Forkan. Ms. Forkan, in your
testimony, you mentioned that the agreement which had the same
language on labor for environment, that says you must
effectively enforce your environmental laws, you say that it
includes multilateral environmental agreements, such as the
Convention on International Trade and Endangered Species of
Wild Fauna and Flora.
I am not sure which agreement you were looking at, but the
agreement that was signed simply says this. In article 18(2) it
says, ``A party shall not fail to effectively enforce its
environmental laws.''
Then if you turn to article 1813, it defines what an
environmental law is, and that is any statute or regulation of
a party. It doesn't deal with any type of international or
multilateral trade agreement in the definition. So, I hope you
will take a closer look at the agreement.
Ms. FORKAN. Can I answer that? Yes, when you sign an MEA,
you have to have implementing legislation that is domestic
legislation, so that the United States has implementing
legislation for CITES, for the International Whaling
Commission, for all those things. So, we are talking about the
implementing legislation that is domestically passed.
Mr. SHAW. [Presiding.] The time of the gentleman has
expired, and I am going to have to enforce it because we have a
vote coming up.
Mr. Weller.
Mr. WELLER. Thank you, Mr. Chairman.
I first want to begin by thanking all of the panelists for
taking the time to be here to discuss what I think is an
important economic initiative between two friends, Peru and the
United States.
Since the issue of labor has come up, Mr. Chairman, I would
like to ask unanimous consent to include for the record the
letter from Prime Minister Kuczynski that was forwarded to us
by the Ambassador of Peru in response to various questions
raised regarding Peru labor law.
Mr. SHAW. Without objection.
[The information follows.]
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Mr. WELLER. Mr. Gibson, your testimony is consistent with
the previous testimony by the AFL-CIO before this Committee
regarding trade agreements, and it is my understanding your
organization has called for a moratorium on any new trade
agreements as your current policy. So, your statement is
consistent with that.
The question I have for you, you know, Peru has ratified
all of the ILO's eight core conventions, it has been cited
several times by the ILO for its progress in improving its
labor laws and it has ratified 71 ILO conventions. In the last
5 years, under President Toledo, they have enacted 30 major
reforms, some as recently as in the past year.
I guess the question I have is, some of my friends on this
Committee have suggested we just abandon this agreement, walk
away from it, and then instead, extend the Andean Trade
Promotion and Drug Eradication Act, which expires at the end of
this year.
Now, under the Andean Trade Promotion and Drug Eradication
Act, this truck, which is a model of a version of a piece of
mining equipment, an off-road construction, or in this case,
truck used to haul products coming out of the mines in Peru, it
would essentially fill this room if it actually was a real one
here, it is about a million dollar piece of equipment. It is
produced by members of the United Auto Workers in Decatur, and
the parts come from a plant in Joliet, in my district, in
Illinois, which is represented by the Machinists.
The concern I have on this truck is that it has a 12
percent tariff under existing law. So, on a million dollar
piece of equipment, that is a $120,000 tax on a piece of
equipment made by union workers in Illinois.
As you know, with expanded trade with Chile and elsewhere,
Caterpillar, which is the manufacturer of this, has added about
over 5,000 workers in Illinois, in my State. So, trade has been
pretty important to us. If we fail to ratify this agreement,
that $120,000 tax on this piece of equipment made by union
workers in my State of Illinois would continue. Also from the
standpoint of labor, the Andean Trade Promotion Drug
Eradication Act does not require that countries enforce their
labor laws, nor that they live up to the obligations of the
ILO.
So, my question to you is very, very simple. It is a yes-
or-no question. You have already advocated a no vote on the
trade agreement, but if the alternative were to be before this
Congress, would you support or oppose extension of the Andean
Trade Promotion Drug Eradication Act? What is your
organization's position?
Mr. GIBSON. Well, I don't think it is quite as simple as a
yes-or-no question.
Mr. WELLER. Well, for us, it is a yes-or-no vote. So, it is
a simple question.
Mr. GIBSON. I would think if it was the alternative, we
would support--we do support trade. I want to make that clear.
Mr. WELLER. So, you would support continuing a $120,000 tax
on a piece of union made equipment exported to Peru?
Mr. GIBSON. I am not prepared to say whether our
organization would support or not the Andean Trade Act.
Mr. WELLER. Did you support it before when we originally
created this a few years ago?
Mr. GIBSON. I wasn't at the organization at the time.
Mr. WELLER. So, you don't know. I would like to know, and
if you could provide for us in writing a yes-or-no answer on
what your position would be? Now, you have already advocated a
no vote on this agreement. If you are in opposition to this
agreement, some have advocated if we are unable to pass this,
we just extend the existing trade preferences. I would like to
know from your organization, do you oppose or support that
extension, if you can provide that to this Committee.
Mr. GIBSON. Certainly I will provide that.
Mr. WELLER. Thank you.
Mr. Jara, I am thrilled to have a small businessman before
this Committee. One thing I have noted in this trade agreement,
we often talk about the tariffs and the fact that under the
Peruvian trade agreement, almost all of them are eliminated on
our manufactured products as well as our farm products here.
But also it does away with a lot of what are called non-tariff
trade barriers. Representing smaller employers, I am wondering
what your perspective is on that?
Mr. SHAW. I would have to cut the gentleman off and ask
that that question be answered by writing.
Mr. WELLER. Could I finish the question?
Mr. SHAW. Complete the question. We have a vote on the
floor.
Mr. WELLER. I understand, Mr. Chairman.
What I would ask is if you could give us a perspective from
the smaller exporters on eliminating these non-tariff barriers.
A $10,000 permit can be no big deal to a major corporation, but
to a small exporter it can really make a big difference. I
would like to hear from you on that.
[The information follows:]
August 4, 2006
The Honorable Jerry Weller
108 Cannon House Office Building
Washington, DC 20515
Dear Representative Weller:
I write regarding your inquiry at the Ways and Means Hearing on
Peru of July 12, 2006 as to whether the AFL-CIO would support an
extension of the Andean Trade Preferences and Drug Eradication Act
(ATDPEA) should it require renewal this year.
The AFL-CIO would support an extension of ATPDEA with Bolivia,
Colombia, Ecuador and Peru, so long as the opportunity of extension is
used to ensure that some of the concerns we have expressed in the past
with respect to the workers' rights conditions and country coverage are
addressed.
With respect to worker rights, we would like to see a streamlined
submissions process that is both transparent and consistent. The AFL-
CIO would also like to see the labor language strengthened and
clarified, to ensure that countries are required to respect all the
core International Labor Organization standards, not just take steps
toward affording those rights.
Sincerely,
Brett Gibson, Representative
Department of Legislation
Mr. SHAW. The time of the gentleman has expired.
Mr. Levin?
Mr. LEVIN. Let me just say the example you used about the
mines is a very vivid one and the machinery that is used in the
mines. I suggest that everybody look at what happened to the
rights of mine workers under the Fujimori administration and
what happened to their conditions at work, and what is true
today in terms of the continuation of the subcontracting,
private contract, short-term contract provisions which have
become prevalent for people who work in the mines. So, you
ought to take a look at that.
Secondly, the sovereignty issue, by definition, trade
agreements require the giving up of sovereignty. There are
limitations on tariffs, on investments, on a lot of things. So,
to use the sovereignty issue as to worker rights is really
inappropriate. In every agreement, look at the arguments at the
Doha Round. We would be giving up sovereignty as to our
subsidization of agriculture.
Thirdly, in terms, Mr. Weller, of the conventions, those
conventions were in existence in the Fujimori years.
Conventions by themselves don't become operative parts of the
laws of the country. They pass laws relating to the subjects.
China has signed conventions. Do people have their rights,
despite the conventions that were signed? The answer is they
don't. So, we need to look at what the realities are and why it
matters in terms of how globalization proceeds. That is the
issue.
Mr. WELLER. Would the gentleman yield to the point you are
making? Do you acknowledge though that President Toledo, under
his administration, has implemented 30 major reforms in labor
laws?
Mr. LEVIN. Look, the answer is there were some reforms of
82-83. I don't know where you get the 30. Today, those laws do
not meet ILO requirements. When I was in Peru, I asked the ILO
representatives point blank, is Peru today in practice and in
law compliant with the basic ILO standards, and the answer was
no. In terms of GSP, a number of us have put into the hopper
the extension of GSP, if this does not go into effect to
replace it.
By the way, this hearing has been, I think, inadequate in
pointing out the experience under GSP. The GSP talks about
taking steps to apply the ILO standards. This document says
enforce your own laws, whatever.
With SPS, we don't let Peru enforce their own laws as the
standard. We never dreamed of doing that. We have forced
Central American and Latin American countries to agree not to
use their SPS standards, appropriately. You can argue that they
are giving up their sovereignty, but we want some safeguards
for our products. It is important for our country, our
businesspeople, for the other countries, that there be some
safeguards that are enforceable relating to the rights of
workers.
Your mine example is very fitting. Machinery matters, our
exporting of it. So, does the conditions of the people who work
with that machinery.
Mr. WELLER. Will the gentleman yield?
Mr. LEVIN. Sure.
Mr. WELLER. You mentioned the reform was only done in the
eighties.
Mr. LEVIN. No, I said there were reforms in 2002 and 2003.
Mr. WELLER. Under President Toledo, these reforms were
enacted into law by their Congress in 2003, 2004 and I think
this past year.
Mr. LEVIN. Mr. Weller, you didn't listen. Let me take back
my time. I said it hasn't expired. I said 2002-2003, there was
a labor reform passed, and it doesn't get at some of the
problems that persist from the Fujimori years. That is a fact.
I referred to those laws and I applauded them. They were a step
forward.
Mr. SHAW. I assume the gentleman yields back the balance of
his time.
We are out of time. I want to thank this panel for being
here. I think one thing that has been made crystal clearly by
this hearing is that this agreement means American jobs, better
American jobs, high paying American jobs, union American jobs,
and I would hope that the Committee could work out any
differences it has and pass this by a large majority.
This meeting is adjourned.
[Whereupon, at 3:37 p.m., the Committee was adjourned.]
[Questions submitted by Mr. Weller, Mr. Neal, Mr. Reynolds,
Mr. Herger, and Mr. Levin to Mr. Eissenstat, and their
responses follow:]
Question submitted by Representative Weller to Mr. Eissenstat
Question: Under PTPA how does dispute settlement for labor and
environment disputes work, and how is it different from dispute
settlement for commercial disputes?
Answer:
All disputes, whether they concern labor and environment
matters or other commercial matters, begin with consultations between
the disputing Parties. In the case of labor and environment,
consultations are provided for in the Labor and Environment Chapters,
respectively. For most other cases, consultations are provided for in
the Dispute Settlement Chapter.
The Labor and Environment Chapters contemplate
consultations beginning at a subcabinet level. If the matter is not
resolved at that level, either disputing Party may seek to elevate the
consultations to cabinet-level representatives. The Dispute Settlement
Chapter likewise sets out two levels of government-to-government
consultations for commercial disputes.
Where a dispute involves an alleged failure by a Party to
effectively enforce its own labor or environmental laws, and where
consultations under the Labor or Environment Chapter fail to resolve
the dispute within 60 days of the initial request for consultations, a
Party may pursue the matter under the procedures in the Dispute
Settlement Chapter.
When a Party pursues a labor or environment dispute under
the Dispute Settlement Chapter, the same procedures apply as apply to
commercial disputes. The only distinction is that the members of panels
established to review disputes involving labor or the environment must
have special expertise (as opposed to a looser ``endeavor to select
panelists with expertise'' for all other disputes).
Where dispute settlement concludes with a panel finding
that a Party has not conformed with an obligation under the FT A, the
ordinary solution will be for the disputing Parties to agree on a
resolution of the dispute, which normally shall conform to the panel's
determination. Where appropriate, the disputing Parties may agree on a
mutually satisfactory action plan to resolve the dispute. This is true
for labor and environment disputes, as well as commercial disputes.
However, it may be the case that the disputing parties
are unable to agree on a resolution. Alternatively, they may agree on a
resolution, but the complaining Party may believe that the other Party
has failed to observe the terms of the agreed resolution. In either
case, the PTP A makes remedies available to the complaining Party.
In commercial disputes, the remedy for non-compliance by
a Party is for the complaining Party to suspend tariff concessions
(that is, raise tariffs) so as to offset the harm to that Party of the
non-compliance. However, the defending Party may opt to pay a monetary
assessment in lieu of having the complaining Party raise tariffs. In
either case, if the disputing Parties are unable to agree on the amount
by which tariffs may be raised or the amount of the monetary
assessment, the question may be decided by the panel.
In labor and environment disputes, the remedy for non-
compliance is payment of a monetary assessment. That assessment would
go into a fund administered jointly by the disputing Parties. They
would decide jointly on disposition of the fund's proceeds, with a view
to using the money to remedy the non-enforcement underlying the
dispute. If a Party fails to pay the assessment, the complaining Party
may take appropriate steps to collect it or otherwise secure
compliance. These steps may include the suspension of tariff benefits.
Several conditions apply to monetary assessments in labor
and environment disputes:
An assessment may not exceed $15 million per year,
indexed for inflation.
In determining the level of an assessment, several
factors in addition to the trade effects of non-enforcement of labor or
environmental law are to be taken into account. These include:
pervasiveness and duration of the non-enforcement; reasons for the non-
enforcement; level of enforcement that reasonably could be expected, in
light of resource constraints; and efforts made to begin remedying the
nonenforcement.
The reference to factors in addition to trade effects is
recognition that in disputes involving non-enforcement of labor or
environmental laws, it may be difficult to quantifY trade effects.
A non-complying Party continues to pay monetary
assessments each year until it has come into compliance with its
obligations.
______
Question submitted by Representative Neal to Mr. Eissenstat
Question: In regards to Supreme Decrees, are they similar to
presidential signings? What are their legal effects? Are they subject
to any legislative oversight or review? How can they be amended?
Answer: Supreme Decrees (``decretos supremos'') are similar to
regulations in our system, not presidential signings. They implement
laws enacted by the Peruvian Congress. They are issued by the
President, in conjunction with the relevant Minister or Ministers,
depending on the subject matter. Some laws may require that the decree
be approved by the Council of Ministers (akin to our Cabinet), usually
where the subject matter is cross-cutting or does not fall neatly into
one Ministry. Supreme Decrees must be published in the Peruvian
official gazette (Diario Oficial ``EI Peruano'') and usually take
effect upon publication. They can be amended by the executive and can
be superseded by a law.
______
Question submitted by Representative Reynolds to Mr. Eissenstat
Question: How does the Administration plan to ensure that the
agreement's stringent rules of origin, particularly for dairy products,
are sufficiently enforced? There is currently a very open flow of trade
between Peru and neighboring Bolivia, for instance, not to mention
sizable trade between Peru and other important dairy-producing
countries, including New Zealand. How will the Administration verify
that the dairy products receiving preferential tariff treatment under
this TPA are only those that are made from milk produced in Peru
itself, as required by the agreement?
Answer: U.S. Customs and Border Protection (``CBP'') already
possesses authority to enforce the laws and regulations of the United
States relating to the importation of goods. The chapter on Rules of
Origin in the Peru Trade Promotion Agreement provides enhanced
enforcement provisions to allow CBP to conduct verifications in
connection with imports, including dairy imports, for which a claim for
preferential tariff treatment (``PTT'') has been made. The verification
provisions allow CBP to conduct verifications by means of written
requests, questionnaires and, visits to the premises of Peruvian dairy
producers and exporters to verifY compliance with the rules of origin.
Further, pursuant to these provisions CBP may deny a claim for PTT
if the Peruvian exporter or producer, or the U.S. importer, fails to
provide CBP with the information it has requested to substantiate the
claim for PTT. CBP may also deny a claim for PTT if the Peruvian
producer or exporter does not consent to a verification visit. Lastly,
CBP may suspend the claim for PTT for that product and for subsequent
importations of identical goods if, through verification, CBP finds a
pattern of conduct indicating that the importer, exporter or producer
has provided false or unsupported declarations or certifications. CBP
may suspend PTT until CBP determines that the importer, exporter or
producer has come into compliance.
The Agreement also requires each Party to provide for the
imposition of penalties on an exporter or producer that provides a
false certification of origin, ifno correction is voluntarily
submitted.
______
Question submitted by Representative Herger to Mr. Eissenstat
Question: Regarding the resumption of the U.S.-Peru trade in beef
products, I was pleased at the great steps forward negotiated along
side this agreement, such as Peru's agreeing to commit to
scientifically based, internationally accepted sanitary and
phytosanitary procedures. However, I remain concerned about Peru's
reluctance to act fully on its commitments, and accept OIE standards
for beef from U.S. producers.
I would appreciate it if you would elaborate on any progress being
made toward this end, which would allow increased trade for all U.S.
beef products.
Answer: I am pleased to inform you that at the end of October, both
Peru and Colombia lifted their former BSE-related restrictions on
imports of U.S. beef and beef products, and implemented measures
consistent with the guidelines on BSE in the Terrestrial Animal Health
Code of the World Organization for Animal Health (OIE). Both Peru and
Colombia now are open to all beef and beef products of the United
States (except high risk materials) when accompanied by a sanitary
certificate from the United States Department of Agriculture's Food
Safety and Inspection Service (FSIS). These openings represent progress
in our efforts to re-open global markets for U.S. beef and beef
products, and help ensure that U.S. exporters to Peru and Colombia will
realize the new access our free trade agreements provide in those
markets when the agreements enter into force.
In addition to addressing sanitary restrictions related to BSE, we
also reached agreement with both Peru and Colombia confirming that they
will continue to recognize the equivalence of the U.S. meat inspection
system. Further, they will not require plant-by-plant inspections as a
condition for the importation of U.S. beef and beef products.
______
Question submitted by Representative Levin to Mr. Eissenstat
Question: Are the two side letters on medicines as enforceable as
other provisions in the Agreement?
Answer: In connection with the signing of the PTPA, the United
States and Peru signed ``Understandings Regarding Certain Public Health
Measures''; in addition the United States sent a letter to Peru
confirming the coverage of those Understandings. This response is
directed to those two documents.
The main thrust of the Understandings is not to impose specific
obligations on the Parties, but to reflect the Parties' mutual
understanding of what the IPR chapter--which does contain obligations--
does and does not do. They constitute a formal agreement between the
Parties and are, thus, a significant part of the interpretive context
of the PTP A and the obligations in the
PTP A. According to Article 31 of the Vienna Convention on the Law
of Treaties, which reflects customary rules of treaty interpretation in
intemationallaw, the terms of a treaty must be interpreted ``in their
context,'' and that ``context'' includes ``any agreement relating to
the treaty which was made between all the parties in connection with
the conclusion of the treaty.'' As interpretive context, therefore, the
Understandings playa significant role in the interpretation of relevant
obligations in the PTP A.
Similarly, the unilateral letter does not contain obligations
directly subject to dispute settlement, but is a confirmation by the
United States that references to the IPR chapter of the PTP A in the
Understandings include the parts of that chapter related to data
protection.
[Submissions for the record follow.]
Statement of Kevin M. Burke, American Apparel & Footwear Association
Thank you for providing the American Apparel & Footwear Association
(AAFA)--the national association of the apparel and footwear
industries, and their suppliers--this opportunity to submit written
testimony on the U.S./Peru Trade Promotion Agreement (TPA).
Below are several observations we make with respect to individual
provisions in the agreement.
In general, AAFA supports Congressional passage of the U.S./Peru
TPA as the best way to achieve continuation of the current duty-free
status for products made in the region using regional inputs. We urge
Congress to ensure that the transition between the current trade
preference program and the U.S./Peru TPA is as seamless and transparent
as possible to prevent any disruption or uncertainty over the
continuation of the current duty-free status for products made in the
region using regional inputs.
Thanks to the efforts of the U.S. negotiators, the agreement's
flexible and forward-looking footwear provisions should provide new
opportunities to grow the small, but thriving, footwear trade between
the United States and Peru. However, the presence of restrictive and
cumbersome textile and apparel rules of origin (as discussed further
below) in the U.S./Peru TPA will serve as a deterrent to the
development of new apparel and textile trade between the two countries.
______
Again, we generally support the agreement's provisions for
footwear. The rule will ensure that the growth in footwear trade
between the United States and Peru started under the current Andean
Trade Promotion & Drug Eradication Act (ATPDEA) will continue. We had
hoped, however, for an even more liberal rule of origin for non-import-
sensitive footwear articles along the lines of what was negotiated in
the U.S./Dominican Republic-Central American Free Trade Agreement
(CAFTA-DR). The CAFTA-DR rules contains only a straightforward tariff
shift approach while the U.S./Peru TPA also contains a 20 percent value
added rule. The simpler rule, as contained in the CAFTA-DR, stands the
greatest chance of helping maintain and grow the footwear trade
relationship with Peru and serve as an incentive for footwear firms to
place more business in that country (and away from China, which now
accounts for more than 80 percent of U.S. imports). We do, however,
applaud and thank the U.S. government's negotiators for ensuring that
this provision did not become yet even more restrictive as pushed for
by the Peruvians.
At the same time, we are extremely disappointed that the U.S./Peru
TPA contains very restrictive and, in many cases, unworkable rules of
origin for apparel and textiles. Because of the agreement's apparel and
textile provisions, we believe the U.S./Peru Trade Promotion Agreement
represents a missed opportunity to preserve and expand the region's
apparel and textile industries. Again, we view the CAFTA-DR provisions
as a model that would have worked well in Peru. The CAFTA-DR contains
many forward looking provisions that create export opportunities for
U.S. textile firms and provide the region the tools it needs to
effectively compete: cumulation, a robust short supply list, single
transformation for key products, yarn-forward on essential character,
inclusion of all apparel and textile products. Many of those features
are missing from the Peru agreement.
We do, however, applaud the last minute inclusion of language in
the U.S./Peru TPA that allows the two sides to eventually negotiate a
cumulation provision that links this agreement with other agreements in
the hemisphere. Regrettably, this language leaves the timeline and
conclusion of the negotiations and the scope of such a provision
undefined. We would encourage the inclusion of language to clarify and
encourage the expeditious negotiation and implementation of the
cumulation provisions.
Overall, we are again concerned about any possible gap between the
expiration of the Andean Trade Promotion & Drug Eradication Act
(ATPDEA) and the implementation of the U.S./Peru TPA. Any gap in
expiration of ATPDEA and the implementation of the U.S./Peru TPA would
further erode trade patterns that, in the case of apparel and textiles,
will already be weakened by the restrictive rules in the U.S./Peru TPA.
As we are now experiencing with the CAFTA-DR, any gap could cause huge
costs and disincentives for industry, further driving business out of
the region. Many U.S. firms are now making sourcing decisions for the
beginning of 2007--the period after the scheduled expiration of the
duty-free environment of the ATPDEA. But because there is no duty-free
certainty--ATPDEA will be expired and it remains unclear if the duty-
free environment of the Peru TPA will take effect by January 1, 2007--
many firms will have no choice but to place business elsewhere.
We believe there is still an opportunity to rectify this gap by
including provisions in the U.S./Peru TPA implementing legislation that
will make clear that a duty-free environment will continue to exist
notwithstanding the date for ultimate passage of the agreement.
Moreover, because business decisions are being made now, this
correction needs to be communicated to the trade community soon.
Finally, we remain deeply concerned that the Peru and the Colombia
free trade agreements are currently on separate tracks. The industry
partnership we have is now regionally based where there is sharing of
inputs between Peru and Colombia. That sharing of inputs is permitted
under the ATPDEA but will be prohibited if the Peru and Colombia
agreements remain separate. This situation also needs to be rectified
as soon as possible in order for the industry to make its sourcing
decisions.
American Chamber of Commerce of Peru, Lima, Peru
By Permission of the Chairman
Introduction
This statement is submitted on behalf of the American Chamber of
Commerce of Peru (AmCham Peru), an independent, non-profit organization
that represents more than 450 Peruvian, American and other foreign
companies, whose sales altogether account for about an equivalent to
60% of Peru's GDP.
AmCham Peru strongly supports the United States--Peru Trade
Promotion Agreement (PTPA) since it is, without doubt, a win-win result
for both the United States and Peru. Hence, through this statement,
AmCham Peru states the reasons of why the PTPA should receive full
support from the U.S. Congress. Also, it intends to help clarify some
doubts and concerns that have been exposed by some congressional
members regarding the agreement.
I. Clarifying major concerns about the PTPA
1) U.S. beef access to the Peruvian market
Due to the discovery of bovine spongiform encephalopathy (BSE) in
the United States in 2003, Peru closed its market to U.S. beef. The
PTPA negotiation has fostered a change in that situation. On May 9,
2006, after further discussion and in light of the PTPA provisions,
Peru finally announced a partial reopening of its market to U.S. fresh
and frozen boneless beef, stomachs, kidneys and livers.
This improvement on U.S beef access to the Peruvian market started
on January 5, when Peru sent a letter exchange to Ambassador Robert
Portman by which it was confirmed that Peru would recognize the meat
inspection system of the United States as equivalent of its own. This
was ratified by an additional letter exchange on Sanitary and
Phytosanitary issues for the PTPA of April 10, in which the
Certification Statements for Beef and Beef Products were also
specified, granting free and effective access of all American beef
(including boneless, bone-in and other variety meats) to the Peruvian
market by no later than May 31, 2006.
Moreover, as stated by The National Cattlemen's Beef Association on
its Issues Update of May-June 2006, ``The Peru Trade Promotion
Agreement is the best-negotiated free trade agreement for U.S. beef to
date. It immediately eliminates duties on high-quality beef (grading
Prime or Choice), and reduces tariffs on all other products in a
shorter time frame than most agreements''.
2) American investments protection under the PTPA
The PTPA contains an ``Investment'' chapter, by which it concedes
national treatment to American investors in Peru and vice versa, as
soon as the agreement enters into force. Hence, granting a treatment no
less favorable than that which Peruvian investors may receive locally
in terms of fair and equitable treatment, full protection and security
of the investments. In addition, in the event of an investment dispute,
it includes an Investor-State dispute settlement procedure which
constitutes an alternative to the local Judiciary Branch; thus,
allowing a reduction in the transaction costs in terms of time and
which are inherent to the judiciary and its bureaucracy.
If implemented, the PTPA would also be beneficial to current
American investors operating in Peru, since it provides a legal and
regulatory framework--which includes tax policy--that introduces
certainty in a long term horizon, vital for minimal-risk corporate
action planning.
In terms of the Investor-State dispute cases that were a major
concern even before negotiations of the PTPA took place, just recently,
the last pending Le Tourneau case has just been solved (july 6). Also,
concerns about the possible criminalization of commercial disputes
which were raised due to the General Electric case should be discarded,
given the fact that Peruvian Judiciary--through the favorable sentence
to GE on last November--has already set a precedent that hinders the
duality of procedures for a single dispute resolution case.
Consequently, it may prevent new commercial law cases to be processed
as if they were penal law cases.
3) Labor provisions and its enforcement
Since long ago, Peru's labor policy has been consistent with
internationally accepted principles and goals. Peru has already
ratified and implemented to its own legislation the main ILO
conventions regarding to Standards and Fundamental Principles and
Rights at Work. Furthermore, Peruvian government passed different
Action Plans in order to assure the effective enforcement of labor
rights in 2005. The USTR has also recognized the Peruvian Government
efforts to fulfill labor standards.
------------------------------------------------------------------------
Labor issue Government Action Plan
------------------------------------------------------------------------
Child Labor National Plan to Prevent and
Eradicate Child Labor in
Peru, according to C138--
Minimum Age Convention and
C182--Worst Forms of Child
Labor Convention ratified in
2002
------------------------------------------------------------------------
Forced Labor National Action Plan to
Eradicate Forced Labor in
2005
------------------------------------------------------------------------
Discrimination National Plan for Equal
Opportunities between Women
and Men
------------------------------------------------------------------------
Source: Peru's Ministry of Labor
Prepared by: AmCham Peru
Nevertheless, some misinformed groups think that there is no labor
laws enforcement in Peru, despite there is, but to a lesser extent than
it should be. In fact, the root of the problem is not enforcement of
labor laws, but the insufficient ratio of coverage of those laws, which
would prevail as long as informality still exists. Hence, in order to
attack the problem, the creation of formal firms should be fostered. If
so, more formal jobs that would be fully protected by current labor
legislation would be created as well. As a result, more people would
enjoy the benefits of adequate protection of workers rights, which
includes current in force rights of free association and to bargain
collectively, among many others.
Moreover, formalization combats current informal child labor, which
does not mainly occur in informal companies but in the streets, due to
unemployed parents most of the times. As a Peru's National Institute of
Statistics and Informatics study found \1\--and which is quoted by
groups such as the AFL-CIO-, child labor is fostered mainly in the
informal commerce sector of Peru's poorest regions, where insufficient
well paid jobs are the main reasons for poverty.
---------------------------------------------------------------------------
\1\ INEI (2002), OIT, IPEC-Sudamerica. Vision del Trabajo infantil
y adolescente en el Peru, 2001
---------------------------------------------------------------------------
However, this situation might change if the PTPA is implemented.
First, the PTPA reaffirms Peru's commitment to respect the
principles of the International Labor Organization, including
guarantees to not weaken labor in order to increase trade flows.
Secondly, due to the PTPA, more jobs would be created in Peru, helping
diminish poverty rates and diminishing the opportunity cost of
attending school for children of poor families; thus, diminishing child
labor rates as well. Thirdly, these new jobs would be formal ones,
since in order to properly establish a business relationship with their
American counterparts, Peruvian companies must be formal. To date, many
Peruvian exporting firms are inspected by U.S. buyers in the
fulfillment of all basic labor standards, in order to avoid any
consumer boycott in the U.S. market, which in turn have been serving as
a formalization boost as well.
Hence, as the formalization process is accelerated, more Peruvians
employed by these firms will enjoy the benefits of local labor
regulations which includes the right of free association, bargain
collectively, etc. The Andean Trade Preferences for Drug Eradication
Act (ATPDEA) has shown to be effective in this matter. New agro
industry Peruvian firms generated by the ATPDEA have helped reduce
labor black market and are registering and paying social insurance to
their employees, practice not yet observed in traditional agriculture.
According to AGAP \2\ and SUNAT,\3\ in 2004 the amount of employees
with social insurance grew 53% in agro exports sector since ATPDEA
implementation.
---------------------------------------------------------------------------
\2\ Asociacion de Gremios Agroexportadores del Peru.
\3\ Peru's Tax Administration Office
---------------------------------------------------------------------------
Moreover, the PTPA includes specific capacity building provisions
for labor issues. Therefore, Peru will acquire the tools and knowledge
to properly enforce labor regulations, to promote good labor practices
at all levels and to enhance current action plans enacted by the
government. This would be a most suitable way to face the problem,
rather than recurring to commercial sanctions that might not
necessarily help solving the deficiencies that still remain.
II. Why the PTPA is good for American companies
By 2003--the most recent year for which data is available-, over
5,000 U.S. companies--80% of them being small and medium-sized--export
their products to Peru, according to the U.S. Chamber of Commerce.
Hence, consolidating and expanding their share in the Peruvian market
should be a key goal in order to preserve the many thousands of
American jobs depending on it. The PTPA constitutes a key tool in doing
so, due to the tariff-free access that over 80% of American products
would gain immediately after the PTPA is implemented.
Moreover, having Peru demonstrated a sustained and healthy economic
growth in recent years--with a GDP that increased 6.7% in 2005--it
should no longer be seen as just a ``small developing market,'' but as
one with enormous potential instead, especially for American products.
Besides, it should be noticed that the United States and Peru are both
complementary economies, thus not opposing their respective comparative
and competitive advantages while trading with each other. While Peru
specializes in agricultural exports and other manufactures such as
apparel, and products based on natural ingredients, the United States
specializes in capital goods, high tech products and basic agriculture
commodities production-where Peru can't effectively compete--and also
in its highly developed processed food products industry.
[GRAPHIC] [TIFF OMITTED] T1576A.012
This explains why, even with regular tariffs, Peru has increased
its imports from the U.S. in more than 46% in the past 5 years, where
only machinery and equipment products account for 45% of the total.
Since long ago, the U.S. constitutes the main supplier for capital
goods for Peruvian companies, whether they are big corporations or
small enterprises.
With the implementation of the PTPA, not only current American
companies that trade with Peru will gain from the tariff-free access to
the Peruvian market, but also new opportunities will be created for the
ones that have not yet expanded their supply outside their local
market. Since the good dynamics of Peruvian economy is fostering local
investment, the demand for U.S. capital goods products will augment and
that opportunity can sure be seized by more American SMEs. Hence,
sharing a part of the more than U.S.$1 billion that the U.S. actually
exports to Peru in durable goods and thus, creating more jobs for the
Americans within United States.
Specifically, the PTPA creates opportunities for American capital
goods' manufacturers (yarns, equipment for food processing & packaging,
agricultural, construction, mining, oil & gas industry, plastics and
resins, chemical materials, etc.) through more trade as well as through
better access to Peru' government procurement, similar to the Chile and
Singapore's FTA experiences (+30% increase after implementation).
Florida, Texas, Illinois, California, New York, Pennsylvania, along
with most the remaining states can certainly give testimony of the
benefits it implies for its durable goods local industries, as the tax
cut on U.S. goods the PTPA would provide are significant.
[GRAPHIC] [TIFF OMITTED] T1576A.013
Also, the PTPA brings enormous opportunities for American
agriculture. American exports of agricultural products to Peru account
for more than U.S.$250 millions, even with no preferential access and
high trade barriers, whereas Peruvian agro exports enter tariff-free
into American market. Good news is that the PTPA will immediately level
the playing field for more than 2/3 of American crops. Cotton, high-
quality beef, wheat, soybeans, apples, cherries, almonds and many other
American farm exports may enter duty-free immediately to Peru if the
PTPA is approved, most additional tariffs will be removed within 15
years.
According to a study conducted by the North Dakota State
university, a free trade agreement with Peru is predicted to increase
American exports of wheat, corn, soybeans products, beef, poultry,
pork, dairy products, animal fats, cotton, rice and planting seeds,
most of them in which Peru's is net importer. In that sense, the
liberalization of tariffs for U.S. crops may lead to the positioning of
the U.S. as Peru's main provider of these products, since its prices
would be lower than those of Peru's other current trade partners in
these products.
Some key features of the PTPA that would also have a positive
impact in the rise of agricultural trade with Peru are:
i) price-band systems used by Peru have been agreed to be
eliminated after implementation of the PTPA.
ii) sanitary and phytosanitary measures will be more transparent
and current non technical barriers to trade will be removed.
Many American agricultural organizations, such as the American Farm
Bureau Federation and the National Pork Producers Council, strongly
support the PTPA. For the latter, with the PTPA U.S. pork exports to
Peru's 28 million consumers would raise U.S. live hog prices by 83
cents a head, increasing producers' profits by 7 percent. For AFBF,
economic analysis shows that the total increase in U.S. farm exports
associated with the PTPA could exceed $705 million per year after full
implementation in 2025. Hence, creating more job opportunities in all
the American farming sector and agricultural production chain.
The PTPA gives an opportunity to the American textile sector due to
rules of origins agreements already negotiated. Peru will be able to
sell their apparel products to the American market, as long as the
primary inputs used in their manufactures come from either the U.S. or
Peru. Therefore, American textile industry will have secure clients in
Peruvian apparel exporters, preventing them from buying from Asian
providers. As it can be seen, once again both economies are
complemented. A win-win result.
U.S. trade in services might as well increase significantly with
the PTPA, due to the fact that, if implemented, Peru has agreed to
exceed its WTO commitments for services liberalization, creating
increased opportunities for American companies. Unlike the WTO services
agreement, the PTPA uses a ``negative list'' approach, meaning that all
services are subject to liberalization except those specifically
excluded. This allows greater market access in emerging services
industries, because new negotiations will not be necessary to
liberalize those industries.
Also the PTPA includes significant liberalization in the key
financial services sector. With the PTPA, financial services providers
will have the right to establish subsidiaries or branches of U.S. banks
and the ability to supply insurance on a cross-border basis. In
addition, the agreement improves the transparency of Peru's domestic
regulatory regime for financial services.
The PTPA would improve the investment climate in Peru, which
directly benefits American companies' subsidiaries already operating in
the country. The PTPA consolidates the reforms already carried out in
Peru, thus preventing future governments from backsliding. Furthermore,
the PTPA:
i) provides a stable framework for the rule of law and its
enforcement (which includes key IPR protection);
ii) introduces a dispute settlement resolution mechanism that set
high standards of openness and transparency, as well as juridical
stability;
iii) eliminates measures that constrained U.S. firms operating in
Peru to hire more Americans professionals and to buy inputs locally,
rather that on a price-quality basis;
iv) grants non-discriminatory access to bid on contracts for
Peruvian government procurement;
v) fosters trade facilitation, improving customs procedures and
reducing redtape.
Among other measures that, definitely, secure actual American
investment in Peru and also foster new ones as well. This would result
in a virtuous circle that will help dinamyze the economy in Peru as a
whole, increasing the Peruvian consumption and demand for many of the
American products and services (including those produced locally by
American companies operating in Peru).
In particular, the PTPA will enforce and improve existing
regulations in IPR helping to diminish piracy rates and informality,
which involves nearly 60% of the Peruvian economy. Measures included to
strengthen the copyright industry are: deterrent criminal penalties and
criminal fines, the use of ex officio authority by criminal and customs
authorities, deterrent civil fines and expeditious civil ex parte
searches. For the pharmaceutical and chemical industries, the PTPA
establishes patent recognition and data protection (5 years for
medicines, 10 for agrochemicals) for newly developed formulas. Thus,
more American laboratories might be able to sell its products directly
to Peruvian consumers as well as through government procurement--
because their return on investments made in R&D activities will be
protected. In addition, the PTPA will foster income levels increase for
Peruvians, thus increasing the demand for American patented medicines
which nowadays represent only 1.2% of total medicines market share in
Peru.
III. Why the PTPA is good for the United States
Besides creating more opportunities for American businesses and
securing more jobs and economic welfare across the United States, the
PTPA will enforce regional stability in terms of security: better
economic results in Peru will diminish social distress within and thus,
prevent social crisis and even the advance of nationalist ideologies or
the surge of terrorism.
With the PTPA, opportunities would be granted for Peruvian value
added agro exports, handcrafts and manufactures, promoting investment
within the Peru's Sierra and Jungle region and thus creating more jobs
with better wages, generating disincentives for narcotraficking
activities. Nowadays and thanks to the ATPDEA, there are a few export
projects that have recently been implemented in these regions and that
have proved to be a success as alternative sources of income for former
illicit coca growers that now sell their licit products to the United
States.
Hence, with a PTPA that perpetuates trade preferences granted by
the United States, Sierra inhabitants would have the tool to
incorporate themselves into the economic development dynamics,
experiencing increasing welfare within a democratic political system as
well. As a result, incentives for supporting a nationalist front and
political scenario would be decreased and democracy values would be
accepted by all. Furthermore, people would recognize that economic
development cannot be sustained if it is not under a democratic
political and social system.
In time, when other countries currently embracing nationalist
ideologies may recognize the positive and decentralized impact free
trade along a democratic system would have had in the Sierra and Jungle
of Peru--just like it has already had in most of the Chilean
territory--it is highly probable that those nation leaders may question
themselves if protectionism and authoritarism is the right way towards
economic development. We should not delay in proving them wrong. The
prompt approval of the PTPA will be very useful for that matter and to
limit the advance of nationalism within the region.
IV. Why the PTPA is good for Peru
Same as in the United States, the PTPA will imply an opportunity to
expand business and create jobs across Peru's more competitive sectors.
However, since the Peruvian economy still presents high levels of
poverty (51% of total population), the PTPA constitutes a vital tool to
effectively fight this situation and to provide the economic welfare in
a decentralized way. Thanks to the trade preferences granted by the
U.S. through ATPDEA, Peru has experienced an exports boom that has
contributed to the rise in employment levels across Peru's Coast region
mainly. Nowadays, nearly over 800,000 Peruvians have jobs that directly
depend of the preferences granted by the ATPDEA. It has also had an
effect on the number of exporting companies to the U.S., having
augmented in over 26% since the ATPDEA was implemented in 2002.
[GRAPHIC] [TIFF OMITTED] T1576A.014
If the benefits of the ATPDEA are extended through the PTPA, it is
strongly expected that a full decentralized development can be achieved
progressively, reaching also to the rural Sierra and Jungle areas,
where the biodiversity within the latter provides a huge source of
business opportunities related to trade with the U.S. and the rest of
the world.
Consequently, the PTPA would effectively fight poverty in Peru,
increasing welfare levels for the poorest: reduction of Peru's tariffs
on imports of consumer goods and agricultural products from the United
States will reduce the prices that Peru's poor families must pay for
basic necessities, thus increasing their purchasing power and
augmenting their disposable income for expenses such as education,
health care, etc.
Also of importance is the improvement in terms of business climate,
which will have a multiplier effect in the dynamics of Peruvian economy
as well, not only benefited foreign investors, but local too.
In sum, by only reviewing the main features that have been outlined
about the United States-Peru Trade Promotion Agreement, it can
certainly be concluded that its implementation will definitely be a
win-win result for both countries. For that reason, we encourage U.S.
Congressmen to approve this agreement and to not to disappoint the many
American and Peruvian families whose welfare might be dramatically
affected with the passage of the PTPA. The Peruvian Congressmen and
Peruvian President Alejandro Toledo have already bet on the many
benefits the PTPA will provide for the present and upcoming
generations. Trade, when having such provisions negotiated and such
fundamentals in each country, is a useful and effective tool to foster
economic development. We shouldn't deprive our countries from having
such a powerful tool.
Statement of Bacilio A. Amorrortu, Houston, Texas
Mr. Chairman, members of the House Ways and Means Committee, thank
you for the opportunity to testify individually before you on this very
important issue. This testimony is in memory of my wife Gladys who
passed away days ago in Houston, Texas.
I am a petroleum engineer and oilfield services businessman, who
became a politician. In 1999, I came, this time, to USA seeking for
freedom and justice, as a victim of a cruel political persecution
executed by the Peruvian Government. In 2001, the INS United States
Department of Justice granted me a political asylum ruling, ratifying
that the Peruvian Government executed human rights violations against
me. I got freedom. This decision was the result of my 510 pages
complaint filed against the Peruvian Government. The Peruvian
Government confiscated my assets. My next step is seeking for justice.
In accordance with the U.S. Constitution and law, I am here to file a
political and human rights claim before you and the House of
Representatives against the Peruvian Government, to get a fair
reparation or remedy. Also to request you to suspend the implementation
of the United States-Peru Trade Promotion Agreement until the Peruvian
Government compromises to comply with this reparation or remedy.
During the 1980s and 1990s, I came to Texas, USA, with my money and
monies of my oil company Propetsa and purchased oil rigs, oil
equipment, trucks, spare parts and technology. Also, I always
understood that the United States Trade Agreements, like this one, are
to promote freedom, human rights, democracy and mutual prosperity, and
to fight against corruption and poverty as well. Therefore, I consider
solving my mentioned political and human rights claim is one of the
purposes of this Trade Agreement.
The following laws of the United States support my Political and
Human Rights Claim:
The U.S. Constitution Article I., Section 8, Clause 3: The Congress
shall power to regulate Commerce with foreign Nations, and the
International Covenant on Civil and Political Rights that provides in
Part II Article 2.3. Each State Party to the present Covenant
undertakes: (a) To ensure that any person whose rights or freedoms as
herein recognized are violated shall have an effective remedy, (b) To
ensure that any person claiming such a remedy shall have his right
thereto determined by competent judicial, administrative or legislative
authorities, (c) To ensure that the competent authorities shall enforce
such remedies when granted.
In the 1980s, as a result of having created hundreds of jobs with
my company Propetsa, the way I treated my workers, and my social
services furnished in my region ``Grau,'' I became an oil businessman
and political leader. The terrorist groups threatened me to stop me
working for the people and community. Thousands of workers and
unemployed Peruvians approached me and told me that they believed I was
the right person to head a political party. In 1990, I was the founder
and leader of a political party in Peru named ``En Accion,'' and raised
the political symbol ``the tower'' of energy, fighting politically
against terrorist group shining path, who collapsed the towers of
electricity producing blackouts, killing people, and creating terror to
the Peruvians. I raised the message to increase the oil & gas
exploration and exploitation to solve the energy problem in Peru. I
aired a TV spot saying ``the blackouts must no be repeated, join us and
raise the tower''. Terrorist increased threats against me. This message
gained support and thousands of supporters.
In 1992, I filed 230,000 supporter signatures before the Peruvian
Electoral Court to participate in the national election for Congress.
The Peruvian Government rejected my participation to be in the ballot.
I was vetoed. The Peruvian government saw in me a real opposition and a
presidency alternative. On the contrary, I read that another political
party would had filed fake signatures and that they would had been in
the ballot. They were not vetoed. The repressive Peruvian Government
increased the political persecution against me. They threatened me and
executed an economical torture shutting down my company Propetsa to
avoid incomes and confiscated my oil rigs and an important receivable
account.
On February 13, 1992, I requested the Peruvian Minister of Energy
and Mines to pay my oil company a debt owed by the Peruvian Government
oil company, the same way they did with foreign companies. We agreed to
audit this claim by the Peruvian State Comptrollership. On May 18,
1992, during the audit, the Peruvian Government sent unilaterally the
judicial deposit No. 70880755 to a Civil Judge in favor of my company
with a diminutive amount. This was a clear sign of obstruction of
justice and a confiscation of my biggest receivable account asset.
However, this arbitrary act did not stop the Peruvian Comptrollership
to issue a ``Special Analysis'' ratifying that the Peruvian Government
owed to my company a debt in a large amount. This judgment was not
fulfilled and the Peruvian Government did not pay me or my company. On
the contrary, foreign companies were paid. I filed a lawsuit against
the Peruvian Government without success. The 2001 U.S. Department of
State human rights report about Peru says: ``the judiciary has been
subject to interference from the executive and is corrupt and
inefficient''. In 1992, after receiving a copy of the Comptrollership's
``Special analysis'' ratifying the debt to Propetsa, I apprised the tax
office (Sunat) that both Propetsa and myself were creditors of the
State, and that tax liability was to be assessed at zero, since the
State literally owed me and my company many, many times any tax debt.
Conclusion
The political persecution has been cruel. I am extremely damaged
and we did not have the money at the right time to pay complete medical
exams for my wife Gladys, but the Peruvian Government on June 28, 2005,
would had sold two of my very expensive oil workover rigs confiscated.
I do not know the details. My case as a victim of human rights
violations must not be repeated. This House Committee and the House of
Representatives should send a strong sign to Peru related to human
rights and should suspend the implementation of the United States-Peru
Trade Promotion Agreement until the Peruvian government agrees to pay
me a political and human rights reparation or remedy claimed.
Statement of Jeffrey Levin, Schmeltzer, Aptaker & Shepard, on behalf of
the Association of Food Industries, Inc.
This statement is submitted on behalf of the Association of Food
Industries, Inc. (AFI) in response to the request for written
statements issued by the House Committee on Ways and Means (Full
Committee Advisory No. FC-24, June 27, 2006, as revised July 10, 2006).
AFI is a trade association representing the U.S. food importing
industry, with approximately 200 member-companies located in the United
States, as well as approximately 200 associate member-companies located
abroad which supply the U.S. market. AFI members import a wide range of
food products from many countries around the world, including Peru (as
well as other beneficiary-countries under the Andean Trade Preference
Act (ATPA), and its successor, the Andean Trade Promotion and Drug
Eradication Act (ATPDEA)). In addition, many AFI associate member-
companies are located in Peru (as well as other ATPDEA beneficiary
countries).
AFI brings to the table the perspective not just of U.S. food
importers but also of U.S. consumers. These are fundamentally important
constituencies that are too often overlooked in the course of trade
deliberations in food products, particularly in negotiating objectives.
Indeed, in reviewing the principal negotiating objectives of the United
States with respect to agriculture as defined in section 2102(b)(10) of
the Trade Act of 2002, the emphasis on enhancement of export
opportunities and the development of overseas markets for U.S.
producers of agricultural commodities is manifest. Yet, to as critical
extent, the sweeping benefits gained from the imports side of the
equation are overlooked. This is unfortunate, because the importing
activities of the United States have allowed this country to secure a
ready and uninterrupted access to the widest possible range of food
products at the lowest possible cost to the American public.
The U.S. food importing industry is a burgeoning sector of the U.S.
economy. In large part, this is due to the increasing demands of a
growing population that is living longer and becoming more ethnically
diverse with each passing year. The share of the total U.S. diet for
which imports account has grown considerably in recent years. The most
recent data issued by the U.S. Department of Agriculture indicates that
imports' share of the total quantity of food consumed in this country
increased from 7.8 percent to 11.2 percent over the past twenty years--
a relative increase of 44 percent.\1\ Import supplies greatly increase
the variety of foods available to the American consumer in line with
expanding market demands, temper increases in food prices caused by
adverse weather conditions and other market disruptions, and stabilize
year-round supplies of fruits and vegetables.\2\ In other words,
imported foods support adequate supplies of both dietary staples and
specialty items especially important to an increasingly diverse
population, and do so at a counter-inflationary cost to consumers.
Among other things, this allows for greater consumer spending on a
range of non-agricultural goods and services.
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\1\ Jerardo, Outlook Report No. (FAU7901), July 2003, Economic
Research Service, USDA.
\2\ According to USDA data, total U.S. imports of agricultural
products increased from $39 billion in fiscal year 2001 to $57.7
billion in fiscal year 2005, which represents an increase of nearly 50
percent in just a four year period. Current projections are that
imports will hit $65 billion in fiscal year 2006. Electronic Outlook
Report AES-50 (May 24, 2006), Economic Research Service, USDA.
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AFI has long been a strong supporter of trade liberalization
through the reduction of tariffs and the elimination of non-tariff
barriers in the course of multilateral and bilateral negotiations. In
recent years, AFI has actively supported the current Administration's
free trade agreements (FTAs) program, and has lent its support to the
FTAs negotiated and implemented with Chile, Australia, Morocco, and
with the nations of the Central American Economic Integration System
(CAFTA-DR). In the past few months, AFI has also supported the
successful effort to negotiate a trade promotion agreement with Peru
(hereafter ``Peru TPA'').
AFI stands in strong support of the Peru TPA, and urges
Congressional approval of the implementing legislation for this
important agreement as soon as practical. AFI also urges formal
implementation of the Peru TPA at the soonest possible time, which we
hope will be January 1, 2007.\3\ AFI and its member-companies
respectfully submit that the Peru TPA will have tangible and
significant economic benefits for both the United States and for Peru.
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\3\ The ATPDEA is currently scheduled to expire as of January 1,
2007. It is uncertain at this time whether the Peru TPA will be
considered, let alone approved, by the U.S. Congress during the current
Congressional session. It is even more uncertain whether the Peru TPA
will be implemented by January 1, 2007, even if it is approved sometime
in the next few months. (In this regard, AFI notes that there is often
a lengthy lag between U.S. Congressional approval of the implementing
legislation for a particular trade agreement and the effective
implementation of that agreement. For example, nearly 18 months elapsed
between the time when the implementing legislation for the U.S.-Morocco
FTA was approved by Congress and the actual implementation of that
agreement on January 1, 2006.) In other words, if the ATPDEA does
indeed expire as of December 31 of this year without some form of
renewal or extension, there is a substantial likelihood that the U.S.
duty rates for imports from ATPDEA beneficiary-countries will revert to
``normal trade relations'' (NTR) status as of January 1, 2007. This
would constitute a drastic change in the trade environment, and will
cause significant harm to U.S. importing companies, U.S. consumers, and
overseas suppliers. (AFI notes that some, but not all of the imports
from ATPDEA beneficiary countries, including Peru, are likewise
eligible for duty-free treatment under the Generalized System of
Preferences (GSP). In any case, the GSP is currently scheduled to
expire concurrently with the ATPDEA.).
On at least two bases, a reversion to an NTR duty structure for
imports from the ATPDEA beneficiary-countries could also cause
substantial harm to U.S. companies that are not directly involved in
importations from ATPDEA beneficiary-countries. First, the currency
gained by persons situated in the ATPDEA beneficiary-countries through
exports to the U.S. places significant purchasing power in the hands of
such persons with which to, among other things, purchase U.S. products
and services. Second, a significant percentage of the overall value
chain generated by U.S. imports from ATPDEA beneficiary-countries
remains in U.S. hands, including air and sea carriers, ports, storage
facilities, distributors, wholesalers and retailers.
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One of AFI's particular areas of interest in the context of the
Peru TPA is imports of fresh and processed asparagus from Peru. Imports
of fresh asparagus are classified under two subheadings of the
Harmonized Tariff Schedule of the United States (HTSUS): subheading
0709.20.10, HTSUS (fresh or chilled asparagus entered from September 15
to November 15); and subheading 0709.20.90, HTSUS (fresh or chilled
asparagus, other).\4\ The NTR duty rates applicable to imports in these
two subheadings are 5 percent and 21.3 percent ad valorem,
respectively. Imports of processed asparagus are classified in
subheading 2005.60.00, HTSUS, with an NTR rate of 14.9 percent. Under
the ATPDEA, imports of fresh and processed asparagus from Peru have
been accorded duty-free treatment since 1992.\5\ AFI strongly supports
the actions of U.S. and Peruvian negotiators to maintain this duty-free
treatment for imports of fresh and processed asparagus under the terms
of the Peru TPA. The duty-free treatment accorded to imports of fresh
and processed asparagus from Peru since 1992 has resulted in pronounced
economic benefits to U.S. consumers, U.S. importing companies, U.S.
distributors, the many other companies in the domestic commercial
chain, the Peruvian economy, and the thousands of people in Peru whose
livelihood is dependent on trade with the United States. AFI further
submits that this duty-free treatment has also resulted in an economic
benefit to U.S. producers and processors of asparagus. The retraction
of such treatment--if, for example, the Peru TPA is not approved by
Congress, or is implemented sometime after January 1, 2007, and the
ATPDEA is not renewed in the interim--will surely result in discernible
economic harm to these parties.
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\4\ In this statement, the term ``fresh asparagus'' is used to
encompass both fresh and chilled asparagus, classified in the foregoing
HTSUS subheadings.
\5\ Imports of fresh and processed asparagus from Peru are not
currently subject to duty-free treatment under the Generalized System
of Preferences.
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In the past two years, U.S. imports of fresh and processed
asparagus from Peru had a value of between $110 and $127 million.\6\
That is a significant amount of foreign exchange earnings for a country
with a gross domestic product of only $67.1 billion, and with a per
capita GDP of only $2,777 per year.\7\ The success of Peru's agroexport
industry in general, and the asparagus industry specifically, over the
past decade is one of the signal achievements of the ATPDEA in that it
has effected the creation of high-value marketable agricultural
businesses at the expense of illegal coca cultivation. In its most
recent report on the impact of the ATPDEA, this Commission noted that
net coca cultivation decreased dramatically, from 115,300 hectacres in
1995 to 27,500 hectacres in 2004.\8\ The Commission's report states as
follows:
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\6\ In 2004, imports of fresh asparagus from Peru, classified under
subheadings 0709.20.1000 and 0709.20.9000, HTSUS, totaled 61,352 net
tons with a Customs value of $98.33 million. In 2005, these imports
totaled 65,208 net tons with a Customs value of $109.95 million.
In 2004, imports of processed asparagus from Peru, classified under
subheading 2005.60.00, HTSUS, totaled 4,672 net tons with a Customs
value of $8.6 million. In 2005, these imports totaled 7,955 net tons
with a Customs value of $16.88 million.
In 2004, imports of fresh asparagus from Peru accounted for 60
percent, by quantity, of total imports of fresh asparagus, while Mexico
accounted for 36.5 percent. Although imports from Peru increased in
absolute terms during 2005, its share of total imports declined to 54.6
percent, while Mexico's share of total imports increased to 42.4
percent. Together, these two countries account for more than 95 percent
of total U.S. imports of fresh asparagus. In 2004 and 2005, imports of
processed asparagus from Peru accounted for more than 75 percent of
total imports, while China accounted for almost all of the remainder.
Together, these two countries account for more than 95 percent of total
U.S. imports of processed asparagus.
Source: U.S. International Trade Commission Trade DataWeb.
\7\ See Background Note: Peru, U.S. Department of State (December
2005), http://www.state.gov/r/pa/ei/bgn/35762.htm (last visited March
22, 2006).
\8\ The Impact of the Andean Trade Preference Act: Eleventh Report
2004, USITC Pub. 3803 at 4-14.
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As noted by USTR, the growth in exports to the United States under
ATPA has fostered economic development, which is vital to creating
employment and alternatives to drug-crop production. As in the past,
the asparagus industry continued to be an important source of
alternative employment, supporting an estimated 60,000 workers directly
in asparagus cultivation and processing in 2004.\9\
---------------------------------------------------------------------------
\9\ Id. at 4-15.
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When a trading partner of this country, a political and economic
ally, garners $127 million worth of export sales to the United States,
that represents $127 million worth of purchasing power placed in the
hands of Peruvian nationals, money to a burgeoning middle class to,
among other things, purchase products exported from the United States.
U.S. purchases of Peruvian products serve this country's principal
negotiating objective for trade agreements which, as stated in the
Trade Act of 2002, is ``to expand competitive market opportunities for
United States exports.'' \10\
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\10\ Trade Act of 2002, Pub. L. No.107-210, 2102, 116 Stat. 994
(2002), codified at, 19 U.S.C. 3802(b)(1)(A).
Of course, the elimination of duties applied by Peru on imports
from the United States under the terms of the Peru TPA also serves this
principal negotiating objective. As stated by the Office of the U.S.
Trade Representative:
This Agreement creates important new markets for U.S. goods. Eighty
percent of U.S. consumer and industrial products and more than two-
thirds of current U.S. farm exports will enter Peru duty-free
immediately.
See http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2005/
asset_upload_file96_8619. pdf (last visited March 24, 2006).
In its report on the Peru TPA, the Agricultural Technical Advisory
Committee on Trade In Fruits and Vegetables (``F&V ATAC''), opinioned
that ``the negotiated agreement provides for equity and reciprocity in
the reduction and elimination of tariff rates affecting the fruit, nut
and vegetable sectors.'' http://www.ustr.gov/assets/Trade_Agreements/
Bilateral/Peru_TPA/Reports/asset_upload_file492_8975.pdf (last visited
March 24, 2006).
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While the Peruvian asparagus industry has created tangible economic
benefits in that country, the U.S. has also derived a significant
economic benefit from this trade. We respectfully submit that this
benefit will be furthered by implementation of the Peru TPA. As noted
by U.S. importer of asparagus from Peru in testimony earlier this year
before the U.S. International Trade Commission in that agency's recent
investigation of the economic impact of the ATPDEA on the U.S. economy:
The vast majority of the value chain generated by sales of Peruvian
asparagus in this market remains in this country. For example, in 2003,
the value chain for imports of fresh asparagus from Peru was worth
approximately $300 million. Of that total, approximately 70 percent
remained in U.S. hands, including air, sea and land carriers,
importers, ports, storage facilities, distributors, wholesalers and
retailers. In other words, for every dollar spent by a U.S. consumer on
fresh asparagus imported from Peru, 70 cents remains in the U.S.
Moreover, even of the 30 percent that reverts back to the country-
of-origin, a substantial portion is spent on U.S. inputs such as seeds
and fertilizers.\11\
---------------------------------------------------------------------------
\11\ Transcript of hearing before the United States International
Trade Commission: In the Matter of: U.S.-Peru Trade Promotion
Agreement: Potential Economywide and Selected Sectoral Effects,
Investigation No. TA-2104-20 (March 15, 2006) at 34-35 (testimony of
John-Campbell Barmmer).
For example, in 2003 (the last full year for which the complete set
of following data are available), the fob value of Peruvian fresh
asparagus exports to the U.S. was approximately $78.5 million. The
comparable cif value was $132.7 million. The value that accrued to
importers was approximately $20 million, while the value that accrued
to wholesalers and retailers was approximately $90 million. In
addition, other value-added in the U.S. (e.g., for storage, fumigation,
etc.) totaled approximately $15 million. These sub-totals sum to $258
million, which represents the approximate retail value of fresh
asparagus imports from Peru sold off the U.S. supermarket shelves. In
other words, approximately 30 percent of that end-value ($78.5 million
out of $258 million) remains in Peruvian hands, while the remainder
($179.5 million out of $258 million) remains here in the United States.
Sources: Aduanas (National Customs Superintendancy of Peru); U.S.
International Trade Commission Trade DataWeb; estimates by APOYO
Consultoria, and the Instituto Peruano del Esparrago y Hortalizas
(IPEH).
---------------------------------------------------------------------------
As this witness further noted, imports of fresh asparagus from Peru
fuel job creation in the United States. Aside from the several hundred
persons employed or indirectly involved in the process of importing
asparagus from Peru, these imports result directly or indirectly in the
creation of at least 5,000U.S.jobs in companies throughout the
commercial chain.\12\
---------------------------------------------------------------------------
\12\ Tr. at 35 (testimony of John-Campbell Barmmer).
---------------------------------------------------------------------------
Imports of fresh and processed asparagus from Peru also serve a
U.S. market demand that cannot be met by domestic growers alone. In the
absence of import sources--and principally, imports from Peru--domestic
production would be woefully inadequate to meet U.S. consumer demand.
This would inevitably lead to a jump in prices, to the detriment of
U.S. consumers, and eventually a drop in consumption, to the detriment
of U.S. producers.
Another product of concern to AFI and its membership is processed
artichokes. Peru is the second largest foreign supplier of processed
artichokes to the U.S. market, with U.S. imports of the product
totaling 8,888 net tons in 2005, with a Customs value of nearly $17
million.\13\ Again, these imports enjoy duty-free treatment under the
ATPDEA, but would revert to a 14.9 percent NTR rate if the Peru TPA is
not approved and implemented by January 1, 2007, and the ATPDEA is not
extended in some form prior to that date.\14\ And again, the losers in
such a contingency would range from U.S. consumers, importers and other
parties in the commercial chain, as well as interests in Peru.
---------------------------------------------------------------------------
\13\ Processed artichokes are classified in subheading 2005.90.80,
HTSUS.
\14\ Processed artichokes from Peru are not currently eligible for
duty-free treatment under the GSP.
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The Peru TPA does not provide any new benefits for imports of
products of interest to AFI and its member-companies; it merely
preserves the situation that has been in place for nearly 15 years.
This situation has well-served a wide range of economic interests here
in the United States, as well as in Peru. However, retraction of duty-
free treatment for imports of the product would have a discernible
deleterious effect across-the-board.
For these reasons, AFI strongly supports the actions of U.S. and
Peruvian negotiators, and urges swift approval and implementation of
this important agreement.
Bayer MaterialScience
Pittsburgh, Pennsylvania 15205
July 18, 2006
The Honorable William M. Thomas, Chairman
The Honorable Charles B. Rangel, Ranking Member
Committee on Ways & Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C., 20515
Dear Mr. Chairman and Ranking Member Rangel:
On behalf of Bayer MaterialScience LLC (``Bayer''), I am writing to
express support for the implementation of the United States-Peru Trade
Promotion Agreement (PTPA). This agreement has the potential to
significantly enhance market access for U.S. exports to Peru, helping
U.S. manufacturers to stay competitive with global rivals based in Asia
and elsewhere.
In particular, the PTPA would remove tariff barriers that are
currently one-sided. While most products from Peru already enter the
United States duty-free, Peru's tariffs represent a substantial hurdle
to market entry for U.S. exporters. As Peru already has preferential
trade arrangements with several major economies, including Brazil,
Argentina, and Chile, U.S. exports have been disadvantaged in
comparison to those of other foreign chemical producers.
In June 2004, Bayer submitted written comments to the Office of the
United States Trade Representative (USTR) outlining the priority of an
immediate elimination of Peru's tariff on toluene diisocyanate (TDI) in
the context of the U.S.-Peru free trade negotiations. TDI goes into the
production of polyurethane foams used in furniture, bedding, automotive
seating, insulation, construction and other specialty markets. It is
manufactured by a number of U.S. companies in the states of Michigan,
Louisiana, Kentucky, West Virginia, and Texas.
We are pleased to note that Peru's 4% tariff on TDI, classified
under Harmonized System number 2929.10.10, is scheduled to be
eliminated upon implementation of the PTPA. This tariff reduction,
along with those on other U.S.-manufactured products, will serve to
promote the expansion of Bayer MaterialScience LLC's business in the
region and bolster U.S. jobs and manufacturing.
For these reasons, we urge your approval of implementing
legislation for the PTPA.
Sincerely,
Tim Chappell
California Table Grape Commission
Fresno, California
July 18, 2006
Congressman Bill Thomas
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Congressman Thomas:
The California Table Grape Commission, on behalf of California's
fresh grape farmers, is pleased to provide the following comments
regarding the recently signed U.S.-Peru Trade Promotion Agreement
(PTPA).
California fresh table grapes entering Peru currently face a 20
percent tariff. This tariff will be eliminated upon implementation of
the U.S.-PTPA, making California grapes more affordable for Peruvian
consumers and more competitive vis-a-vis other world grape suppliers.
While California table grapes are currently exported to Peru in
only limited amounts, the elimination of the 20 percent tariff will
provide opportunities for a significant expansion of these exports. The
California Table Grape Commission therefore supports the agreement and
encourages the House Ways and Means Committee to give it favorable
consideration.
The commission would also like to take this opportunity to
emphasize the importance of lowering tariffs and improving market
access for California grapes throughout the world. California table
grape exports have increased significantly over the past ten years due
to the implementation of a number of free trade agreements. Improving
global market access remains a top priority for the California Table
Grape Commission.
Thank you for your consideration of these comments.
Sincerely,
Kathleen Nave
President
Statement of Eric Farnsworth, Council of the Americas
The Council of the Americas (``Council'') appreciates the
opportunity to submit testimony in support of the United States-Peru
Trade Promotion Agreement. The Council is a New York-based organization
with offices also in Washington representing approximately 175
companies invested in and doing business throughout the Western
Hemisphere. The Council is dedicated to the promotion of open markets,
democracy, and the rule of law in the Americas. Founded in 1965, we
have been widely recognized throughout the region as the voice of
Western Hemisphere business and policy for over 40 years.
A Regional Network of Open Markets
The Council strongly supports efforts to expand trade and
investment throughout the Americas, both on the basis of U.S. economic
and national security interests and in the belief that open markets and
healthy investment flows are critical factors in the search for
sustainable, equitable growth in the hemisphere. For that reason, we
are strong advocates for the negotiation of a Free Trade Area of the
Americas, as democratically-elected leaders first agreed at the 1994
hemispheric summit in Miami. Such an agreement would provide the very
underpinnings of broad, sustained U.S. engagement in the region. As
stepping stones to this ultimate goal, we have supported agreements
with Mexico, Canada, Chile, Central America and the Dominican Republic,
and will continue to support new agreements such as the one with Peru
that can contribute to that overall goal of a hemispheric open trade
zone. As with the DR-CAFTA, our hope for the Andean region is an
agreement that boosts regional integration efforts by uniting our
trading partners in the Andes and throughout the Americas in an
agreement that applies collectively among all the countries, rather
than simply on a bilateral basis between each country and the United
States. Therefore, in the broader context of U.S. strategy for economic
engagement in the Western Hemisphere, the Council urges policymakers to
pursue a path of integration and harmonization among existing and
pending free trade agreements. At the very least, the terms of
agreements now being negotiated should be conducive to future
integration. In this way, the bilateral/sub-regional agenda will be a
path toward hemispheric free trade through the Free Trade Area of the
Americas, which, despite being delayed, remains our ultimate goal.
U.S.-Peru FTA
As a next step toward this goal, and in direct support of U.S.
strategic interests in the critical Andean region, the Council strongly
supports the pending agreement between the United States and Peru and
urges its rapid advance through the Trade Promotion Authority-mandated
process to Congressional approval and timely implementation.
An Andean Free Trade Agreement is the next logical step
in a long-term pattern of economic and political engagement of the
region pursued by Republican and Democratic administrations alike. U.S.
credibility in the region, as well as with the broader multilateral
trade agenda, is an important consideration as Congress looks at this
agreement.
As an agreement with the potential for regional
application, the Peru FTA sets the stage for an attractive regional
market and potentially enhances integration and cooperation among the
countries of the Andes--a critical ingredient for long-term, peaceful
and democratic stability in the region and for the effective management
of the challenge of illicit narcotics.
The free trade agreement offers important growth
opportunities for U.S. industry and agriculture by opening a
significant market, and putting it on a footing for more rapid growth.
The disciplines contained in the agreement in areas such
as services, investment and government procurement enhance the
transparency and accountability of day-to-day governance, which makes
Peru a more attractive place for foreign investment, while reinforcing
democratic processes and narrowing opportunities for corruption.
As a strategic matter, for the last 15 years stemming
from the 1991 Cartagena Summit, the United States on a bipartisan basis
has supported economic growth in the Andean region as a bulwark against
movements inimical to U.S. interests--primarily illegal narcotics
trafficking--by opening its markets unilaterally to Andean countries
through the Andean Trade Preferences Act. The ATPA was later extended
and expanded by the Andean Trade Partnership and Drug Eradication Act,
now set to expire in December 2006. With economic populism reaching
across the Andes, the U.S.-Peru trade promotion agreement will move the
pre-existing relationship to a reciprocal and sustainable basis for the
first time.
Perhaps most importantly, the agreement enhances the U.S.
relationship with a country and its newly-elected government that is a
much-needed ally in a strategic region during a politically-sensitive
time.
The Peru FTA stands on its merits. On the basis of reciprocity
alone, for 15 years of duty-free access under the ATPA/ATPDEA, it
should be non-controversial to open the Peruvian market to U.S. goods,
as ours is already open to theirs. The foreign policy arguments in
favor of this agreement are equally compelling, if not, in fact, even
more so.
The Climate for Investment
The Council's enthusiasm for the U.S.-Peru FTA is the result of
long-term engagement with political leaders and policy makers in the
United States and Peru. In the past it has been tempered at times by
the intractability of certain disputes affecting investors. It is safe
to say that, wherever investments are made, investment disputes will
inevitably arise. The issue is not whether such disputes exist. The
issue, rather, is whether, when they do arise, investment disputes are
promptly, transparently, and effectively resolved, and whether the
established patterns of foreign government behavior build momentum and
goodwill toward their ultimate resolution, or obstruct this goal.
The Council has long supported an open and rules-based approach to
trade. In a global economy, investors will look first to the investment
climate as to whether they will increase or reduce their exposure to
the countries in question. During the course of the negotiations we
emphasized the necessity for Peru to demonstrate both the capacity, and
the willingness, to implement and enforce trade and investment related
legislation, and to maintain a demonstrated institutional consistency
across administrations. We called attention to the vexing nature of
investment disputes in Peru and urged the sequential, definitive
resolution of disputes, insisting upon a strong, meaningful dispute
resolution chapter that would provide the opportunity for adequate
redress in cases where disputes may arise.
In this regard, the Toledo Administration has exhibited a strong
commitment as part of the FTA process to resolving investment disputes
in accordance with the rule of law. Much concrete progress has been
made. Though some disputes remain, the trade agreement as negotiated
provides cutting edge protections which, when implemented fully by the
new Garcia Administration, will give greater confidence to investors
thus bringing about, over time, the full benefits promised by an
expanded trade relationship. We stand in favor of cementing these
efforts through a formalized agreement with Peru.
Conclusion
The Council urges timely and favorable action on the pending agreement
with Peru, which we believe will provide a cornerstone for
continued democratic and economic growth and development and
important new economic opportunities for the United States. As
well, the Peru FTA is also an important building block toward
the vision of a unified hemispheric market that will enhance
U.S. competitiveness and that of its neighbors in an era of
unparalleled global competition--and opportunity. The agreement
should be passed without delay.
Statement of Emergency Committee for American Trade
These comments are submitted on behalf of the Emergency Committee
for American Trade--ECAT--an association of the chief executives of
leading U.S. business enterprises with global operations. ECAT was
founded more than three decades ago to promote economic growth through
expansionary trade and investment policies. Today, ECAT's members
represent all the principal sectors of the U.S. economy--agriculture,
financial, high technology, manufacturing, merchandising, processing,
publishing and services. The combined exports of ECAT companies run
into the tens of billions of dollars. The jobs they provide for
American men and women--including the jobs accounted for by suppliers,
dealers, and subcontractors--are located in every state and cover
skills of all levels. Their collective annual worldwide sales total
nearly $2.4 trillion, and they employ more than five and one-half
million persons. ECAT companies are strong supporters of negotiations
to eliminate tariffs, remove non-tariff barriers and promote trade
liberalization and investment worldwide.
ECAT is submitting these comments to express its strong support for
Congressional approval and implementation of the United States-Peru
Trade Promotion Agreement (Peru TPA) that will promote new economic
opportunities for both countries and continued economic reform in Peru.
This agreement also represents an important tool to foster improved
ties and promote broader U.S. interests in the region. With the
completion of the Peru TPA, the United States now has the opportunity
to implement an agreement that will not only make the relationship
permanent and more flexible, but will also substantially open markets
in Peru for U.S. farm products, U.S. manufactured exports, and U.S.
services.
Major Provisions of U.S.-Peru Trade Promotion Agreement
The United States and Peru signed the U.S.-Peru Trade Promotion
Agreement (TPA) on April 12, 2006. The primary provisions of the U.S.-
Peru Trade Promotion Agreement include the following:
Agriculture: Provides immediate duty-free treatment for
more than two-thirds of U.S. agricultural exports to Peru, including
important U.S. exports such as high-quality beef, cotton, wheat,
soybeans, soybean meal, crude soybean oil, key fruits and vegetables,
and many processed food products. Tariffs on most remaining products
will be phased out within 15 years, with all tariffs eliminated within
17 years, providing improved access for pork, beef, corn, poultry,
rice, fruits and vegetables, processed food and dairy products. The FTA
also includes provisions to eliminate sanitary and phytosanitary
barriers.
Manufactured Goods: Eighty percentof U.S. consumer and
industrial exports will receive immediate duty-free treatment,
including key U.S. exports of auto parts, construction equipment,
forest products, information technology products and medical and
scientific equipment. Remaining tariffs will be eliminated on all
products within 10 years. Peru has agreed to allow trade in
remanufactured products.
Information Technology: Provides, via a side letter, that
Peru will join and become a full participant in the WTO ITA. As a
result, Peru will eliminate duties on all high-tech products (e.g.,
servers, personal computers, printers) covered by the Agreement and
allow worldwide exports to enter their markets duty-free. In addition,
Peru committed to non-discrimination and national treatment of e-
commerce and digital products, and agreed not to impose customs duties
on products delivered electronically.
Textiles and Apparel: Expands access to the U.S. market
through duty-free treatment for apparel made with U.S. and/or Peruvian
fabric and, for a temporary period, a limited amount of apparel made
with fabric from third countries.
Services: Liberalizes services trade and investment in
Peru through a negative list approach with few exceptions. Investment:
Expands investment opportunities and incorporates generally strong
protections, including an investor-state mechanism, for U.S.
investment.
Intellectual Property Rights: Includes strong protections
for trademarks, patents, copyrights, and trade secrets, including
stronger penalty requirements, patent term restoration and data
exclusivity.
Government procurement: Includes important new anti-
corruption, transparency and non-discrimination rules for government
contracting.
Transparency: Includes state-of-the-art transparency
standards, including in such areas as customs and regulatory rulemaking
(i.e., providing, for example, Internet publication of laws and
regulations, expedited release procedures, and provisions for express
shipments).
Labor and environment: Includes commitments by Peru to
enforce effectively its domestic labor and environmental laws. The
parties reaffirmed their commitment to International Labor Organization
principles and that it is inappropriate to weaken or reduce labor or
environmental protections to encourage trade or investment. The parties
also agreed to ensure that their environmental laws provide for high
levels of environmental protection.
Dispute settlement: Provides that obligations in
commercial, labor and environment areas are enforceable through a
strong and innovative dispute settlement system allowing for monetary
fines and other penalties for the failure to meet commitments.
Opportunities Created
U.S. exports to Peru equaled $2.3 billion in 2005, with significant
exports of machinery, fuel, plastics and processed foods. U.S. imports
from Peru totaled $5.1 billion in 2005, with major imports of precious
stones, fuel, apparel and copper. U.S. foreign direct investment in
Peru equaled $3.9 billion in 2004.
Most imports from Peru already receive duty-free treatment under
the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which was
enacted as part of the Trade Act of 2002. The Peru TPA expands this
duty-free treatment and makes it permanent.
The U.S.-Peru TPA will expand opportunities for U.S. producers by
opening markets and eliminating key barriers. It will also make
important improvements to investment protections, intellectual property
rights, digital trade and transparency that will promote the rule of
law.
For Peru, the trade agreement will expand opportunities and promote
economic growth. This is particularly important given that a high
percentage of workers in Peru are already employed in industries
connected to the United States.
Concerns have been expressed that the Peru TPA will undermine
economic progress in the region by allowing more competitive U.S.
products, particularly agricultural products, to enter the market.
These concerns ignore the very positive impact that free trade
agreements, including the North American Free Trade Agreement (NAFTA)
have had on economic development. An independent and detailed study by
the World Bank published at the end of 2003--Lessons from NAFTA for
Latin American and Caribbean (LAC) Countries: A Summary of Research
Findings, by Daniel Lederman, William Maloney, and Luis Serven--
analyzed the effects of NAFTA on the Mexican economy, separating out
the effects of the peso crisis. It found that:
``NAFTA has brought significant economic and social
benefits to the Mexican economy.''
``Contrary to some predictions, NAFTA has not had a
devastating effect on Mexico's agriculture. In fact, both domestic
production and trade in agricultural goods rose during the NAFTA
years.'' The report goes on to explain why, citing factors such as
increased demand and productivity.
``In spite of popular perception, there is little ground
for concerns that NAFTA, or FTAs more generally, are likely to have a
detrimental effect on the availability and/or quality of jobs. . . . In
fact, Mexican firms, as those of the region, more generally, that are
exposed to trade tend to pay higher wages, adjusted for skills, are
more formal, and invest more in training.''
In short, for Peru, this TPA is part of its effort to continue the
reform of its economy and promote economic development, growth and
opportunity.
Conclusion
ECAT strongly supports Congressional approval and implementation of
the U.S.-Peru TPA as soon as possible.
Statement of Exporamerica
This statement is submitted on behalf of EXPORAMERICA, an
association of Peruvian apparel companies whose objective is to promote
increased trade between Peru and the U.S. Exporamerica presented
testimony at the public hearing conducted by the International Trade
Commission (ITC) on March 15, 2006 in connection with its investigation
regarding the Peru Trade Promotion Agreement (PTPA).
I. U.S.-Peru Trade in Fibers, Yarns, and Apparel--A Mutually Beneficial
Relationship
Since the implementation of the Andean Trade and Drug Eradication
Act (ATPDEA) in 2002, trade in textiles and apparel between the U.S.
and Peru has grown considerably.\1\ In Peru's case apparel exports have
nearly doubled since 2001 and Peru has surpassed Colombia to become the
leading Andean exporter of textiles and apparel to the U.S. Although
Peru supplied only 1% of total U.S. apparel imports in 2005, it was the
fifth largest source of knit cotton shirts and blouses, with shipments
of $644 million (equal to 78% of U.S. textile and apparel imports from
Peru) and a 5% marketshare.\2\
---------------------------------------------------------------------------
\1\ The ATPA (1991) and the ATPDEA (2002), although used
interchangeably at times in this testimony, contain differences of
importance to the textile and apparel industry. According to the
International Economic Review (published ITC #3571 Nov./Dec. 2002), the
ATPDEA ``authorizes the extension of duty--free treatment to certain
products previously excluded from ATPA preferences, including certain
textiles and apparel, footwear, petroleum and petroleum derivatives,
watches and watch parts (including cases, bracelets, and straps), and
certain tuna in smaller foil or other flexible airtight packages (not
cans). However, ATPDEA did not renew the reduced--duty provisions on
certain handbags, luggage, flat goods, work gloves, and leather wearing
apparel.''
\2\ United States International Trade Comission, ``U.S.-Peru Trade
Promotion Agreement: Potential Economy-wide and Selected Sectoral
Effects''--USITC Publication 3855, May 2006, p. 3-22.
---------------------------------------------------------------------------
Peru's growth has also led to significant benefits for the U.S. as
demand in Peru for raw materials has outstripped supplies. As noted by
the I.T.C., U.S. cotton for use in the textile and apparel industry is
a major export product to Peru,\3\ and the provisions of the PTPA are
likely to have a significant positive effect on U.S. cotton exports to
Peru.\4\ In addition, according to the ITC, tariff liberalization under
the PTPA will likely result in a large percentage increase in U.S.
exports of textiles and apparel to Peru. These exports consist mostly
of yarns, fabrics, and garment parts.\5\
---------------------------------------------------------------------------
\3\ United States International Trade Commission, ``The Impact of
the Andean Trade Preference Act''--Eleventh Report 2004, USITC
Publication 3803, September 2005, p. 2-38.
\4\ United States International Trade Comission, ``U.S.-Peru Trade
Promotion Agreement: Potential Economy-wide and Selected Sectoral
Effects''--USITC Publication 3855, May 2006, p 3-7.
\5\ Ibid p. 3-22.
---------------------------------------------------------------------------
Building on the benefits of the ATPDEA (which is set to expire in
December of 2006), and its predecessor the ATPA of 1991, the PTPA has
been signed by executives of both countries and ratified by the
Peruvian Congress, but is still pending approval of the U.S. Congress.
The increasing interconnectedness of the U.S. and Peruvian textile and
apparel industries, which is a direct outgrowth of the ATPDEA, is also
creating a mutually beneficial trade relationship that will permit
industries in both countries to face the stiff competition coming from
China and other Asian producers, which largely do not use U.S. inputs
in their textile and apparel production. The PTPA will allow this
already thriving relationship to grow.
The emerging ``strategic alliance'' between textile and apparel
industries in both countries is being replicated in other FTAs between
the U.S. and its trade partners in the Western Hemisphere. This will
help Peru and the U.S. to face the threat presented by Chinese and
Asian competition, which in many instances depends on subsidies;
artificially low exchange rates to promote exports; and labor that in
many cases does not conform with minimum, internationally-recognized,
labor standards, none of which occurs in Peru, a country that
scrupulously observes the 71 International Labor Organization (I.L.O.)
agreements to which it has subscribed.
II. Importance of the Textile and Apparel Industry to Peru's Economy
The textile and apparel manufacturing industry represents around
10% of Peru's total exports. It is one of Peru's leading industries and
an estimated source of direct and indirect employment for over 500,000
Peruvians. As such, it accounts for nearly 20% of the country's
manufacturing jobs and almost 10% (considering an average family size
of 5) of Peru's population of 28 million depends on this industry for
its livelihood.
It is also one of Peru's fastest growing export industries. In
2005, Peru exported approximately U.S.$ 1,150 billion worth of textiles
and apparels, compared to U.S.$ 664 million in 2001. Approximately
79.2% of Peru's exports were destined to the U.S. market. This industry
has become successful in large part thanks to the ATPDEA.
[GRAPHIC] [TIFF OMITTED] T1576A.015
The qualitative importance of apparel exports to Peru becomes
evident when considering that 70% of Peru's exports correspond to
minerals (gold, copper, lead, silver, zinc, etc.) and fish meal, all of
which represent commodities and have little or no value-added. In this
regard, it is estimated that an article of clothing multiplies the
value of the fiber approximately 12 times. Peru's apparel industry
allows for substantial value added because, unlike neighboring Colombia
or the Central American nations which are overwhelmingly maquila (cut &
sew) oriented, its industry is vertically integrated throughout the
productive chain and its niche market is the ``full package'' product.
Approximately 80% of Peru's textile and apparel exports are represented
by cotton garments and fabrics. Of this amount, about 80% are knit
fabrics.
III. Benefits to the U.S. Economy:
A. Cotton
As is shown in the chart below, the U.S. is Peru's primary trade
partner and the destination for nearly one third of the country's
exports. As indicated earlier, Peru's growing exports also benefit the
U.S. In the case of apparel, 95% of Peru's exports are manufactured
from cotton fiber. Given that there is a shortfall of cotton production
in Peru for use in export garments, the country must import cotton to
meet the demand of its textile and apparel sector. According to the
ITC, Peru imported an average of 39625 MT of cotton annually from 2000-
2005, of which 27,155 MT, or more than two-thirds, were imported from
the United States.\6\ This growing consumption of U.S. cotton has been
spurred by the ATPDEA and will be further encouraged by approval of the
PTPA.
---------------------------------------------------------------------------
\6\ ITC May 2006 report, p. 3-8.
---------------------------------------------------------------------------
It should be noted that, at present, U.S. cotton exports to Peru
are currently subject to a 12% import duty on the CIF value. Upon
implementation of the PTPA, this import duty will be eliminated
immediately. This will further encourage U.S. cotton exports to Peru
and in turn make Peruvian apparel more competitive price-wise in the
U.S. market. Moreover, Peruvian imports of a variety of synthetic
fibers, demand for which has grown on a daily basis, are also likely to
increase significantly. However, allowing the ATPDEA to lapse without
the PTPA in place would immediately threaten this thriving relationship
and hurt Peruvian apparel producers and their U.S. cotton suppliers.
[GRAPHIC] [TIFF OMITTED] T1576A.016
[GRAPHIC] [TIFF OMITTED] T1576A.017
Recognizing the benefits to the U.S. cotton industry of increasing
exports of U.S. cotton to the ATPDEA countries, the Memphis, TN-based,
National Cotton Council (NCC) passed a resolution supporting the
adoption of the PTPA and its strong rule of origin requirements, and
informed the U.S.T.R. that the NCC had determined that the agreement
will be beneficial for U.S. cotton producers and for U.S. textile and
apparel manufacturers.\7\ The chart below shows the growth in U.S.
cotton exports to Peru over the last five years.
---------------------------------------------------------------------------
\7\ ``Cotton's Week'' (NCC Newsletter), February 17, 2006,
referring to letter from John Maguire, NCC senior vice president,
Washington Operations to Ambassador Portman.
U.S. Cotton Exports to Peru (including U.S. Pima and U.S. Upland)
------------------------------------------------------------------------
VOLUME M.T. CIF VALUE TOTAL
YEAR FIBER IN U.S. $ IMPORTS %
------------------------------------------------------------------------
2001 22,141.82 30,461,31 60.33
2
------------------------------------------------------------------------
2002 32,910.34 38,909,09 77.00
9
------------------------------------------------------------------------
2003 34,374.10 50,018,14 86.03
0
------------------------------------------------------------------------
2004 23,774.70 43,311,25 66.87
1
------------------------------------------------------------------------
2005 34,672.84 48,484,84 74.57
9
------------------------------------------------------------------------
B. Yarns and Fabrics
The rules of origin agreed to under ATPDEA, and the PTPA, are
designed to foster the use of inputs produced in member countries (the
use of yarn or fabrics from third parties--as is the case in some of
the countries that participate in the CAFTA--is not allowed in PTPA
except in specific cases). Once the PTPA is in place Peru is expected
to increasingly meet its unsatisfied demand for yarn and fabrics with
products manufactured in the U.S., because this is the only way in
which apparel will qualify for duty free treatment in the U.S. under
the rules of origin.
As the ITC notes, U.S. textile firms generally support the rules of
origin for textiles and apparel under the PTPA because the rules ensure
that the agreement benefits both parties and will further regional
integration goals.\8\ Under the agreement, yarns and fabrics produced
in the U.S. will enter Peru duty free immediately upon implementation.
This will boost imports from the U.S., which will have an advantage
vis-`-vis yarn and fabric suppliers that pay a 25% customs tariff to
enter Peru. Again, expiration of the ATPDEA, without the PTPA in place,
will interrupt this flow and will threaten the growth in trade between
both countries that would otherwise be expected from a smoother
transition from the ATPDEA to the PTPA.\9\
---------------------------------------------------------------------------
\8\ United States International Trade Comission, ``U.S.-Peru Trade
Promotion Agreement: Potential Economy-wide and Selected Sectoral
Effects''--USITC Publication 3855, May 2006, p. 3-23.
\9\ The National Council of Textile Organizations (NCTO), another
major U.S. association based in Gastonia, NC, which represents numerous
yarn and fabric producers throughout the U.S., but who are mostly
concentrated in North Carolina, South Carolina, and Georgia, is also
pleased that the PTPA addresses all the major negotiating objectives,
which significantly enhances the hemispheric supply chain and makes
these improvements permanent. The structure and rules of the PTPA will
benefit textile and apparel producers in both countries.
---------------------------------------------------------------------------
C. The Apparel Value Chain in the U.S. and Other Considerations
In addition to the direct benefits to the U.S. cotton and textile
industries noted above, growing apparel imports from Peru under the
ATPDEA have generated benefits to the U.S. economy across the entire
transportation, distribution, and retail chain. In this regard, if for
example a clothing garment has a FOB Callao-Peru value of U.S.$ 6.00,
the price at which the same garment is sold in the U.S. generally
ranges from U.S.$ 40 to 50. This price differential indicates that a
greater portion of the value chain involved in Peruvian apparel exports
remains in U.S. hands. These considerable benefits are distributed
among U.S. sea, air, and land transporters; couriers; ports; warehouses
and distribution facilities; and finally retailers. It is also safe to
say that the Peruvian apparel industry supports thousands of U.S. jobs
along the value chain associated with this trade. Finally, the last
link of this value chain is, of course, the U.S. consumer who as a
result of the ATPDEA has had access at more competitive prices to high-
quality apparel containing in many instances cotton and animal fibers
unique to Peru.
In this regard, it is important to mention that Peruvian apparel
exports include those manufactured with wools from species in the
camelid family such as the alpaca, llama, and vicuna. This uniquely
Peruvian production has grown rapidly in recent years, does not compete
with U.S.-produced apparel, and has resulted in concrete conservation
and environmental benefits in Peru.\10\
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\10\ Once endangered wild vicuna herds, which have some of the
finest fibers in the animal kingdom, are making a comeback in the
impoverished Andean highlands thanks to export markets created in the
last 15 years for apparel made with their wool.
---------------------------------------------------------------------------
Under both the ATPA, and its successor the ATPDEA, Peru's growing
apparel industry, its capacity to generate employment, and its need for
imported and domestically grown cotton and other inputs, has also
contributed to Peru's success in reducing illegal coca-leaf cultivation
and providing alternative, legal, employment for tens of thousands of
Peruvians. This is an important U.S. strategic objective in the war on
drugs, the struggle against narcotics trafficking towards the U.S., and
keeping illegal drugs out of U.S. communities and neighborhoods. This
is also a key reason for approval of the PTPA.
Figures from the ITCnoted that net coca cultivation decreased
dramatically from 115,300 hectares in 1995 to 27,500 hectares in
2004.\11\ Although coca cultivation has risen slightly in Peru in the
last two years, it is important to note that since 2000, coca
cultivation in the Andean region as a whole has declined by nearly 30%
to 158,000 hectares, according to the United Nations Office on Drugs
and Crime (UNODC).\12\ Given that the ATPDEA has been in place since
1991, it is clear that this program has been an invaluable tool in
reducing coca cultivation by spurring the growth of the apparel and
other export-driven industries in Peru.
---------------------------------------------------------------------------
\11\ United States International Trade Commission, ``The Impact of
the Andean Trade Preference Act''--Eleventh Report 2004, USITC
Publication 3803, September 2005, p. 4-14.
\12\ UN Office on Drugs and Crime, ``Coca Cultivation in the Andean
Region: A Survey of Bolivia, Colombia and Peru,'' June 2006, Preface.
---------------------------------------------------------------------------
In observing the overall picture, it is also important to note that
Andean apparel exports to the U.S. do not even reach 1.1% of total U.S.
imports. Therefore, there is no risk of displacement or damage to the
U.S. from Peruvian apparel imports.
[GRAPHIC] [TIFF OMITTED] T1576A.018
[GRAPHIC] [TIFF OMITTED] T1576A.019
It should be considered that, as shown in the chart below, Peruvian
and U.S. economies are complementary in many aspects and barely compete
against each other, and therefore, a bilateral agreement generates a
win-win situation for both countries.
In this regard, it is estimated that for every dollar exported by
the ATPDEA beneficiary countries to the U.S., 94 cents worth of U.S.
goods are in turn imported by the ATPDEA countries, whereas by way of
comparison the Asian countries only buy 14 cents out of every dollar
exported to the U.S.\13\
---------------------------------------------------------------------------
\13\ The ATPDEA beneficiary countries are Bolivia, Colombia,
Ecuador and Peru.
[GRAPHIC] [TIFF OMITTED] T1576A.020
[GRAPHIC] [TIFF OMITTED] T1576A.021
[GRAPHIC] [TIFF OMITTED] T1576A.022
Peru TPA and Labor
The growth of globalized, export-based industries in Peru has been
such that in parts of the country such as Ica and La Libertad there is
full-employment year round and extreme poverty has been reduced by an
astounding 36% comparable to levels experienced nationwide by countries
such as Chile. The cotton, textile and apparel industries located in
these regions have helped to contribute to these successes. Moreover,
workers in these industries earn good wages by Peruvian standards which
is helping to reduce Peru's extreme poverty levels. Just recently, for
example, the Peruvian Prime Minister Pedro Pablo Kuczynski annouced
that extreme poverty has been reduced from 24% to 18% between 2001 and
2005.
In terms of its committment to global labor standards, Peru has
ratified 71 ILO conventions, including the eight ``core conventions.''
It has been praised multiple times by the ILO for its progress in
improving labor laws. In addition to all of the ILO's Core Labor Rights
Conventions, the PTPA's labor standards exceed those of five other
previously-ratified trade agreements: Jordan, Chile/Singapore, CAFTA,
Bahrain and even the ATPDEA, which does not make ILO or national
standards mandatory.
The PTPA goes beyond many other free trade agreements in the
enforcement of worker rights and dispute resolution. The PTPA-created
Labor Affairs Council develops public participation in reporting and
funding to ensure implementation of the agreement and improved
cooperation and capacity-building mechanisms. Additionally, the PTPA
holds member countries accountable to effectively enforce existing
labor laws, under penalty of fines, which are used by the PTPA
commission to fund projects improving labor right protections.
Noncompliance results in the formation of an arbitral panel, which may
fine violating parties up to $15 million per year and suspend tariff
benefits to the party complained against if necessary to cover the
assessment.\14\
---------------------------------------------------------------------------
\14\ Peru Trade Promotion Agreement, Chapter Twenty-One: Dispute
Settlement.
---------------------------------------------------------------------------
V. Investment and Dispute Resolution
The PTPA's Investment Chapter will facilitate transactions for U.S.
industries and banks, as well as commercial and service companies,
among others, that have investments or are interested in investing in
Peru. U.S. investors will be treated equally as local institutions.
Moreover, they will have full freedom to remit investments and profits.
Therefore, it is possible that U.S. textile companies will install
industrial plants and trading companies in Peru, which will use
supplies produced in the United States, such as state-of-the-art
fibers, yarns and fabrics.
It should also be pointed out that the PTPA contemplates a dispute
settlement mechanism, designed to provide security to U.S. investors in
Peru given that any controversy will be resolved on a fair and
equitable basis, without the intervention of political or other
considerations in the settlement of disputes.
VI. Concluding Remarks
The Peruvian economy, as shown in the chart below, is clearly very
small in comparison to U.S. economy. However, an emerging strategic
alliance between the textile and apparel industries of both countries,
and more broadly between the countries themselves, which has been made
possible by the ATPA/ATPDEA, and will be enshrined by the PTPA will
provide stability to the hemisphere based on the common principles
shared by the U.S. and Peru, such as freedom and democracy, upon which
fair and prosperous societies are based.
The ATPA/ATPDEA has brought significant benefits to the United
States--progress in the ``war on drugs,'' benefits to U.S. consumers of
imports from Peru and segments of the U.S. economy from distribution
and manufacturing--as well as to Peruvian economy in general and to the
apparel sector in particular. If the ATPDEA is allowed to lapse after
December 31, 2006 with the PTPA in its place, the benefits that
currently flow to both the Peruvian and U.S. economies from this
program would lapse as well.
Exporamerica is pleased that the United States has negotiated a
free trade agreement with Peru that subject to the rules of origin
would provide duty-free treatment to imports from Peru. However, it is
not at all clear whether this agreement will be fully implemented until
January 1, 2007. For this reason, Exporamerica urges prompt
consideration and approval by the U.S. Congress of the PTPA, and looks
forward to working with this body to achieve this objective.
[GRAPHIC] [TIFF OMITTED] T1576A.023
[GRAPHIC] [TIFF OMITTED] T1576A.024
Statement of Albert Gavalis, New York, New York
My interest as an individual public witness rests in my 17+ years
of marriage to my Peruvian-born wife (whose birthday was recently at
the end of June)_happy birthday honey! I have NO ``direct'' clients,
persons, and/or organizations on whose behalf I appear as witness
OTHER-THAN my wife, Luz Lorena Paredes-Melgarejo-Valenzuela-Gavalis and
her INDIRECT-LINEAGE, and ``tangential'' FAMILIAL-ASSOCIATION which
REGIONALLY dates-back 10,000+ years(!).
I am currently a tax-attorney with Graf Repetti & Co., LLP--
Certified Public Accountants and Business Advisors located in the
Grace-building, NYC. I have a BA in Fine Arts Magna Cum Laude,
University of Maryland, an MBA in accounting and finance, Fordham
University, and a JD in law and postmodern jurisprudence, Brooklyn Law
School. I am an actively licensed CPA in Maryland and a licensed
attorney in New York State.
DYNASTIC v. FREE MARKET ECONOMICS--Peru & U.S. Trade
A market system has not worked in terms of poor people,'' investor
and now philanthropist Warren Buffett said in his Monday night, June
26, 2006 interview on the PBS Charlie Rose show. As he gave-away
$30+Billion to the Bill & Melinda Gates Foundation, he also expressed
general disagreement with a system of ``Dynastic'' wealth, where wealth
is passed on through heirs instead of merit or need.
Peru, a country with extremes of wealth and poverty, is a country
still entrenched in a system of Dynastic economics including ``ruling-
families'' such as Paredes (pa-ray-days), Miroquesadas (mee-row-kay-
saa-daas), and others--where from the poorest to the wealthiest, one's
``named'' association with a particular ruling family establishes an
economic and political enclave of survival.
The existing and continued efforts by the U.S. in this area will
produce positive results in the ongoing and continued process of a free
market economy in peru--overcoming centuries-old recidivistic dynastic
rein. Continued access to and exchange between the individuous
economies of U.S. and Peru will open Adam Smith's ``invisible-hand'' to
correct economic, and oftentimes politically related, injustices in
that region.
Buffett [has also previously] pointed out that the World Bank and
others force countries to accept market reforms, while European and
North American (and Japan, Australia, . . .) countries maintain huge
agricultural subsidies. Furthermore, multinational agribusinesses have
used what could charitably be described as questionable practices to
obtain land and operational rights in many developing countries. As a
consequence, people who should be able to both feed themselves and
export their crops for cash are unable to do either. They end up as
single crop cultivators getting by on subsistence payments. Because the
markets are rigged against them and they don't have the power to change
that fact.\1\
---------------------------------------------------------------------------
\1\ http://www.freakonomics.com/blog/2006/06/27/warren-buffet-
swats-the-invisible-hand/#comments``anonymous''#10.mathking
---------------------------------------------------------------------------
The truly poor are not poor because market economies don't work;
they are poor because their governments don't support rule of law,
property rights, and free markets.\2\
---------------------------------------------------------------------------
\2\ Id. at ``anonymous''#14.bozo
\3\ Freakonomics website www.freakonomics.com of Steven D. Levitt
and co-author Stephen J. Dubner of the book Freakonomics_A Rogue
Economist Explores the Hidden Side of Everything
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With the advent of the proposals today, Peru will be assisted in
overcoming political and economic injustices to be a stronger
government able to continue to support a free market countervailing
recidivistic and collusionistic Dynastic-based economics.
Statement of Barry E. Johnson, Greater Miami Chamber of Commerce,
Miami, Florida
On behalf of the Greater Miami Chamber of Commerce, I would like to
state our organization's support for implementation of the U.S.-PERU
TRADE PROMOTION AGREEMENT (PTPA) by way of submitting this document as
written testimony to the hearing record for the House Committee on Ways
and Means.
In terms of background, with close to 2,000 South Florida
businesses and nearly 5,000 members the Greater Miami Chamber of
Commerce (GMCC) is organized to create economic progress for the entire
region. GMCC is the largest regional chamber of commerce in Florida and
one of the largest metropolitan chambers in the United States. We
actively work to strengthen Greater Miami's competitive position as the
Gateway to the Americas.
For nearly one hundred years, the Greater Miami Chamber of Commerce
has championed international business and trade throughout the State of
Florida. Being keenly interested in the economic issues which affect
our community, we view the ratification of PTPA as a generator of
economic opportunities through increased trade flows and jobs, while
supporting the U.S. foreign policy objectives of strengthening
democracy in the Americas.
Peru is a significant market for the State of Florida, accounting
for $1,366.8 million in total bilateral merchandise trade for 2005 of
which $879.9 million is in exports. The PTPA will create significant
new opportunities for U.S. exports by adjusting our trade relationship
with Peru from one based on unilateral trade preferences to one with
reciprocal market access.
The Greater Miami Chamber of Commerce appreciates this opportunity
to share our strong support for PTPA. We believe that free trade is
essential for continued U.S. economic growth and success. We thank you
for your thoughtful consideration of this letter and of this important
issue.
Statement of Grocery Manufacturers Association
The Grocery Manufacturers Association (GMA) appreciates the
opportunity to provide the following testimony before the Committee on
Ways and Means in support of the U.S.-Peru Trade Promotion Agreement
(PTPA). GMA is the world's largest association of food, beverage and
consumer product companies. With U.S. sales of more than $680 billion
dollars, GMA member companies employ more than 2.5 million workers in
all 50 states.
GMA strongly supports the PTPA and urges swift approval of the
agreement by Congress. Peru's economy is one of the most vibrant in
Latin America, with strong GDP growth fueled by mining and
construction. According to USDA, Lima is a major market for consumer
oriented foods. Supermarkets are expanding, creating new opportunities
for U.S. exports of snack foods, cheese and juices. The PTPA will
enhance these opportunities by eliminating tariff and non-tariff
barriers that currently hamper exports of U.S. food and consumer
products to Peru.
Export Opportunities
Food, beverage and consumer products currently face an average
import tariff ranging from twelve and twenty five percent. In addition,
certain processed food products like cheese face an additional variable
levy or price band on top of the 25 percent tariff. Under the terms of
the PTPA, more than two-thirds of food and agricultural products and
eighty percent of consumer products will receive immediate duty free
treatment. This includes key export categories like cookies, breakfast
cereals and pasta. In addition, Peru has agreed to use transitional
tariff-rate quotas as a means to phase out their price band system.
Import Opportunities
GMA is pleased that the PTPA is a comprehensive agreement with
market access commitments for all sectors. We commend the
Administration for making permanent the Andean Trade Preference Act
benefits for Peru. Many GMA members benefit from these commitments
through access to duty-free imports of seasonal vegetables.
GMA is also pleased that sugar was included in the agreement. We
are disappointed, however, that sugar was again singled out for special
treatment in the FTA. Sugar is the only commodity where the prohibitive
over quota duty will not be reduced, and the amount of sugar access
provided barely exceeds the minimum boat load. In addition, the
Administration again included the ill-conceived ``sugar compensation
mechanism'' in the agreement. This provision actually authorizes the
U.S. government to pay Peruvian sugar growers not to ship sugar into
the United States should imports be perceived as destabilizing the U.S.
sugar program. GMA questions whether USTR would accept such provisions
were they to be applied against U.S. exports, such as rice or beef in
the Korean-U.S. FTA. The compensation mechanism is antithetical to the
notion of open trade and should be excluded from future agreements.
Additional Benefits of the FTA
As important as the market access provisions of the PTPA are to the
U.S. food and consumer products industry, the real, long-term benefits
of the FTA will come from the adoption of new rules that will lead to a
stronger, more predictable business climate in the region. Enhanced
intellectual property and investor protections will lead to better
protections for trademarks and a more secure business environment that
are essential to increased sales of branded products.
In the area of intellectual property rights, the agreement goes
beyond current protections for trademarks to apply the principle of
``first-in-time, first-in-right'' to all products, including those that
may contain a place (geographical) name. This means that the first
company to file for a trademark is granted the exclusive right to that
name, phrase or geographical place name. This agreement sets an
important precedent that GMA hopes to replicate regionally and globally
in order to fight the European Union's approach to geographical
indications. Under EU law geographical indications (Parmesan, cheddar,
pilsner) are given priority to trademarks and may cancel protections
for brands. GMA is fighting this approach in the World Trade
Organization and believes that the U.S.-PTPA establishes an important
legal precedent that could serve as a model in these discussions.
Conclusion
GMA strongly supports the free trade agreement with Peru. We expect
that U.S. food and consumer product companies will realize significant
gains from the export and import opportunities provided by the
agreement. We are hopeful that this agreement will represent the first
step towards a fully integrated Hemisphere that will allow for
economies of scale and rationalization of production throughout North
and South America.
GMA thanks the Committee for the opportunity to present our views
at this hearing.
Statement of National Pork Producers Council
Mr. Chairman, Mr. Ranking Member and Members of the Committee:
The National Pork Producers Council is a national association
representing 44 affiliated states that annually generate approximately
$14.35 billion in farm gate sales. The U.S. pork industry supports an
estimated 566,000 domestic jobs and generates more than $84 billion
annually in total U.S. economic activity.
Pork is the world's meat of choice. Pork represents 43 percent of
total world meat consumption. (Beef and poultry each represent less
than 30 percent of daily global meat protein intake.) As the world
moves from grain based diets to meat based diets, U.S. exports of safe,
high-quality and affordable pork will increase because economic and
environmental factors dictate that pork be produced largely in grain
surplus areas and, for the most part, imported in grain deficit areas.
However, the extent of the increase in global pork trade--and the lower
consumer prices in importing nations and the higher quality products
associated with such trade--will depend substantially on continued
agricultural trade liberalization.
PORK PRODUCERS ARE BENEFITING FROM PAST TRADE AGREEMENTS
In 2005 U.S. pork exports set another record. Pork exports totaled
1,157,689 Metric Tons valued at $2.6 billion, an increase of 13 percent
by volume and 18 percent by value over 2004 exports. U.S. exports of
pork and pork products have increased by more than 389 percent in
volume terms and more than 361 percent in value terms since the
implementation of the NAFTA in 1994 and the Uruguay Round Agreement in
1995. Total exports increased every year in this period and set a
record in 2005 for the 15th straight year.
[GRAPHIC] [TIFF OMITTED] T1576A.025
The following 8 export markets in 2005 are all markets in which
pork exports have soared because of recent trade agreements.
Mexico
In 2005 U.S. pork exports to Mexico totaled 331,488 metric tons
valued at $514 million. Without the NAFTA, there is no way that U.S.
exports of pork and pork products to Mexico could have reached such
heights. In 2005, Mexico was the number two market for U.S. pork
exports by volume and value. U.S. pork exports have increased by 248
percent in volume terms and 358 percent in value terms since the
implementation of the NAFTA growing from 1993 (the last year before the
NAFTA was implemented), when exports to Mexico totaled 95,345 metric
tons valued at $112 million.
[GRAPHIC] [TIFF OMITTED] T1576A.026
Japan
Thanks to a bilateral agreement with Japan on pork that became part
of the Uruguay Round, U.S. pork exports to Japan have soared. In 2005,
U.S. pork exports to Japan reached 353,928 metric tons valued at just
over $1 billion. Japan remains the top value foreign market for U.S.
pork. U.S. pork exports to Japan have increased by 322 percent in
volume terms and by 191 percent in value terms since the implementation
of the Uruguay Round.
[GRAPHIC] [TIFF OMITTED] T1576A.027
Canada
U.S. pork exports to Canada have increased by 1,816 percent in
volume terms and by 2,422 percent in value terms since the
implementation of the U.S.-Canada Free Trade Agreement in 1989. In 2005
U.S. pork exports to Canada increased to 130,581 metric tons valued at
$396 million.
[GRAPHIC] [TIFF OMITTED] T1576A.028
China
U.S. exports of pork and pork products to China increased 22
percent in value terms and 16 percent in volume terms in 2005 versus
2004, totaling $111 million and 92,255 metric tons. U.S. pork exports
have exploded because of the increased access resulting from China's
accession to the World Trade Organization. Since China implemented its
WTO commitments on pork, U.S. pork exports have increased 60 percent in
volume terms and 67 percent in value terms.
[GRAPHIC] [TIFF OMITTED] T1576A.029
Republic of Korea
U.S. pork exports to Korea have increased as a result of
concessions made by Korea in the Uruguay Round. In 2005 exports climbed
to 71,856 metric tons valued at $155 million, an increase of 1,425
percent by volume and 1,705 percent by value since implementation of
the Uruguay Round.
[GRAPHIC] [TIFF OMITTED] T1576A.030
Russia
U.S. exports of pork and pork products to Russia increased 48
percent in volume terms and 71 percent in value terms in 2005 versus
2004, totaling 40,315 metric tons valued at $72 million. U.S. pork
exports to Russia have increased largely due to the establishment of
U.S.-only pork quotas established by Russia as part of its preparation
to join the World Trade Organization. The spike in U.S. pork export to
Russia in the late 1990s was due to pork shipped as food aid.
[GRAPHIC] [TIFF OMITTED] T1576A.031
Taiwan
In 2005, U.S. exports of pork and pork products to Taiwan increased
to 24,555 metric tons valued at $41 million. U.S. pork exports to
Taiwan have grown sharply because of the increased access resulting
from Taiwan's accession to the World Trade Organization. Since Taiwan
implemented its WTO commitments on pork, U.S. pork exports have
increased 94 percent in volume terms and 132 percent in value terms.
[GRAPHIC] [TIFF OMITTED] T1576A.032
Australia
The U.S. pork industry did not gain access to Australia until
recently, thanks to the U.S.-Australia FTA. U.S. pork exports to
Australia exploded in 2005 making Australia one of the top export
destinations for U.S. pork. Even with the disruption caused by a legal
case over Australia's risk assessment of pork imports, U.S. pork
exports to Australia in 2005 totaled $60 million--a 463 percent
increase over 2004 exports.
[GRAPHIC] [TIFF OMITTED] T1576A.033
Impact of Pork Exports on Prices
The Center for Agriculture and Rural Development (CARD) at Iowa
State University has calculated that in 2004, U.S. pork prices were
$33.60 per hog higher than they would have been in the absence of
exports.
Impact of Pork Exports on Jobs
The USDA has reported that U.S. meat exports have generated 200,000
additional jobs and that this number has increased by 20,000 to 30,000
jobs per year as exports have grown.
Impact of Pork Exports on Economy
The U.S. Bureau of Economic Analysis (BEA) has calculated that for
every $1 of income or output in the U.S. pork industry, an additional
$3.113 is generated in the rest of the economy. The USDA has reported
that the income multiplier from meat exports is 54% greater than the
income multiplier from bulk grain exports.
Impact of Pork Exports on Feed Grain and Soybean Industries
Pork production is a major user of U.S. feed grains and oilseeds.
U.S. hog slaughter in 2005 consisted of 100.807 million head of U.S.-
fed pigs and 2.774 million head of pigs fed in Canada and imported into
the U.S. for slaughter. The U.S.-fed pigs consumed an estimated 1.062
billion bushels of corn, 105.8 million bushels of other feed grains
such as barley, grain sorghum and wheat and the soybean meal from 418
million bushels of soybeans.
U.S. pork exports in 2005 accounted for 12.5% of total U.S. pork
production. This implies that 136.3 million bushels of corn and the
soybean meal from 52.2 million bushels of soybean were exported in the
form of pork from U.S.-fed pigs.
CONGRESS NEEDS TO PASS PTPA
The Peru Trade Promotion Agreement, when implemented, will create
important new opportunities for U.S. pork producers. U.S. pork exports
to Peru currently are restricted by duties as high as 25 percent.
However, PTPA, if implemented, will establish immediate tariff
reductions on all pork products. Some pork products will receive
unlimited duty free access upon implementation of the agreement.
Tariffs on most pork items will be phased out within five years. All
pork tariffs will be completely phased out in ten years.
In addition to the favorable market access provisions, significant
sanitary and technical issues have been resolved. By a letter dated
January 5, 2006 the Peruvian government confirmed that it shall
recognize the meat inspection system of the United States as equivalent
to its own meat inspection system. The aggressive market access
provisions coupled with the agreement on equivalence make the Peru
agreement a state of the art agreement for pork producers to which all
future FTAs will be compared.
Live hog prices are positively impacted by the introduction of new
export markets. Recent price strength in U.S. pork markets is directly
related to increased U.S. pork exports. Mexico continues to be a strong
and growing export market for U.S. pork. The same competitive advantage
that has resulted in expanded U.S. pork exports to Mexico will also
facilitate an expansion of U.S. pork exports to 28 million new
consumers in Peru.
The most important impact of this agreement is the income growth
that accompanies free trade. Most consumers in Peru currently are at an
income level that does not allow them to consume meat on a regular
basis. Prosperity created by a free trade agreement will create
millions of new customers for U.S. meat and other agricultural
products.
According to Iowa State University economist Dermot Hayes, the Peru
agreement, when fully implemented, will cause hog prices to be 83 cents
higher than would otherwise have been the case. That means that the
profits of the average U.S. pork producer will expand by 7 percent.
Much of the growth in U.S. pork exports is directly attributable to
new and expanded market access. However, as the benefits from the
Uruguay Round and NAFTA begin to diminish due to the fact that benefits
from these agreements are now fully phased-in, the creation of new
export opportunities becomes increasingly important. PTPA is an
important part of this process and will bring real benefits to U.S.
pork producers.
Written Statement on Behalf of Peruvian Asparagus Importers
Association, Drexel Hill, Pennsylvania
This statement is submitted on behalf of the Peruvian Asparagus
Importers Association (PAIA). PAIA is a not-for-profit association of
24 U.S. companies that earn a living by importing fresh asparagus from
Peru.\1\ PAIA presented testimony at the public hearing conducted by
the International Trade Commission (ITC) on March 15, 2006 in
connection with its investigation regarding the Peru Trade Promotion
Agreement (PTPA).
---------------------------------------------------------------------------
\1\ The member-companies of PAIA are: Altar Produce Inc.; Alpine
Fresh; AYCO Farms Inc.; Chestnut Hills Farm--Bounty Fresh; CarbAmericas
Inc.; Central American Produce Inc.; Crystal Valley Foods; Dole Fresh
Vegetables Inc.; Fru-Veg Marketing Inc.; Globalex Inc.; Gourmet Trading
Company; Growers Express LLC; Jacobs Malcolm & Burtt; North Bay
Produce; Pro-Act LLC; Rosemont Farms Corporation; Southern Specialties;
Team Produce International; Triton International; United Fresh
International; AL-FLEX Exterminators; Customized Brokers; Hellmann
Perishable Logistics; The Perishable Specialist, Inc.; and YesFresh,
LLC.
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I. The Peru TPA would continue favorable economic trends begun under
the ATPA for both the United States and Peru
PAIA's particular area of interest in the context of trade between
the U.S. and Peru is imports of fresh asparagus from Peru. Under the
ATPA and its successor, the Andean Trade Promotion and Drug Eradication
Act (ATPDEA), imports of fresh asparagus from Peru have been accorded
duty-free treatment since 1992.\2\ PAIA strongly supports the actions
of U.S. and Peruvian negotiators to maintain this duty-free treatment
for imports of fresh asparagus under the terms of the PTPA. The duty-
free treatment accorded to imports of fresh asparagus from Peru since
1992 has resulted in pronounced economic benefits to U.S. consumers,
U.S. importing companies, U.S. distributors, U.S. transportation
companies, the many other companies in the domestic commercial chain,
the Peruvian economy, and the thousands of people in Peru whose
livelihood is dependent on trade with the United States. However, if
the PTPA is not approved by Congress, or is implemented sometime after
January 1, 2007, and the ATPDEA is not renewed in the interim, this
will surely result in discernible economic harm to both the United
States and Peruvian economies.
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\2\ The ATPDEA is currently scheduled to expire as of December 31,
2006. Imports of fresh or chilled asparagus from Peru are not currently
subject to duty-free treatment under the Generalized System of
Preferences.
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Peru is the world's largest exporter of asparagus,\3\ and that crop
stands squarely at the heart of a dynamic agroexport sector in Peru.\4\
As the ITC has noted in prior reports, asparagus is a perennial crop
that requires substantial long-term investment. Peru's exceptional
climate conditions, its favorable geographic location, and the advances
made by Peru in its management of water supply for irrigation, has
enabled the country to achieve the highest asparagus crop yields in the
world.\5\ ``Peru is one of only a few countries whose favorable climate
enables it to produce asparagus year round.'' \6\ In turn, the
asparagus-growing industry in Peru is estimated to employ nearly 60,000
people,\7\ and has enabled regions of the country--such as Ica and La
Libertad--to become models of economic development and engines of job
creation. Of these sixty thousand jobs, roughly half are held by women,
the primary breadwinners in many Peruvian households. The trickle down
effects of this industry on tens of thousands of Peruvians and their
families are helping to reduce poverty and raise living standards. The
Asociacion de Gremios Productores y Agroexportadores del Peru (AGAP)
(the umbrella organization for Peru's agricultural producers and
exporters) estimates that the Peruvian agroexport chain as a whole has
generated 600,000 jobs, three times more than were generated in
traditional agriculture sectors.\8\
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\3\ World Horticultural Trade & U.S. Export Opportunities: World
Asparagus Situation & Outlook, Foreign Agricultural Service, U.S.
Department of Agriculture (August 2005) at 1 (data provided for 2004).
The United States ``is Peru's top market, accounting for 75 percent of
Peru's fresh asparagus exports in 2004.'' Id. at 3
\4\ World Horticultural Trade & U.S. Export Opportunities: World
Asparagus Situation & Outlook, Foreign Agricultural Service, U.S.
Department of Agriculture (July 2004) at 2 (``In 2003, asparagus became
Peru's leading agricultural export, valued at a record $206 million,
bumping coffee to second place.'').
\5\ The Impact of the Andean Trade Preference Act: Eleventh Report
2004, Inv. No. 332-352, USITC Pub. 3803 (September 2005) at 2-20.
\6\ Id.
\7\ Id. at 3-14.
\8\ See Improving Competitiveness and Market Access for
Agricultural Exports Through the Development and Application of Food
Safety and Quality Standards: The Example of Peruvian Asparagus, A
Report by the Agricultural Health and Food Safety Program of the Inter-
American Institute for Cooperation on Agriculture (IICA), Tim M.
O'Brien and Alejandra Diaz Rodriguez (July 2004) at 4-5.
AGAP discussed this finding in a report that it presented earlier
this year to the Technical Working Group for the PTPA from the
Congressional Agricultural Commission in Peru. AGAP's president, Felipe
Llona Malaga, explained that the high level of employment generated in
the agroexport sector is concentrated in crops including asparagus,
artichokes, paprika, onions, grapes, and garlic, particularly in the
provinces of Lima, Ica, Piura, La Libertad, and others.
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According to U.S. Customs, in the past two years, U.S. imports of
fresh asparagus from Peru had a value of between $100 and $110 million.
That is a significant amount of foreign exchange earnings for a country
with a gross domestic product of only $67.1 billion, and with a per
capita GDP of only $2,777 per year.\9\ Under the ATPA, asparagus
imports grew by about five times from $31 million to $232 million
between 1990 and 2005. The success of Peru's agroexport industry in
general, and the asparagus industry specifically, over the past decade
is one of the signal achievements of the ATPA in that it has effected
the creation of high-value marketable agricultural businesses at the
expense of illegal coca cultivation. In its most recent report on the
impact of the ATPA, the ITC noted that net coca cultivation decreased
dramatically, from 115,300 hectares in 1995 to 27,500 hectares in
2004.\10\
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\9\ See Background Note: Peru, U.S. Department of State (December
2005), http://www.state.gov/r/pa/ei/bgn/35762.htm (last visited March
22, 2006). Peru's asparagus exports are forecast to increase by an
additional 3 percent in 2006. World Horticultural Trade & U.S. Export
Opportunities: World Asparagus Situation & Outlook, Foreign
Agricultural Service, U.S. Department of Agriculture (August 2005) at 3
\10\ The Impact of the Andean Trade Preference Act: Eleventh Report
2004, USITC Pub. 3803 at 4-14.
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II. Economic Benefits of the U.S.-Peru Trade in Asparagus
While the Peruvian asparagus industry has created tangible economic
benefits in that country, the U.S. has also derived a significant
economic benefit from this trade. The vast majority of the value chain
generated by sales of Peruvian asparagus in this market remains in this
country. For example, in 2003, the value chain for imports of fresh
asparagus from Peru was worth approximately $300 million. Of that
total, approximately 70 percent remained in U.S. hands, including air,
sea and land carriers, importers, ports, storage facilities,
distributors, wholesalers and retailers. In other words, for every
dollar spent by a U.S. consumer on fresh asparagus imported from Peru,
70 cents remains in the U.S. Moreover, even of the 30 percent that
reverts back to the country-of-origin, a substantial portion is spent
on U.S. inputs such as seeds and fertilizers.\11\
---------------------------------------------------------------------------
\11\ Transcript of hearing before the United States International
Trade Commission: In the Matter of: U.S.-Peru Trade Promotion
Agreement: Potential Economywide and Selected Sectoral Effects,
Investigation No. TA-2104-20 (March 15, 2006) at 33-35 (hereafter ``Tr.
at ------'') (testimony of John-Campbell Barmmer).
For example, in 2003 (the last full year for which the complete set
of following data are available), the fob value of Peruvian fresh
asparagus exports to the U.S. was approximately $78.5 million. The
comparable cif value was $132.7 million. The value that accrued to
importers was approximately $20 million, while the value that accrued
to wholesalers and retailers was approximately $90 million. In
addition, other value-added in the U.S. (e.g., for storage, fumigation,
etc.) totaled approximately $15 million. These sub-totals sum to $258
million, which represents the approximate retail value of fresh
asparagus imports from Peru sold off the U.S. supermarket shelves. In
other words, approximately 30 percent of that end-value ($78.5 million
out of $258 million) remains in Peruvian hands, while the remainder
($179.5 million out of $258 million) remains here in the United States.
Sources: Aduanas (National Customs Superintendancy of Peru); U.S.
International Trade Commission Trade DataWeb; estimates by APOYO
Consultoria, and the Instituto Peruano del Esp1rrago y Hortalizas
(IPEH).
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In addition, imports of fresh asparagus from Peru fuel job creation
in the United States. PAIA estimates that aside from the several
hundred persons employed or indirectly involved in the process of
importing fresh asparagus imports from Peru, these imports result
directly or indirectly in the creation of at least 5,000U.S.jobs in
companies throughout the commercial chain.
III. Peruvian Asparagus Imports are Counterseasonal to U.S. Asparagus
Production
Imports of fresh asparagus from Peru also serve a U.S. market
demand that cannot be met by domestic growers alone. The most important
factor here is that imports of fresh asparagus from Peru are largely
counter-seasonal to the U.S. crop. As the ITC has noted, historically,
the season for U.S. production has differed somewhat from that of most
imports from ATPA countries, with the bulk of fresh asparagus imports
from ATPA countries entered during July through the following January
when overall U.S. production is low.\12\
---------------------------------------------------------------------------
\12\ The Impact of the Andean Trade Preference Act: Eleventh Report
2004, USITC Pub. 3803 at 3-12.
---------------------------------------------------------------------------
According to official U.S. import statistics for 2005, 85 percent
of total fresh asparagus imports from Peru entered the United States
during the months of July through January; only 15 percent entered
during the remainder of the year (February through June). In contrast,
the peak production period for U.S.-grown fresh asparagus is February
through June; therefore, all or nearly all U.S. production occurs
during a period when the level of imports from Peru is minimal.
This is not to say that there are no imports of fresh asparagus
from Peru present in the U.S. market during the peak production period
for the U.S. crop; as referenced above, imports of Peru during the
February--June period represent 15 percent of total annual imports from
that country, or approximately 9,794 net tons (2005 data). However,
even in this period, imports from Peru largely complement, rather than
supplant, the U.S. crop. The vast majority of fresh asparagus imports
from Peru enter the United States through the Port of Miami,\13\ and
are sold primarily in East Coast markets. Because of the distances
involved and the high costs for transportation, most of the fresh
asparagus produced in California and Washington are sold in West Coast
and Southwest markets.
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\13\ In 2005, 89 percent of imports of fresh asparagus from Peru
entered the U.S. through the Port of Miami. Source: U.S. International
Trade Commission Trade DataWeb (subheadings 0709.20.1000 and
0709.20.9000, HTSUS), by quantity.
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Therefore, even to the extent that there is some degree of overlap
between the U.S. production period and imports from Peru, direct
competition between these sources is reduced. Most of the imports from
Peru that enter the United States during the February through June
period are marketed in the East Coast and southeast United States
regions. Indeed, the advent of year-round availability of fresh
asparagus from Peru has allowed U.S. consumers in large geographic
portions of the country to gain access to this product at times when
supply would simply not exist from U.S. growers. This is one reason why
per capita consumption of asparagus in the United States has doubled in
the last decade alone, exceeding the rate of growth exhibited by nearly
all other fruits and vegetables. As the ITC recently stated, the impact
of ATPA on U.S. consumers has been significant in that imports of
Peruvian fresh-market asparagus, together with Mexican exports and U.S.
production, have resulted in greater availability of fresh asparagus
throughout the year. This extended availability of fresh-market
asparagus, together with the overall consumer awareness of, and
preference for, healthy foods, may be partly responsible for higher per
capita annual consumption of fresh asparagus in recent years.\14\
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\14\ The Impact of the Andean Trade Preference Act: Eleventh Report
2004, USITC Pub. 3803 at 3-12-14.
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Notwithstanding the seasonality and regionality aspects of supply
and consumption discussed above, the fundamental fact is that since at
least 1998, U.S. consumption of fresh asparagus has outpaced U.S.
supply.\15\ Imports are necessary to meet demand in the United States.
In the absence of import sources--meaning, specifically, imports from
Peru and Mexico--domestic production would be woefully inadequate to
meet U.S. consumer demand. This would inevitably lead to a jump in
prices, to the detriment of U.S. consumers, and eventually a drop in
consumption, to the detriment of U.S. producers. While domestic
production of fresh asparagus may have declined in recent years,\16\
the decline would surely accelerate in coming years in the absence of
reliable import supply.
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\15\ Total imports accounted for approximately 60 percent of the
U.S. market for fresh asparagus in 2004. U.S. imports from Peru
accounted for approximately 60 percent of total imports in 2004, as
well. See also U.S. Department of Agriculture FATUS data (http://
www.fas.usda.gov/ustrade/). Consequently, Peru's share of the U.S.
market was about 36 percent (compared to about 40 percent accounted for
by domestic production).
Indeed, the quantity of domestic production in 2004 was
approximately 87,000 net tons, which exceeded the volume of imports
from Peru that year (61,123 net tons) by 42 percent. About one-fourth
of domestic production, or approximately 22,000 net tons, was exported.
\16\ According to the Commission's most recent report on the impact
of the ATPA, domestic production of fresh asparagus declined 4 percent
from 2003 to 2004, from 119.4 million pounds to 115 million pounds.
However, the value of domestic production increased by 10 percent over
that period, from $136.7 million to 150.4 million. The Impact of the
Andean Trade Preference Act: Eleventh Report 2004, USITC Pub. 3803 at
3-12.
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IV. Asparagus and Other Agroexports as a Weapon Against Narcoterrorism
The intention of the ATPA was to spur the development of
alternative industries to assist Peru and other Andean countries in the
``War Against Drugs'' and the struggle against guerrillas and terrorist
organizations dependent on the illegal coca trade for funding. In this
regard, the program has succeeded. Thanks to the ATPA and the vision of
U.S. policymakers, the Peruvian asparagus and a number of other
industries were able to blossom starting in the early 1990's. These
industries have helped Peru to sustain some of the highest growth rates
in Latin America, have provided employment for hundreds of thousands of
Peruvians, and have helped reduce poverty levels. Just recently, for
example, the Peruvian Prime Minister, Pedro Pablo Kuczynski announced
that extreme poverty has been reduced from 24% to 18% between 2001 and
2005. It is estimated that nearly 1 million jobs in Peru are dependent
on trade with the United States, most of which is covered by the ATPA
program.
As stated earlier the Peruvian agro-export chain has generated
approximately 600,000 jobs. 10%, or 60,000 of these jobs are held by
workers in Peru's asparagus industry. The Peruvian Asparagus and
Vegetables Institute (IPEH) estimates that nearly 40% of the workers in
the asparagus industry come from areas that formerly supplied workers
to illegal coca cultivation. Asparagus has been a model for other
agroexport industries and their growth is having a multiplier effect in
terms of their impact on trade, job creation in both countries, reduced
illegal coca cultivation, and reduction of poverty in Peru. Peru's
paprika industry, for example, has enjoyed export growth of 88% from
2004 to 2005, making Peru now the top world exporter of paprika, an
industry which employs 15,000 Peruvians. Another successful example is
the Peruvian artichoke industry, which has increased exports by 100%
from 2004 to 2005, and also employs about 15,000 workers.
It is clear, therefore, that the ATPA spurred industries such as
asparagus have had a positive impact in the war against drugs in Peru.
As noted earlier, coinciding with the rise of asparagus and other
agroexport industries, from 1995 to 2004, the ITC reported that coca
cultivation has decreased dramatically, from 115,300 hectares to 27,500
ha in 2004. This has helped to reduce the presence of drugs in U.S.
communities. In a related event, Peru successfully confronted and
nearly eliminated the terrorist threat constituted by the radical
Shining Path narcoterrorist organization during the 1990's, a group
largely funded by illegal coca production. The PTPA will help
consolidate these gains against the scourge that the illegal drug trade
has represented for both countries.
V. Peru TPA and Labor Standards
In addition to Peru's compliance with ILO's core labor standards
and the labor rights provided by the country's constitution, the
asparagus and vegetables industry has implemented best labor practice
programs (Buenas Practicas Laborales--BPL) to ensure that the industry
is engaged the creation of a healthy and safe work environment. The
Peruvian asparagus and vegetables industry is also committed to help
build schools and health facilities that will contribute to improved
living standards for their workers, their families, and the rural
communities where they live.
The growth of agroexports in Peru has been such that in parts of
Peru such as Ica and La Libertad there is full-employment year round
and extreme poverty has been reduced by an astounding 36% comparable to
levels experienced nationwide by countries such as Chile. Workers in
these industries make wages of between $5 and $7 per day which is
considered a good salary by Peruvian standards.
Peru has ratified 71 ILO conventions, including the eight ``core
conventions.'' It has been praised multiple times by the ILO for its
progress in improving labor laws. In addition to all of the ILO's Core
Labor Rights Conventions, the PTPA's labor standards exceed those of
five other previously-ratified trade agreements: Jordan, Chile/
Singapore, CAFTA, Bahrain and even the ATPDEA, which does not make ILO
or national standards mandatory.
The PTPA goes beyond many other free trade agreements in the
enforcement of worker rights and dispute resolution. The PTPA-created
Labor Affairs Council develops public participation in reporting and
funding to ensure implementation of the agreement and improved
cooperation and capacity-building mechanisms. Additionally, the PTPA
holds member countries accountable to effectively enforce existing
labor laws, under penalty of fines, which are used by the PTPA
commission to fund projects improving labor right protections.
Noncompliance results in the formation of an arbitral panel, which may
fine violating parties up to $15 million per year, and suspend tariff
benefits to the party complained against if necessary to cover the
assessment.\17\
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\17\ Peru Trade Promotion Agreement, Chapter Twenty-One: Dispute
Settlement.
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VI. Peruvian Asparagus and Environmental Concerns
Since asparagus cultivation is undertaken almost entirely on
irrigated desert lands along Peru's coast, the environmental impacts of
this industry on existing habitats is negligible. In fact, by
contributing to the successful reduction of coca leaf production in
biologically sensitive rain forest habitats, the growth of the
asparagus industry along Peru's arid coast has had, in an indirect
manner, highly beneficial environmental impacts.
The growth of the asparagus industry has created a business that is
a global player and as a result has adopted rigorous international
standards on environmental management practices and labor standards to
comply with import requirements in the U.S., the European Union, and
elsewhere. The Peruvian asparagus industry complies with very exacting
practices of EUREPGAP and GAP (Good Agricultural Practices) to maintain
consumer confidence in the quality and safety of its product.
VII. Conclusion
The duty-free treatment for imports of asparagus from Peru provided
for in the proposed PTPA will serve a wide range of economic interests
both in the United States and in Peru. In the United States, a steady,
year-round demand supply of asparagus enters the U.S. and satisfies the
increased demand for asparagus in the U.S that domestic production
cannot meet. Asparagus also accounts for about 5,000 U.S. jobs in
transportation and distribution.
In Peru, the asparagus industry, thanks to the duty-free access to
the U.S. market, has been able to fight extreme poverty by employing at
higher wages than other Peruvian jobs. Asparagus in Peru has also
indirectly fought coca production and narcoterrorism by providing an
alternative source of well-paying employment.
These great changes could not have been possible without the duty-
free access afforded to Peru in the ATPA and ATPDEA. PTPA is now an
excellent opportunity to ensure the continued prosperity of these
industries, and by extension raise living standards in Peru. It is for
this and the above reasons we urge prompt consideration and approval of
the PTPA by the Committee, the Full House, and the Congress.
Statement of Retail Industry Leaders Association
The Retail Industry Leaders Association (RILA) welcomes the
opportunity to submit written comments for the record of this hearing
on the U.S.-Peru Trade Promotion Agreement (PTPA). RILA strongly
supports the PTAPA and urges rapid passage of U.S. implementing
legislation.
RILA and the Retail Sector
RILA represents the nation's most successful and innovative
retailer and supplier companies--the leaders of the retail industry.
Retail is the second largest sector in the U.S. economy, employing 12%
of the nation's workforce and conducting $3.8 trillion in annual sales.
RILA's retail and supplier companies operate 100,000 stores,
manufacturing facilities and distribution centers in every
congressional district in every state, as well as internationally. They
pay billions of dollars in federal, state and local taxes and collect
and remit billions more in sales taxes. They are also leading corporate
citizens with some of the nation's most far-reaching community outreach
and corporate social responsibility initiatives.
The retail sector, along with the suppliers and customers that it
serves, is an essential part of the U.S. economy. Retailers provide
good jobs with good benefits, creating opportunities for entry-level
employment, part-time work, jobs for non-skilled workers, and
management training. Retailers serve the consumer goods market, an
essential driver of the U.S. economy; they also serve the global market
for consumer goods and bring U.S. products to the foreign markets where
they operate.
Virtually all of RILA's members, both retailers and suppliers, rely
on international trade to conduct their businesses. Our members depend
on imports of both finished consumer products and production inputs for
merchandise that will eventually be sold at retail. They also seek
opportunities to expand retail outlets in countries that are open to
U.S. investment and expand market access for American products.
Benefits of the PTPA
The PTPA merits strong support and rapid implementation by the
United States. Putting this agreement into effect will benefit the U.S.
economy, strengthen freedom and security in our Hemisphere, and promote
opportunities and efficiencies in the retail/distribution sectors.
The PTPA will benefit the U.S. economy--producers and consumers
alike. The PTPA liberalizes conditions for two-way trade between the
United States and Peru that already exceeds $7 billion annually. U.S.
exports of farm products, manufactures, and services will all benefit
significantly. Peru will accord immediate duty-free treatment on 80% of
its imports of U.S consumer and industrial products and more than two-
thirds of its current imports of U.S. farm products. Additional market-
opening, gradually eliminating all tariffs on U.S. exports to Peru,
will be phased in subsequently. The Agreement will also provide
significant market access for U.S. service suppliers, protect U.S.
firms' intellectual property rights, and establish a more secure and
predictable legal framework for U.S. investors in Peru.
The PTPA's impact on U.S. imports from Peru is good news as well.
Many Peruvian products already enter the United States duty-free under
the Andean Trade Preferences Program. The preference scheme is
scheduled to expire in December 2006, however, and in any event
enshrining this treatment in an international agreement with reciprocal
obligations will provide added commercial security as well as a firmer
legal basis under WTO rules. To the extent the FTA liberalizes trade on
the U.S. side, improving access beyond what has been granted
unilaterally in the past, this is good news for U.S. consumers--a tax
cut aimed where it is needed most.
The PTPA will bolster freedom and security in our Hemisphere.
Within recent memory, conditions in the Andean region have featured
chaos, dictators, and armed insurgencies. Today, the region is home to
fragile democracies that need U.S. support. Elected leaders are
embracing freedom and economic reform, fighting corruption, and
supporting U.S. anti-narcotics and anti-terrorism efforts.
But this positive momentum cannot be taken for granted. Opponents
of reform in the region remain strong. We believe Chairman Thomas was
right to emphasize, in announcing this hearing, that the PTPA ``builds
on our past efforts of granting trade benefits to alleviate poverty and
eradicate drugs in the region'' and that ``Peru's President-elect
Garcia is standing up to Cuban President Castro and Venezuelan
President Chavez in supporting the agreement.''
By implementing the PTPA, the United States can demonstrate its
support for freedom, democracy, the rule of law, and economic reform in
the region, and at the same time can bolster U.S. security. Among other
things, new economic opportunities will reduce the pressures that help
produce illegal narcotics activity and illegal immigration.
The PTPA offers opportunities and efficiencies in the provision of
retail/distribution services. Commitments accepted by Peru in various
services sectors, notably including retail/distribution, go beyond WTO
commitments and promise to dismantle significant barriers. RILA
anticipates both new opportunities for U.S.-based retailers, and more
efficient distribution for U.S. companies and products in Peru's
market.
Improvements Over Time
No trade agreement is perfect, and as with other agreements,
experience under the PTPA may reveal opportunities for useful
adjustments in areas like rules of origin, accelerated tariff phase-
out, etc. Some improvements may require Peru's approval; others may be
of the type the United States can make unilaterally. The implementing
legislation should establish a flexible and streamlined framework for
making such adjustments over time, using available tools such as
proclamation authority and consultation/layover.
Conclusion
RILA congratulates the Committee for turning its attention to this
important agreement, and stands ready to assist as the implementation
process moves forward. If RILA can be of any assistance to the
Committee, please contact Lori Denham, Executive Vice President--Public
Affairs or Allen Thompson, Vice President--Global Supply Chain Policy.