[Senate Hearing 114-549]
[From the U.S. Government Publishing Office]










                                                        S. Hrg. 114-549

       FREE TRADE AGREEMENT IMPLEMENTATION: LESSONS FROM THE PAST

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 3, 2016

                               __________

    
    
    
    
    
    
    
    
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)

















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3
.................................................................

                               WITNESSES

Mulhern, Jim, president and chief executive officer, National 
  Milk Producers Federation, Arlington, VA.......................     6
Murphy, Sean P., vice president and counsel, international 
  government affairs, Qualcomm Incorporated, San Diego, CA.......     8
Prickett, Glenn, chief external affairs officer, The Nature 
  Conservancy, Arlington, VA.....................................    10
Tepp, Steven, president and founder, Sentinel Worldwide, Vienna, 
  VA.............................................................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Brown, Hon. Sherrod:
    Submissions for the record...................................    33
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    53
Mulhern, Jim:
    Testimony....................................................     6
    Prepared statement...........................................    54
    Responses to questions from committee members................    63
Murphy, Sean P.:
    Testimony....................................................     8
    Prepared statement...........................................    65
    Responses to questions from committee members................    71
Prickett, Glenn:
    Testimony....................................................    10
    Prepared statement...........................................    76
    Responses to questions from committee members................    78
Tepp, Steven:
    Testimony....................................................    12
    Prepared statement...........................................    82
    Responses to questions from committee members................    92
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    94

                             Communication

National Association of Manufacturers (NAM)......................    97

                                 (iii)

 
       FREE TRADE AGREEMENT IMPLEMENTATION: LESSONS FROM THE PAST

                              ----------                              


                        THURSDAY, MARCH 3, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Present: Senators Cornyn, Thune, Coats, Wyden, Cantwell, 
Carper, Cardin, Brown, Bennet, and Casey.
    Also present: Republican Staff: Everett Eissenstat, Chief 
International Trade Counsel; Douglas Petersen, International 
Trade Counsel; Andrew Rollo, Detailee; Kenneth Schmidt, Law 
Clerk; and Shane Warren, International Trade Counsel. 
Democratic Staff: Joshua Sheinkman, Staff Director; Elissa 
Alben, Senior Trade and Competitiveness Counsel; Michael Evans, 
General Counsel; Greta Peisch, International Trade Counsel; and 
Jayme White, Chief Advisor for International Competitiveness 
and Innovation.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    I understand, again, some people have strong feelings about 
this subject we are talking about today. That is fine, and we 
respect you. The First Amendment guarantees your right to 
express your views, but we have to allow a civil discussion to 
occur in the context of this hearing. So for any friends who 
are protesting, I ask that you respect the rights of others, 
respect this committee, and remain quiet so that the hearing 
can continue.
    We are very happy to have all of our witnesses here today. 
I would like to welcome everyone to this morning's hearing.
    Last year, with the passage of our bipartisan legislation 
to renew Trade Promotion Authority, or TPA, Congress provided 
the administration with the necessary tools to negotiate and 
conclude trade agreements to further open foreign markets to 
American goods and services. In doing so, Congress included 
high-standard negotiating objectives that must be achieved for 
any agreement to be eligible for expedited TPA procedures in 
Congress.
    But setting the appropriate negotiating objectives is only 
the first step in the process for concluding and implementing 
trade agreements. Once those high standards are set, the 
administration must consult closely with Congress and 
stakeholders throughout the negotiations. And once an agreement 
is concluded, Congress must closely scrutinize the agreement to 
determine whether it meets the high standards of the TPA 
statute and whether it is eligible for expedited TPA procedures 
in the House and Senate.
    That stage--the stage where Congress closely scrutinizes 
and evaluates a trade agreement--is where we are with regard to 
the Trans-Pacific Partnership, or TPP, the trade agreement most 
recently signed by the Obama administration.
    Ultimately, a high-standard free trade agreement only takes 
effect once Congress passes implementing legislation pursuant 
to the narrow legislative scope of TPA. But even when that 
process is complete, our work will not be finished. In many 
ways, the hardest work will just be beginning.
    After a trade agreement is approved by Congress, the 
administration must make sure that our trading partners fully 
and faithfully implement their obligations under that agreement 
before allowing the agreement to enter into force. After all, a 
strong trade agreement that is not fully and faithfully 
implemented and enforced is not worth much more than the paper 
it is written on.
    It is that part of the puzzle--full and faithful 
implementation--that we will examine today. As a guidepost for 
this examination, we will look at some of the lessons we have 
learned under our existing trade agreements to see what has 
worked and where we can do better in the future.
    Over the past 3 decades, the United States has entered into 
14 free trade agreements with 20 countries. Each of these 
agreements has provided significant economic benefits to the 
United States, as well as those countries. In fact, although 
these 20 countries represent less than 10 percent of the global 
economy outside the U.S., they purchase almost half of all our 
Nation's exports.
    Further, on average, in the first 5 years after a free 
trade agreement enters into force, U.S. exports to these 
partners have grown roughly three times more rapidly than the 
global rate of growth for U.S. exports generally. Just as 
important, free trade agreements have provided significant cost 
savings and expanded choices for U.S. consumers.
    However, despite these significant gains, there is 
widespread agreement that many of our partners in existing free 
trade agreements have not fully and faithfully complied with 
all of their obligations under our agreements. Just yesterday, 
I sent letters to the Korean and Colombian ambassadors to the 
United States outlining my concerns with their countries' 
implementation of and compliance with the U.S.-Korea and the 
U.S.-Colombia free trade agreements. In addition, a review of 
stakeholder submissions to the administration, in connection 
with mandated reports to Congress, including the Special 301 
Report, suggests that many of our trading partners have not 
implemented, or are out of compliance with, their international 
trade obligations.
    Now, while there are many examples across the board, this 
problem seems to be most pronounced when it comes to 
implementation of intellectual property rights protections. 
This is true with regard to trading partners across the globe, 
including many TPP countries. And, all too often, those 
countries are never held accountable for their noncompliance. 
Thus, they get the benefits of a negotiated trade agreement 
with the United States without fulfilling all of their 
obligations. This is, to put it bluntly, unfair, and it must 
stop.
    Last year, with a number of different pieces of 
legislation, Congress developed new tools to address these 
concerns. For example, we included language in the TPA statute 
requiring enhanced consultations before the administration may 
allow any trade agreement to enter into force. We also 
established the Interagency Center on Trade Implementation, 
Monitoring, and Enforcement within the Office of the United 
States Trade Representative, or USTR, to monitor our trading 
partners' implementation of trade agreements and to assist in 
investigating violations of trade agreement obligations. We 
also established a Chief Innovation and Intellectual Property 
Negotiator at USTR, with the rank of Ambassador and required 
Senate confirmation, whose responsibilities include enforcing 
the intellectual property rights obligations of our trade 
agreements. Furthermore, we established a trade enforcement 
trust fund of up to $15 million a year for use in improving the 
ability of USTR to monitor and enforce existing trade 
agreements.
    Despite these new tools, I know that there is much more 
that can be done, so today we are going to examine the 
implementation of our existing free trade agreements and see 
what lessons can be drawn. We have some very accomplished 
witnesses here with us from a variety of sectors, including 
agriculture, high-tech, the environment, and intellectual 
property. I am very much looking forward to these testimonies 
and to what I hope will be a robust discussion of how the U.S. 
Government can more effectively ensure that our workers, 
consumers, and job creators receive the full benefits of our 
international trade agreements going forward.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. With that, I will turn to Senator Wyden for 
his opening remarks.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman, and I 
think this is an important hearing.
    I believe deeply in the benefits of trade. In America, 
trade-
related jobs often pay better than do the non-trade jobs. And 
there are going to be a billion middle-class households in the 
world by 2023 with money to spend on American-made goods. So it 
is my view that we need to make things here, we need to add 
value to them here, and we need to ship them around the world.
    Now, I see my good friend Senator Coats here, and Senator 
Donnelly brought to my attention--and I am sure Senator Coats 
is focused on it too--what just sounds like heartbreaking news 
in Indiana, where Carrier Corporation and United Technologies 
Electronic Controls have announced that they are shuttering 
their plants and heading to Mexico. Senator Donnelly talked 
with me about it again just yesterday. These are factories that 
have been around for decades, supporting the livelihoods of so 
many working families.
    When you are a worker caught up in an awful situation like 
this, it has to just curdle your blood when you hear some 
callous line from an executive about how it is ``only 
business,'' and the company is going to ``synergize its inputs 
and maximize efficiencies.'' It must make workers who have been 
at this plant--and this is the story all over America--just 
feel like they are a little cog in a machine that they have no 
power to influence.
    My number one goal, when it comes to the cutthroat global 
economy, is to fight with everything I have for American 
workers. I believe we have to have trade policies that spur the 
creation of red-white-and-blue jobs that can support a middle-
class family in Oregon and around the country. And I want to 
make sure American workers and American businesses, and more of 
them, get into the economic winner's circle when they compete 
with foreign firms.
    You do that by enforcing the rules here at home, stopping 
unfair trade before it hurts American workers and families. And 
you do it by writing new rules overseas. That means engaging 
with other countries, hammering out commitments in trade 
agreements that countries will drop unfair barriers to products 
made in our country. You get commitments to raise the bar on 
issues such as labor rights so that companies are not lured 
away from the United States by opportunities to kick around 
cheap foreign workers. You get commitments on environmental 
protections so that countries do not turn a blind eye to 
practices like illegal fishing or the sale of stolen timber 
that often undercuts American producers and does harm to the 
environment. You prevent a race to the bottom, you close 
loopholes and end outdated policies, and you bring the world up 
to our standards.
    Then you have to enforce the agreements. The landmark 
package of enforcement measures put together by this 
committee--and very recently signed into law--is a major step 
forward. In the past, trade policies were often too old, too 
slow, or too weak to fight back when bad actors overseas found 
ways to rip off American jobs. Our tough, new game plan on 
enforcement is going to help change that. And I just saw some 
evidence yesterday that our new approach to trade policy is 
going to pay off. Last year, Senator Brown and I worked 
together to close an egregious, old loophole in our trade laws 
that allowed for certain products made by slave or child labor 
to be imported to this country if there was no producer here at 
home. Under this loophole--make no mistake about it--economics 
trumped human rights, and Senator Brown and I said that was 
wrong, that it was just 100-percent wrong. So we wrote a 
provision that closed it. And yesterday, in my hometown, the 
Portland Business Journal ran a story about how our crackdown 
on imports made with slave labor has the potential to make big 
improvements in the chocolate industry.
    There was a company featured in this story, Tony's 
Chocolonely, that just set up its U.S. headquarters in 
Portland, and it is going to make a big push to source cocoa 
without exploiting slave labor or child workers. One of the 
company's leaders said in the story just yesterday, ``The 
impact of this law''--our bipartisan law--``will depend greatly 
on how it is executed and enforced.'' Not only is that true 
when it comes to ending slave labor, it is true in all our 
trade laws and agreements. Enforcement is vital, and the first 
step in the enforcement of a trade agreement is getting 
implementation done right. The United States cannot allow 
countries to backslide on their promises before a trade 
agreement even goes into effect. Our trading partners have to 
take the commitments they have made at the negotiating table 
and turn them into action before they see benefits. That means 
writing or updating laws and regulations and dropping unfair 
barriers so that American workers get the fair shake they have 
been promised.
    Now that the President has signed the Trans-Pacific 
Partnership agreement, I believe that consultations on its 
implementation will pick up steam. Confidence that the TPP will 
be implemented the right way is an absolute prerequisite for 
the agreement to win the support it would need to pass in the 
Congress. I see this hearing as an opportunity to identify many 
of the pitfalls and opportunities in the implementation 
process. And it is going to be very helpful down the road when 
it comes time to implement any trade deal.
    Mr. Chairman, I just want to make one last comment, because 
I am so appreciative of the work that you joined me in with 
respect to the new transparency requirements. In the past, the 
American people basically were in the dark with respect to 
trade legislation. And when you believe in trade and you 
believe in it strongly, you should not have any problems 
talking about it in public. If you do not, it just looks like 
some other sleazy thing is going on in Washington. So Chairman 
Hatch worked very closely with me, and the full text of the TPP 
has been in the hands of the American public since 60 days 
before the President signed it. And we insisted on that; the 
two of us on a bipartisan basis insisted that we have that kind 
of transparency.
    So what this means--and I will close with this, Mr. 
Chairman--is everybody in America can come to a town hall 
meeting of their Congressperson or their Senator and sit in the 
audience with this agreement in full, draw their own 
conclusions about it, ask questions, voice their opinions to 
their elected representatives. And adding this sunlight was 
just absolutely key to establishing what I believe we have to 
work for in the days ahead, and that is, trade done right. So I 
hope everybody will use this new transparency requirement.
    Mr. Chairman, I want to thank you again, because we put in 
a lot of time on these transparency provisions, because we both 
felt it was time for some new sunlight, and everybody in 
America who is paying attention to this trade debate can now 
come to one of their legislators' town meetings with the full 
agreement in their lap to ask questions of their elected 
officials. And I thank you.
    The Chairman. Well, thank you, Senator. I am happy to work 
with you.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Now I would like to take a few minutes to 
introduce today's witnesses.
    Our first witness is Mr. James Mulhern, the president and 
CEO of National Milk Producers Federation, or NMPF, a position 
that Mr. Mulhern has held since January of 2014. Before taking 
on this role, Mr. Mulhern spent 30 years in agriculture and 
food policy. In fact, Mr. Mulhern served as NMPF's government 
affairs director back when the 1995 farm bill was debated. 
Between his first stint with NMPF and his current role, Mr. 
Mulhern served as Senator Herb Kohl's chief of staff, worked as 
managing partner for Watson Mulhern LLC, and provided expert 
counsel to a host of Fortune 500 companies. Mr. Mulhern is a 
graduate of the University of Wisconsin, Madison, with a degree 
in agricultural journalism.
    Our second witness is Sean Murphy. In his role as vice 
president and counsel for international government affairs, Mr. 
Murphy manages Qualcomm's international public policy agenda. 
Before joining Qualcomm in 2001, Mr. Murphy practiced 
international trade and regulatory law in Washington, DC in the 
office of a major international law firm, and from 1993 to 2000 
held a number of positions at the Office of the United States 
Trade Representative. Mr. Murphy holds a bachelor's degree in 
political science from the University of California, Santa 
Barbara, a master's degree in international relations from the 
University of Cambridge, and a law degree from Georgetown 
University Law Center.
    Our third witness is Mr. Glenn Prickett, the chief external 
affairs officer at The Nature Conservancy, or TNC. Before 
joining TNC in January 2010, Mr. Prickett spent 2 decades 
working on international environment and development policy. 
His prior experience includes 13 years at Conservation 
International, the United Nations Foundation and the U.S. 
Agency for International Development during the Clinton 
administration, and the Natural Resources Defense Council. Mr. 
Prickett graduated from Yale University with a B.A. in 
economics and political science.
    Our final witness today is Mr. Steven Tepp, the president, 
CEO, and founder of Sentinel Worldwide, an organization that 
provides intellectual property, legal, and policy counsel to 
companies and associations with an interest in protecting 
intellectual property. Mr. Tepp also teaches intellectual 
property at George Washington University Law School. Before 
forming Sentinel Worldwide, Mr. Tepp was chief intellectual 
property counsel for the Global Intellectual Property Center of 
the U.S. Chamber of Commerce as well as Senior Counsel for 
Product and International Affairs at the U.S. Copyright Office 
for many years. But before all that, Mr. Tepp got his start in 
Washington working for me when I was the chairman of the Senate 
Judiciary Committee. Mr. Tepp received his undergraduate degree 
from Colgate University and graduated with his law degree from 
American University's Washington College of Law.
    I want to thank you all for coming. We will hear the 
witness testimonies in the order that they were introduced. So, 
Mr. Mulhern, if you will proceed with your testimony, we would 
appreciate it.

    STATEMENT OF JIM MULHERN, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, NATIONAL MILK PRODUCERS FEDERATION, ARLINGTON, VA

    Mr. Mulhern. Thank you very much, Mr. Chairman, Senator 
Wyden, and members of the committee. It is a pleasure for me to 
be here this morning to talk on behalf of America's dairy 
farmers and their cooperatives on issues that our industry has 
encountered in the implementation of prior free trade 
agreements.
    As I think all of you know, dairy exports have become a 
very important, critical component for the U.S. dairy industry. 
Over the last 15 years, exports have increased fivefold, 
reaching a high of over $7 billion a year in 2014. So this is a 
very important issue for us, and that growth has coincided with 
the development of a number of free trade agreements: the 
Uruguay Round and numerous other U.S. FTAs. Those agreements 
have tackled many of the tariff and nontariff barriers that 
have confronted or been problematic for our industry in the 
past.
    Most of the FTAs that we have worked on are working well. 
But in certain cases, we have found it necessary to work hard 
to ensure that the market access terms that the agreements have 
put in place are not subsequently undermined. And sometimes we 
have had to work harder on that than we did to negotiate the 
agreements themselves. In my written submission, I noted a 
number of measures that Canada, for example, has implemented 
over the years to block U.S. dairy exports and to isolate their 
dairy industry from even the very limited degree of imports 
that resulted from NAFTA and the earlier U.S.-Canada FTA.
    One example is the shift in 2007 that Canada made in its 
cheese standards, a shift that was designed to restrict the 
import of U.S. dried milk imports. And even just since the 
conclusion of the TPP negotiations recently, Canada has already 
been considering expanding this to include a restriction on the 
use of ultra-filtered milk, a product that we currently export 
to Canada on a duty-free basis. So if Canada is allowed to 
continue with this pattern of eroding even existing limited 
U.S. dairy market access, frankly, we are concerned about 
whether new trade commitments with them will benefit our dairy 
industry in practice.
    By contrast, I should note that our other NAFTA trading 
partner, Mexico, has been a much more reliable trading partner, 
and where problems have arisen, our government has worked with 
theirs to work those out.
    One of the newer FTAs we have been engaged in with South 
Korea has also experienced some early bumps in the road for 
dairy, but the administration took quick action, prior to the 
approval of the agreement and during its early stages of 
implementation, to ensure that Korean officials worked with our 
government to resolve most of them.
    So the reality of our experience is that our trading 
partners may often seek creative ways to improperly exploit the 
terms of a trade agreement despite what the agreement may say. 
And where our trading partners have persistently demonstrated a 
willingness to circumvent their trade commitments in a certain 
sector, as is the case with Canada and dairy, additional 
measures that are specifically focused on the problem, in our 
case the dairy issues, are needed to curtail the problem.
    We believe the best window of opportunity to do that is 
during the implementation phase prior to congressional 
consideration of an agreement. It is important with TPP, as 
this hearing is going to consider. It is also important with 
TTIP, given the increasing focus on those negotiations, because 
when it comes to dairy, the EU is very much like Canada with 
respect to regulatory and technical barriers to trade. We are, 
frankly, very concerned about the lack of progress in finding 
dairy-specific solutions to addressing those issues in the TTIP 
negotiations to this point. And given our past experience, we 
do not believe that TTIP is currently on the right track for a 
successful and truly market-opening conclusion when it comes to 
dairy.
    In addition to the critical SPS and other traditional 
nontariff constraints we face in accessing the EU market, I 
have to stress the importance, both in TTIP and globally, of 
the threat to our industry posed by the EU's geographical 
indications strategy. It is essential, in our view, that the 
U.S. Government protect our trade rights from the onslaught of 
EU efforts to bully our trading partners into blocking imports 
of products that use names the EU wishes to reserve for itself 
through its overly broad GI restrictions.
    Mr. Chairman, my time is running out here, so let me just 
say that we appreciate the work of this committee, Chairman 
Hatch, Senator Wyden, other members of the committee, on the 
issues that we have dealt with in TPP. We appreciate your 
supporting our efforts on the GI issue in the TTIP 
negotiations. And we look forward to working with members of 
the committee to address the critical implementation issues in 
TPP and will continue to work both with you and the 
administration to develop more effective ways to avoid trade 
barriers as well as to resolve problems as they arise. And I 
want to note in closing that we do see progress on that front. 
Just yesterday, USTR announced it has made progress with our 
CAFTA partner, Honduras, in working on a problem with GI issues 
there that resulted from the EU-CAFTA Free Trade Agreement.
    So progress can be made on these issues. We appreciate your 
support and your help in those efforts as well as those of the 
administration.
    [The prepared statement of Mr. Mulhern appears in the 
appendix.]
    The Chairman. Well, thank you.
    Mr. Murphy?

   STATEMENT OF SEAN P. MURPHY, VICE PRESIDENT AND COUNSEL, 
 INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED, SAN 
                           DIEGO, CA

    Mr. Murphy. Chairman Hatch, Ranking Member Wyden, and 
members of the committee, I am pleased to be here today to 
discuss the critical topic of lessons learned from existing 
FTAs. I represent Qualcomm, which was founded in 1985 and is a 
world leader in next-generation mobile communications 
technologies. If you have a smartphone, tablet, or other smart 
device, you are using Qualcomm's technology.
    International trade is critical to our business. Last year, 
Qualcomm generated more than 90 percent of its $25 billion in 
revenues outside the United States. Because open markets and 
strong patent rights are essential to our business, Qualcomm 
has been and remains a strong supporter of trade agreements, in 
particular of KORUS and the TPP.
    We know the value of an FTA depends entirely on the extent 
to which it is implemented and enforced, and based on that, I 
offer four recommendations to help improve FTA implementation 
in the statement that I submitted. First, we should ensure that 
U.S. trade enforcement officials have sufficient resources to 
do their jobs. Second, we should make better use of existing 
trade tools in parallel to dispute settlement. Binding dispute 
settlement is critically important, but litigation takes time, 
and it is not the only means available to ensure compliance. 
U.S. trade officials have other tools at their disposal, 
including formal government-to-government consultations, 
dedicated working groups that oversee specific FTA chapters, 
and the statutorily mandated reports that publicly identify 
trading partners for patterns of noncompliance. Third, we 
should expand the administration's FTA enforcement tool box. 
This may require new carrots and sticks to help motivate FTA 
compliance and could be modeled after the so-called snap-back 
provisions in the KORUS FTA. Finally, the administration should 
consult with the private sector to complete an FTA compliance 
checklist before the President certifies that any given 
agreement is ready to enter into force. As Chairman Hatch 
stated earlier, before an FTA to which the United States is a 
party can enter into force, the President must first certify 
that the trading partner has implemented all obligations that 
are to take effect on day one. The U.S. private sector is on 
the front lines in these foreign markets and is likely to have 
important insights whether an FTA partner has adequately 
updated its domestic regime consistent with its FTA 
obligations. The administration should seek the private 
sector's views to validate a precertification checklist or 
inventory to determine whether and when Presidential 
certification is appropriate and the agreement is ready to 
enter into force. What I am proposing is like a pre-flight 
checklist a pilot would use to ensure all systems are go before 
takeoff.
    Qualcomm's recent experience in Korea underscores the 
importance of getting things right before an FTA enters into 
force. Since KORUS took effect 4 years ago, Korea's antitrust 
agency, the Korea Fair Trade Commission, or KFTC, has stepped 
up its enforcement activity, resulting in some 40 antitrust or 
consumer protection cases against American companies, including 
Qualcomm. Senator Hatch, you spoke eloquently about this in 
your letter that you issued yesterday. Thank you for calling 
attention to this issue.
    One of the important benefits of KORUS, which was critical 
to private-sector and congressional support for the agreement, 
is the important procedural safeguards in the competition 
chapter. These obligations are intended to enhance due process 
and transparency at antitrust proceedings. Specifically, the 
KFTC must provide respondents in antitrust cases with the 
opportunity to ``review and rebut the evidence and any other 
collected information upon which the agency's determinations 
may be based,'' and ``to cross-examine any witnesses or other 
persons giving evidence in a hearing.'' Korea, however, has not 
adopted these important procedures and safeguards, which are 
fundamental to due process, explicitly required by the KORUS, 
and consistent with international best practices.
    A precertification checklist like I described might have 
identified these deficiencies before KORUS took effect. The 
U.S. Government would have had notice and opportunity to ensure 
that Korea's antitrust procedures were fully compliant with 
KORUS obligations prior to presidential certification of KORUS 
and its entry into force.
    I hope these recommendations will help advance the 
discussion about how to improve free trade agreement 
implementation. Thank you again for holding this important 
hearing and for the opportunity to share Qualcomm's views on 
this important topic.
    I welcome your questions. Thank you.
    [The prepared statement of Mr. Murphy appears in the 
appendix.]
    The Chairman. Well, thank you very much.
    Mr. Prickett?

 STATEMENT OF GLENN PRICKETT, CHIEF EXTERNAL AFFAIRS OFFICER, 
             THE NATURE CONSERVANCY, ARLINGTON, VA

    Mr. Prickett. Thank you, Mr. Chairman, Ranking Member 
Wyden, and members of the committee, for the opportunity to 
share the views of The Nature Conservancy on implementation of 
international trade agreements. It is very fitting that we meet 
on World Wildlife Day today. As I will explain, trade 
agreements, if properly implemented, can make a difference in 
protecting endangered wildlife and the habitats they depend on.
    The Nature Conservancy is the world's largest conservation 
organization, with over a million members and supporters. We 
work in the field around the world in 69 countries and all 50 
States to conserve the lands and waters on which all life 
depends. We continually face environmental challenges caused by 
illegal or unsustainable patterns of trade, particularly 
illegal trade in wildlife and timber, and illegal and 
unsustainable fishing practices. Addressing these threats is 
essential if we are to secure the health of the world's forest, 
oceans, and wildlife for the benefit of current and future 
generations.
    The Nature Conservancy has strongly supported and welcomed 
the increasing levels of environmental protection in trade 
agreements over the years. Linking trade policy to improved 
environmental management gives the United States valuable 
leverage to help countries address threats to their natural 
resources, many of which can be exacerbated by increased trade, 
especially in countries with important timber, fisheries, or 
other natural resources to export.
    We applaud in particular the landmark agreement reached 
between Congress and the Bush administration in May 2007 to 
incorporate a list of multilateral environmental agreements 
into trade agreements. This paved the way for successful 
inclusion of environmental chapters in FTAs as well as stronger 
enforcement mechanisms.
    Incorporating environmental measures in trade agreements is 
just the first step. Implementation makes all the difference. 
We commend Congress for providing over $177 million to support 
environmental cooperation and capacity building under FTAs with 
20 different trading partners over the past 10 years. This 
support has been crucial to the environmental progress we have 
seen under the agreements.
    In particular, these commitments have stimulated creation 
of new environmental laws, policies, and institutions by our 
trading partners. For example, the Peru Forestry and Wildlife 
Law was in part a direct response to the U.S.-Peru Trade 
Promotion Agreement, and laws and policies driven by the 
Dominican Republic-
Central American Free Trade Agreement have been important to 
conservation of wildlife and protected areas. TNC was directly 
involved in CAFTA implementation in the Dominican Republic 
through a USAID project to improve environmental regulations, 
build enforcement capacity, and support biodiversity 
conservation. These advances continue to play a role in 
enhancing environmental performance in the Dominican Republic. 
Provisions for transparency and public engagement on 
environmental issues help ensure enforcement of domestic 
wildlife conservation laws, especially regarding protection of 
sea turtles.
    The Peru Trade Promotion Agreement included a 
groundbreaking approach to these core environmental concerns, 
and it continues to serve as a platform to support Peru's 
efforts to combat illegal logging and wildlife trade. TNC 
provided expert advice on the agreement, and we advocated a 
great deal of specificity in the Forest Sector Governance 
Annex, because we believe clear environmental obligations 
spelled out in the agreements, coupled with 
follow-on funding, technical assistance, and capacity building 
to implement those obligations, are the main ingredients for 
success.
    The Peru agreement illustrates the complex challenges 
involved in implementing environmental provisions. Recent 
disturbances in Peru in response to attempts by Peru's 
independent forest and wildlife agency--OSINFOR--to enforce the 
Forestry Annex underscore the scale of the problem. Competent 
and honest officials are often outmatched by powerful and 
corrupt elements in the timber sector.
    The systems created under the Forestry Annex and built with 
U.S. assistance are helping to identify illegal actors and to 
hold them accountable. For example, an electronic timber 
tracking system developed under the agreement has increased 
transparency and thwarted the ability of criminals to change 
source origin documentation. We now have detailed information 
in a public database available to U.S. importers about the 
concessions and companies involved in the Peruvian illegal 
timber trade. There are still gaps, to be sure. We particularly 
salute Senator Wyden and his staff for their efforts on this 
issue. Much remains to be done both to strengthen the technical 
tools and to build political will for enforcement. The United 
States should continue to support Peru's capacity to implement 
and remain diligent in challenging Peru to comply with its 
obligations.
    These experiences offer important lessons for future 
agreements. First, strong, independent institutions are 
essential, especially to address legality issues. Agreements 
should specify the creation or reform of these agencies, and 
the U.S. should provide financial and technical support to 
strengthen them.
    Enforcement requires greater efforts on the part of both 
governments. The U.S. can support training and capacity 
building for counterpart governments on enforcement of 
environmental obligations. At the same time, the U.S. must be 
diligent in monitoring compliance and take action where 
necessary.
    Transparency helps to strengthen governance, rule of law, 
and public accountability. Programs to implement environmental 
measures in trade agreements should be subject to public review 
and comment and, where possible, undertaken by a broad 
partnership of stakeholders.
    Lastly, civil society can play a key role. Nongovernmental 
organizations enhance public-sector accountability, provide 
expert information, generate public support, and help combat 
corruption. The U.S. should support development of local NGO 
capacity to work on these issues.
    While this hearing is focused on past trade agreements, the 
recently concluded Trans-Pacific Partnership contains important 
new obligations to address illegal and unsustainable trade. The 
Nature Conservancy is optimistic about the potential of TPP to 
tackle these critical issues. The steps I just outlined will be 
critical to effective implementation.
    Thank you, Mr. Chairman and members of the committee, for 
this opportunity to share TNC's views.
    [The prepared statement of Mr. Prickett appears in the 
appendix.]
    The Chairman. Well, thank you, sir.
    Mr. Tepp, we will take your testimony.

   STATEMENT OF STEVEN TEPP, PRESIDENT AND FOUNDER, SENTINEL 
                     WORLDWIDE, VIENNA, VA

    Mr. Tepp. Thank you, sir. Chairman Hatch, Ranking Member 
Wyden, and members of the committee, thank you for the 
opportunity to appear before you today to discuss the 
implementation and enforcement of free trade agreements.
    My name is Steven Tepp, and I am president and founder of 
Sentinel Worldwide. Previously, I enjoyed a career of 15 years 
of government service, beginning, as you said, with you, Mr. 
Chairman, on your Judiciary Committee staff, and then at the 
U.S. Copyright Office, where I had the opportunity to negotiate 
the text and/or implementation of seven different free trade 
agreements with countries around the world. I am here before 
you today in my personal capacity as an expert in intellectual 
property and a former trade negotiator. The views expressed are 
my own and not necessarily the views of any client or employer.
    Intellectual property is a tremendous source of value for 
the United States and a dominant part of our foreign trade. 
Almost two-thirds of U.S. merchandise exports are from IP-
intensive industries. Thus, the United States seeks to ensure 
fair and modern intellectual property standards in our FTAs.
    While some governments find themselves tempted by the 
illusory short-term gain, the failure to properly protect IP 
has serious negative consequences at many levels, and these 
harms do not remain neatly tucked away from the American 
consumer. In 2014, CBP seized infringing products with an 
aggregate value of over $1.2 billion trying to come into our 
country. And an investigation by GAO of military-grade 
microchips made abroad found that every single microchip they 
tested was bogus and substandard.
    Foreign anti-IP policies can also be a front for industrial 
policy and protectionism. Around the world and across all IP 
disciplines, we see trading partners who fail to provide 
sufficient protection. This is a distortion of national and 
global marketplaces.
    The intellectual property chapter of our free trade 
agreements is crafted to address these problems. Further, the 
IP provisions of our FTAs bring some of the basic building 
blocks of liberty and freedom: rule of law, respect for 
property rights, and transparency and accountability in 
government.
    If successfully negotiated and properly implemented, the 
intellectual property chapters of our FTAs represent the most 
advanced IP standards in the world and are a win-win for the 
United States and its trading partners. And, by and large, the 
story of the IP chapters of our FTAs is one of tremendous 
success and progress.
    But make no mistake: it is no easy task. Bismarck quipped, 
``The two things you never want to see being made are sausage 
and legislation.'' Bismarck never saw an FTA.
    Throughout the process of negotiating text and 
implementation with our trading partners, leverage is the key. 
FTAs provide an opportunity to resolve longstanding areas of 
concern, because the offer of improved access to the U.S. 
markets melts intransigence that we may have seen in bilateral 
negotiations for years. By the same token, it is critical to 
achieve our goals in the negotiation, because once the process 
is concluded, then intransigence will return.
    We retain our leverage through the implementation process 
up until the U.S. Trade Representative certifies compliance and 
the FTA enters into force. At that point our trading partners 
are enjoying the benefits of improved access to the U.S. 
market, and ultimately our only recourse to address any 
remaining noncompliance is a formal dispute process.
    But transition periods are a distorting force in the 
implementation process. Transition periods are a useful 
negotiating tool that allow less-developed countries the time 
to gain the expertise and capacity to implement modern trade 
rules. Unfortunately, a trading partner can also misuse them as 
delay tactics. And because the transition period typically 
concludes after the FTA has entered into force, we have 
considerably less leverage to ensure proper implementation of 
those obligations.
    Moreover, we have weakened our own hand. We have had FTAs 
with modern IP chapters with a variety of trading partners for 
approximately 15 years. In that time Congress has held no less 
than 30 hearings on foreign IP theft, and Special 301 
submissions of affected industries have set forth significant 
instances of noncompliance with TRIPS and FTA IP provisions. 
Yet the United States has not initiated a single dispute under 
the IP provisions of any of our FTAs and none under TRIPS in 
nearly a decade.
    American innovators and creators face continuing challenges 
in the markets of our trading partners who have not properly 
implemented their IP obligations, but those trading partners 
are enjoying the benefits of improved access to the U.S. 
market. This is not the equity we achieved in the negotiations, 
and we should not settle for it now. Simply put, we need to do 
a better job of holding our trading partners to the obligations 
they agreed to.
    In conclusion, intellectual property is at the heart of our 
culture and the spirit of American innovation. FTA negotiations 
are hard fought and, like the rights they purport to secure, 
they are without meaning if they are never enforced. The IP 
provisions of U.S. FTAs are the top standard in the world. With 
an energetic effort to hold our trading partners to their 
commitments, we can all enjoy the benefits of progressively 
improved IP protection around the world.
    I again thank the committee for this opportunity to present 
my views, and I would be happy to answer any questions. Thank 
you.
    [The prepared statement of Mr. Tepp appears in the 
appendix.]
    The Chairman. Well, thank you. I thought all four of you 
were excellent and very helpful to the committee.
    Now, Mr. Tepp, a 2014 report by the U.S. Chamber of 
Commerce entitled, ``Trading Up: The Evolution and 
Implementation of Intellectual Property Rights in U.S. Free 
Trade Agreements,'' noted that U.S. negotiators should avoid 
whenever possible agreeing to considerable transition periods 
to implement IP protections because such transition periods 
often undermine needed momentum to ensure implementation of the 
agreement.
    Now, you echo similar sentiments in your testimony, and you 
provide some ideas on how to address this particular problem. 
Could you just elaborate on some of those suggestions?
    Mr. Tepp. Certainly, sir. Transition periods are a double-
edged sword. We might be able to secure better standards in the 
negotiation by offering them, but they also make implementation 
of that agreement harder to secure. To me it is about leverage. 
We have the most leverage before the FTA enters into force, but 
transition periods go past that time. So one possible approach 
that allows us to reclaim that leverage is a mechanism that 
suspends targeted benefits of the FTA if the trading partner 
fails to implement its obligations within the allotted time.
    The Chairman. Let me go to you, Mr. Murphy. In his 
testimony, Mr. Tepp makes a compelling case that trade in 
counterfeit products not only undermines economic rights, but 
also puts the health, safety, and security of innocent 
consumers at risk. Do you agree with that sentiment?
    Mr. Murphy. I do, Senator. If I may just briefly comment on 
Mr. Tepp's last statement, as I indicated in my testimony, I 
also agree that the best opportunity for leverage to get things 
right is prior to implementation. And I suggested a 
precertification exercise, or a checklist, to try to ensure 
that while the U.S. has maximum leverage before benefits are 
extended, that we try to get things right. And I also made an 
allusion to the KORUS snap-back provisions, which could be a 
similar sort of mechanism whereby benefits could be withdrawn 
or suspended pending compliance.
    The types of issues you talk about are very important. Some 
of the proposals that I have made could help to contribute to 
circumstances where U.S. officials use what leverage they have 
to improve consumer protection, ensuring that some of the 
counterfeit and low-quality products that are coming into the 
U.S. market can be stopped. But there are also additional steps 
we should consider. The recently enacted Customs enforcement 
bill creates a new fund for enforcement that has been 
authorized but not yet appropriated. That would be important 
unfinished business that the Congress should address to ensure 
that we have the resources to manage the problem and ensure 
that we have legitimate, safe, high-quality products coming 
into the United States. This is both a trade issue as well as a 
consumer-protection issue.
    The Chairman. Well, thank you. The problems that you are 
facing with protecting your innovation and intellectual 
property in Korea are disturbing to me, and I am sure to 
others. Unfortunately, the use of anticompetition laws to 
compel disclosure of intellectual property rights seems to be 
becoming more prevalent, not just in Korea but around the 
world.
    To what do you attribute the increased prevalence of 
antitrust cases against American companies in Asia? And what do 
you think is really motivating these investigations? Could this 
affect Qualcomm's ability to keep jobs here in the United 
States? And what can we in Congress do to help stop these 
practices?
    Mr. Murphy. That is an excellent question, Senator. Thank 
you very much. You have connected several important dots, and, 
hopefully, my testimony will help raise awareness more broadly.
    Qualcomm has been licensing its patent portfolio of over 
100,000 issued and pending patents globally for more than 25 
years. Over that period of time, we have had relatively smooth 
business experiences until 12 years ago when we started to 
first see antitrust issues creep in. In most cases, what has 
changed are not Qualcomm's business practices, which are very 
much in line with how technology is licensed in the ICT 
industry, but rather a dynamic has emerged whereby other 
governments are very interested in promoting their own 
indigenous innovation. They have very aggressive industrial 
policy targets and are trying to help their industries move up 
the value chain, and they still need inputs of American 
technology companies' technologies, innovation, and 
intellectual property rights. But we also are seeing the 
emergence of so-called national champions. These are favored 
companies that are very important to the local economy and/or 
very well politically connected. In some respects, these 
companies may have buyer's remorse and would prefer to 
renegotiate the terms of the technology agreements that they 
have with American and other technology providers in order to 
obtain those valuable technology inputs at a much lower cost.
    But the policy implications for the United States are 
tremendous, as you rightly point out. IP-intensive industries 
account for about $8 trillion of the U.S. economy, over a third 
of U.S. gross domestic product, and directly or indirectly 
support 40 million jobs. If we start to see an erosion of 
strong IP rights and the use of antitrust enforcement for 
improper purposes not related to anticompetitive conduct, we 
may see a slippery slope situation where the United States 
begins to lose its competitive edge. This would make it harder 
for companies like Qualcomm, which invests as much as 20 
percent of our global revenues into R&D, the majority here in 
the United States, which supports high-wage, high-skilled jobs.
    The Chairman. Well, thank you. My time is up.
    Senator Wyden?
    Senator Wyden. Thank you. And let me start with you, Mr. 
Prickett, if I could. First of all, we want to thank you for 
the relationship we have long had with The Nature Conservancy. 
You always try to come to the table and look at ways in which 
we can operate in a bipartisan way and actually get something 
done.
    Illegal logging is just economic poison for Oregon's 
sawmill workers and resource-dependent communities across the 
country, because it basically means that those workers--and 
these are workers who, much like the workers I have been 
talking about in this committee, have worked for decades in 
industries where there are family-wage jobs--they can have 
those jobs as long as they do not face an influx of cheap, 
stolen wood. In other words, they can compete with anybody as 
long as there is not cheating.
    Now, you described some of the innovative commitments on 
forestry that were included in the Peru agreement and how this 
gives us a chance to up the ante in terms of fighting illegal 
logging and the criminal enterprises that profit from it. But 
as you acknowledge, serious challenges remain when it comes to 
stopping illegal logging in Peru.
    Now, I think that the kind of work that we are trying to 
do, with your organization, with forestry groups, it is good 
for the environment, it is good for ensuring that those good-
paying forestry jobs are available for our workers. But we have 
a lot of work to do. The Trans-Pacific Partnership agreement 
contains some new commitments on forestry, including a 
commitment to combat and cooperate to prevent the trade of 
wildlife taken or traded illegally.
    So my first question is: what would be your advice to the 
Congress and the administration for the coming months to make 
sure that these environmental commitments are really followed 
through on by our partners, so that I can tell sawmill workers 
in Oregon and all of us who care about protecting our 
environmental treasures that it is a new day on trade policy 
and trade is going to be done right because we are going to 
enforce the agreements?
    Mr. Prickett. Thank you, Senator. Thank you for the kind 
words about The Nature Conservancy. We also value the 
relationship with you and your staff and the good work we are 
able to do together.
    Illegal logging is a disaster for American jobs, as you 
point out. It is also a disaster for the environment in the 
places we work. So it is one of The Nature Conservancy's 
highest priorities in many of the countries where we work to 
combat illegal logging. And I would note that the governments 
of most of those countries want to see this problem addressed 
as well.
    The areas where we engage on it, including Peru, are 
developing countries where rule of law in general is weak, so 
in our mind, the key issue is to enhance the ability of 
Peruvian institutions, governmental and nongovernmental, to 
take action on the problem.
    You ask a very good question: what can we do from this 
point forward to really step up that effort? We think it is a 
mix of both carrots and sticks. The carrot side is very 
important--in other words, the support that the U.S. Government 
and nongovernmental groups like ours can provide to countries 
like Peru to combat illegal logging.
    The United States, I would note, has been engaged in Peru 
on conservation of its forests for close to 30 years. I have 
worked on that effort myself at USAID and in a couple of 
different nongovernmental organizations. So one point I would 
emphasize is that we need a whole-of-government approach to the 
problem. So efforts that USTR can take are critical, but a lot 
of the action will be at USAID, at the State Department, at the 
U.S. Forest Service, and other specialized agencies and NGOs. 
So part of the answer is to look at not just the budget and the 
enforcement effort at USTR but also at what USAID and some of 
these other agencies have available to help Peru tackle the 
problem.
    The stick, as you have all pointed out, across all of these 
issues, is more vigilance and more engagement on enforcement on 
this side of the trade equation. So we were pleased to see last 
week that USTR asked the Peruvian Government to investigate the 
origin of certain contested shipments of illegal logging. That 
was, I think, in large part in reaction to your efforts, 
Senator, and the efforts of NGOs. So we need to see more of 
that stepped-up enforcement on the part of USTR, and the 
enforcement fund that you all created will be a key part of 
that.
    Senator Wyden. Thank you. Let me get one other question in. 
Mr. Murphy, for you, in this room I have spent an extraordinary 
amount of time pushing to ensure that we would have a free and 
open Internet. Not long ago, we derailed the legislation that 
would have changed the architecture of the Internet, what was 
called the PIPA and SOPA legislation. We have to have a free 
and open Internet in order to prosper, and that means the free 
flow of data across borders.
    You mentioned the U.S.-Korea Trade Agreement, which 
included the first commitment on restrictions on cross-border 
data flows. Now, some have raised some concerns about the 
effectiveness of that commitment with respect to the future. So 
the committee may in the future be considering the Trans-
Pacific Partnership, which, of course, again seeks to lock in 
some significant new commitments to ensure a free and open 
Internet.
    I would be interested in a sort of technology version of 
the question I asked Mr. Prickett with respect to illegal 
logging. How could you envision our working through the 
implementation process to ensure that we do everything possible 
to promote a free and open Internet and do not see other 
countries adopting policies that, in effect, Balkanize the 
Internet and make it harder for us to tap the potential of 
high-skill, high-wage jobs in our country, particularly 
ensuring that we can export around the world?
    Mr. Murphy. Well, I think the way you phrased the question 
is the right one, and the term that you used, 
``Balkanization,'' is very important. Obviously, there has to 
be an important balance between privacy protection of personal 
information and the free flow of information, which is innate 
to the Internet in our borderless global economy.
    You also raise another interesting and very important 
point, which is that each of the FTAs we negotiate stands on 
the shoulders of the prior one. We learn our lessons and apply 
them in future negotiations. These agreements evolve over time, 
and we gradually raise the bar from one agreement to the next. 
That is crucial. You rightly point out that KORUS was the first 
to include cross-border data flow rules. TPP takes them to the 
next step. The e-commerce chapter of TPP, chapter 14, is seen 
by many as one of the most important contributions of the TPP 
to the advancement and the evolution of international rules.
    It includes, for example, a requirement that the parties 
allow cross-border data flows, period. That is itself 
important. In many cases you have different rules, a patchwork 
effect, across the Asia-Pacific region. The TPP creates a 
uniform minimum requirement, which is very important, and 
commercially meaningful.
    Chapter 14 of TPP also includes prohibitions on forced 
localization and forced disclosure of source code, which are 
also of critical importance. Both of these outcomes will 
increase confidence for American companies to go abroad and 
engage in Internet-related businesses and cross-border flow of 
data. Foreign localization requirements, which require that 
servers be located in the territory of each country and impose 
prohibitions on the free flow of information, would add to the 
issue you identified, Balkanization. And localization mandates 
also potentially undermine security, because instead of having 
a company with one data center and one secure perimeter that it 
needs to protect, it would be responsible for having multiple 
different secure networks in multiple different economies, 
which potentially increases the risk of inadvertent disclosure 
or breaches.
    Chapter 14 of TPP also ensures that there are no duties on 
electronic transmissions, which is very important to helping 
promote innovation. It also includes a requirement of non-
discrimination and national treatment for digital products so 
that we do not have country-of-origin requirements for 
different digital products.
    Obviously, we understand that the financial services 
industry is dissatisfied with where the TPP negotiations 
concluded. But I also understand they are very much engaged 
with the administration and with the Congress on trying to find 
some creative solutions to address those concerns before the 
committees of jurisdiction have to consider TPP.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Well, thank you.
    Senator Coats?
    Senator Coats. Thank you, Mr. Chairman.
    Mr. Tepp, I think this question should go to you, and if 
others want to address it, they can. I represent several 
companies in Indiana, including a large pharmaceutical company, 
that have raised with me very significant concerns about how 
the Canadians have implemented their commitments relative to 
intellectual property. Based on what appears to me to be a 
novel misinterpretation of the internationally accepted patent 
utility standard called the ``Promise Doctrine,'' Canadian 
courts have invalidated 24 patents on 20 innovative medicines, 
many of them pioneered and manufactured in the United States 
and in my State.
    What is your take on that? Is Canada complying with its 
commitments here? Are they gaming the system, moving it through 
the courts to achieve what they should not be doing under their 
agreements? And what is the best way for us to respond to that?
    Mr. Tepp. Thank you for the question, Senator. It is 
extremely disappointing that a developed country, the United 
States' largest trading partner, is engaged in action that is 
inconsistent with their trade agreement obligations. And it is 
not only a problem for U.S. companies doing business in 
Canada--it surely is--but it undermines our efforts at 
implementing the TRIPS agreement and our FTA IP provisions 
around the world, because if a developing country looks at 
Canada and says, ``Well, if a developed country can do this, 
the United States' largest trading partner can do this, why 
should I have tougher rules?''--meaning actually comply with 
the agreement. So it is deeply disappointing that Canada is 
engaged in this activity.
    Senator Coats. What is the recourse here? What should the 
administration be doing to address this?
    Mr. Tepp. I think the administration should be actively 
pressing, and I believe they are actively pressing the Canadian 
Government to address this, to fix it, and ultimately there is 
the potential for a dispute case to be brought before the WTO 
and then conceivably future trade agreements.
    Senator Coats. Do you have any sense of where this has 
risen in the priority chain here at the administration relative 
to the dispute case, moving to a dispute case?
    Mr. Tepp. I candidly do not think they are there yet. It 
has certainly been mentioned in Special 301 reports from the 
U.S. Trade Representative's office. But there is no indication 
that the administration is close to initiating a case.
    Senator Coats. When we are looking at future trade 
agreements, should we be keeping this in mind and trying to 
prevent something like this in the agreement before the 
agreement is agreed to?
    Mr. Tepp. Absolutely. Whenever I have been in a negotiation 
with a trading partner for a prospective FTA, particular 
existing irritants have been right up on the table and 
discussed. At the very, very least, we should ensure that our 
trading partners are properly complying with their existing 
obligations before any new obligations are entered into force. 
And I believe that this committee put language to that effect 
in the TPA legislation.
    Senator Coats. You know, Mr. Chairman and Ranking Member, 
we fight this political battle back at home in terms of the 
value of international trade and global trade. And yet when 
trading partners like Canada, which we have had such good 
relationships with in the past, are gaming the system against 
us, it makes it all that much harder to go back home and 
convince people that we ought to enter into these agreements. 
Now, it is one thing, you know, to talk about our southern 
border neighbors; it is another to talk about Canada gaming the 
system here.
    And so, when we are looking at ways of trying to implement 
TPP or TTIP, we go back home and people say, ``Well, why should 
we agree to stuff like this?'' We ought to be putting pressure 
on the administration here to do something about it. We have 
the kind of relations with Canada where we ought to be able to 
go in there and simply say, ``You signed this agreement. You 
are committed to this. Trade is vitally important between our 
two nations. But you are gaming the system against us. And if 
you expect cooperation in the future, you have to live up to 
your commitments.''
    With that, Mr. Chairman, I will yield back.
    The Chairman. We are keeping the pressure on. I have to say 
that.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman, and thank you to 
you and Senator Wyden for holding this hearing.
    This panel, however, has some glaring omissions. No insult 
to any of you four, but we do not have a single representative 
of American manufacturers on this panel. We do not have a 
single representative of American workers on this panel. And 
listening to Senator Coats talk about the difficulty of passing 
trade agreements--with the opposition so often of workers and 
the groups that represent workers, you simply cannot have a 
comprehensive discussion about trade agreement implementation 
and enforcement without these stakeholders.
    To ensure that the record for this hearing reflects a 
consensus and the concerns of American workers, I would like 
unanimous consent, Mr. Chairman, to insert in the record a 
recently released report by the AFL-CIO about the state of 
labor rights in TPP countries that details the compliance 
status of all TPP countries with the agreement's labor 
standards, and it should be part of the conversation about 
FTAs.
    The Chairman. Without objection, it will be entered.
    [The report appears in the appendix beginning on p. 33.]
    Senator Brown. I would also like to ask unanimous consent 
to insert into the record a timeline of the AFL's efforts to 
use state-to-state dispute settlement to respond to CAFTA labor 
violations in Guatemala. The timeline illustrates the 
ineffectiveness of the FTA state-to-state dispute settlement 
process and lack of enforcement. I would like unanimous consent 
on this.
    The Chairman. Without objection.
    Senator Brown. Thank you.
    [The timeline appears in the appendix on p. 52.]
    Senator Brown. And third, I would like to ask unanimous 
consent to insert into the record the press release put out by 
Ford Motor Company earlier this year announcing their 
withdrawal from the Japanese market. This happened well after 
TPP's release, so it is evident the company does not believe 
TPP will grant them access to the Japanese market. Their 
experience with Korea, that FTA, I think underscored that 
conviction. I would like to ask unanimous consent on that.
    The Chairman. Without objection.
    [The press release appears in the appendix on p. 53.]
    Senator Brown. Thank you. These documents illustrate, I 
think, widespread issues with FTA implementation and 
enforcement and the need to get them right under TPP.
    Now, I have a couple of questions, starting with you, Mr. 
Tepp, if I could. You said we need to do a better job--and I 
agree with this--of holding trading partners to the obligations 
they agree to or risk emboldening them to test our resolve 
further. What message does it send to our trading partners that 
we have pursued only one labor case under all of our FTAs and 
have not resolved it nearly 8 years after the complaint was 
originally file?
    Mr. Tepp. Well, Senator, it is an even better message than 
the fact that we have pursued zero cases under our FTAs for IP 
violations. And I am certainly concerned about that.
    Senator Brown. Okay. Thank you.
    Mr. Murphy, a question for you, if I could. I know Qualcomm 
has been disappointed with Korea's interpretation of some of 
the KORUS competition law provisions. I understand your 
concerns have not been resolved. If both options are available, 
would you advise Qualcomm to pursue a case under state-to-state 
dispute settlement or under investor-state dispute settlement? 
And why?
    Mr. Murphy. Thank you for the question, Senator. At this 
point in time, given where our matter stands in Korea, we would 
not rule out or rule in any options. We are hopeful that our 
discussions with the KFTC and our efforts to remind them about 
Korea's KORUS obligations will eventually cause them to agree 
with us that some of the very fundamental and basic due process 
principles that we are asking them to adhere to, which are 
explicit in the KORUS, are the right way for them to go.
    Qualcomm is one of several American companies that have 
been the subject of investigation by the KFTC. Our hope is that 
we can persuade the KFTC that our business practices are 
lawful. Or, perhaps, another option that the KORUS makes 
available to us, which is a new feature of Korean law as a 
result of KORUS, is the possibility of a voluntary consent 
decree. But again, right now, given where we stand, all options 
are on the table. And I do not know that I am in a position 
right now, given procedurally where the case is, to have a 
strong view one way or the other.
    Senator Brown. Let me ask one more question of you, Mr. 
Murphy. I know that Senator McConnell has pretty much 
indicated, it seems, that the future of TPP is still sort of 
unknown and in question. I know that he does not want to put 
his industrial State Senators on the spot before an election so 
that they would have to vote on something so controversial in 
their States, as Senator Coats might have suggested on TPP. But 
in your testimony you indicate this committee has a critical 
role in the analysis of trading partners' ability to implement 
their FTA obligations. How do you suggest this committee get 
more involved? And I think that Senator Hatch and Senator Wyden 
in very good faith want to do that. How do we get more involved 
in the certification process of our trading partners?
    Mr. Murphy. Well, I am glad you asked that question 
because, as I suggested during my opening remarks, I recommend 
that we consider a formal checklist approach to determine 
whether circumstances are right for an FTA to enter into force. 
In my prepared statement, I mentioned that the greatest 
leverage and the greatest opportunity to get things right are 
before the FTA enters into force. I suggested that there be a 
formal consultative mechanism that could involve the private 
sector, Congress, and the administration to ensure that we 
look, for example, in one column at all the different 
obligations that TPP would create for one of our trading 
partners, and in another column, we cross-reference TPP 
obligations with specific measures that the relevant government 
has taken to transpose a given TPP obligation into their 
domestic law--whether it is new legislation, whether it is 
revised regulations, whether it is changed procedures. Again, 
in the case of Korea, had the KFTC changed its pre-KORUS 
measures to provide for greater transparency and due process as 
required under the FTA, then Qualcomm might not be in the 
circumstances that we are in today.
    So I think that dialogue within the jurisdiction of this 
committee is very important. Hearings like this are an 
important way to bring issues to the fore and ensure that we 
are cognizant of what the potential FTA implementation 
deficiencies are.
    In addition, I think there is a role for the committee as 
well with respect to the enforcement, after certification, once 
the agreement takes effect, as reflected in key aspects of the 
Customs bill that was recently enacted. I want to recognize 
Senator Cantwell for her important work on ensuring that there 
be an enforcement trust fund that was authorized. This 
committee can also work with appropriators to make sure that 
sufficient funds are available to ensure that the trade 
agencies have sufficient staff, capacity building, training, 
and travel funds. Other funds can be used to ensure effective 
monitoring prior to certification so that we are making 
informed decisions. Additional resources are needed post-
certification and post-entry into force to ensure that our 
trading partners are living up to their obligations.
    Senator Brown. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Cardin?
    Senator Cardin. Well, thank you, Mr. Chairman. Thank you 
for this hearing. I thank all of our witnesses.
    I think it is important that we look at the lessons learned 
from the past as we look forward. We have seen an evolution of 
our objectives in trade agreements from when we were first 
interested in dealing with tariffs--which are kind of easy to 
figure out and implement and take action against for those who 
violate their obligations--to the nontariff issues, which 
become more difficult to calculate and to enforce.
    So as we talk about labor, as we talk about environment, as 
we talk about good governance and human rights as objectives, 
it becomes more challenging. And we need to look at what we 
have learned from the past.
    Some of the proudest moments in America were to show how 
important access to U.S. markets can be in bringing about 
fundamental change. It was U.S. leadership that brought down 
the Soviet Union on emigration policy. It was the United States 
that brought down the apartheid government of South Africa on 
trade policy. We used trade pretty effectively to bring about 
fundamental change.
    Mr. Murphy, I agree with you that we need to have progress 
made before we enter into an agreement. One of the things that 
I think we have learned is that we have to put these 
commitments in the core part of the trade agreement, make them 
enforceable in the core part of the trade agreement, but the 
blueprint for how to bring about the structural changes needs 
to be understood before we sign off on the agreement. I think 
that is a very important point.
    Mr. Prickett, I would like to ask you a question, because 
your organization has been in the forefront of transparency and 
anticorruption issues. I would like to get your assessment as 
to how we can do more to advance good governance, 
anticorruption, and transparency in the implementation of trade 
agreements. We talk about it in trade agreements, but we have 
no record of being able to actually bring about fundamental 
change as a result of recent trade agreements. We are trying to 
do that with TPP, but I would welcome your observations as to 
how we could be more effective on this.
    Mr. Prickett. Well, thank you, Senator, and first I want to 
thank you for your leadership on environmental issues over the 
years. It is a very good question. We talked earlier about this 
general challenge. We think there is a combination of carrots 
and sticks that the U.S. Government needs to put forward--and 
not just the government, but the NGO community as well.
    I guess one point I want to make is that on environmental 
issues in these trade agreements, unlike some other more 
commercial issues, environmental harm by our trading partners 
hurts those countries as well. Senator Wyden spoke earlier 
about the impact that illegal logging has on forestry-sector 
jobs here. Illegal logging also hurts people, wildlife, and 
economies in the developing countries themselves.
    The reason I say that is that we work in many of the 
countries the United States trades with to support those 
governments and those societies to take action on environmental 
harm, particularly illegal logging, illegal fishing, illegal 
wildlife trade. So a lot of what the United States can do is to 
provide support for the governmental institutions and the 
nongovernmental organizations in those countries that are 
taking action on those illegal natural resource issues. So 
there is a lot more we can do, not just through our trade 
policy but through our development assistance, through our 
foreign policy, and through other U.S. Government functions, to 
support conservation efforts in those countries. And at the 
same time, we need to be more diligent in enforcing the 
environmental measures that we have put into trade agreements.
    The good news is, over the last 10 years more and more 
trade agreements have actionable environmental commitments 
within them, and those are only good if they are used. So we 
need to step up our enforcement efforts as well.
    Senator Cardin. And as this committee is aware, in TPP we 
do have commitments not only on the environment and labor but 
also on anticorruption and good governance. And it is 
interesting that we have a firm commitment in regards to anti-
human trafficking, as we should, and that has been a subject of 
some debate in this committee, because we have tiered ratings. 
We know what good practices are and what they are not.
    It is not as clear on good governance and anticorruption. 
In my role on the Senate Foreign Relations Committee, we are 
looking at developing similar ratings on countries' performance 
on fighting corruption, because there are indicators. Do you 
have an independent judiciary? Do you have the resources for 
it? Do you have independent prosecutors? Do you have 
transparency? There are things that we can point to that might 
help us in enforcing trade agreements, particularly as we are 
now moving to countries that have challenges in dealing with 
corruption and good governance, that we want to establish 
better trade relations with, but that we also want to make 
significant progress in adopting recognized standards to deal 
with corruption.
    I just point that out because I think we can learn from the 
past in that, unless we are pretty specific on these areas, it 
is going to be difficult after the agreements are signed and in 
effect to bring about these types of behavioral changes.
    Mr. Prickett. And if I may just add quickly, many of the 
issues around corruption come out of the natural resource 
sectors in the countries we are talking about. So this is an 
issue The Nature Conservancy and other environmental 
organizations care passionately about. We are eager to work 
with you on this agenda. And I would note that transparency, 
support for independent nongovernmental organizations to do 
fact-finding and to bring issues to light, and then support for 
truly independent regulatory institutions that can take tough 
action, are going to be very important.
    Senator Cardin. I just came back from the southern part of 
Africa where I saw firsthand some of the wildlife issues and 
corruption and poaching and similar issues.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Carper?
    Senator Carper. Thanks. Thanks, Mr. Chairman. Welcome, one 
and all. As you know, we serve on a variety of committees, and 
I have been over in the Committee on Homeland Security this 
morning, and my focus has been there, and I missed your 
testimony.
    Let me just ask you to start off by asking this question of 
each of you. Could you share with me, in terms of important 
issues that you have discussed in your testimony and that are 
before us today in this hearing, what are one or two of the 
points where you think you all basically agree, important 
points where there is a broad consensus? I do not care who 
goes--would you like to go first?
    Mr. Prickett. Sure. I think as I listened to the 
testimonies, this point about the need for stepped-up 
enforcement of our trading partners' obligations that they have 
undertaken in trade agreements is critical. Those obligations 
are only good if they are enforced, and the United States can 
do more to be vigilant and enforce the agreements we have 
reached.
    Senator Carper. All right. Thank you.
    Mr. Tepp. Proving the truth of that, I will agree. And----
    Senator Carper. You approve that message?
    Mr. Tepp. Yes, I approve that message, sir.
    Senator Carper. All right.
    Mr. Tepp. And I will add to it that I think I have heard 
agreement down the line that it is important to get the best 
possible text during the course of the negotiation and to 
ensure that it is fully implemented and in force. And combining 
my comments in response to Senator Coats's question as well as 
Mr. Mulhern's comments from earlier, I think there is at least 
some agreement that we have a series of problems on trade 
issues with Canada.
    Senator Carper. All right. Thank you.
    Mr. Murphy. If I can briefly add, I think there is also a 
consensus that once a text is in place, ensuring that those 
obligations have effectively been implemented in domestic law 
in the trading partner's economy is critical. That is a time of 
maximum leverage, and withholding presidential certification 
until those benefits are ready to go on day one is, I think, an 
area where we are all in agreement.
    Senator Carper. Okay. Thank you.
    Mr. Mulhern. I would just add, Senator, in agreement with 
my fellow panelists, that the important thing is having a 
commitment not only to the letter but also the spirit of these 
agreements. And negotiations are one thing, but to have them go 
into effect and be undermined by nontariff barriers or ways to 
try to circumvent what has been agreed to has certainly been a 
problem in our industry, and I hear that from some of my other 
panelists as well.
    Senator Carper. In the time that I have been here, we have 
been involved in negotiating, debating NAFTA, more recently 
South Korea, Colombia, Panama. When you think back on just 
those two trade negotions, is there anything that we learned 
from those trade agreements, mistakes or things we could have 
done better, should have done better, that we have actually 
addressed in this trade agreement? Please, Mr. Mulhern, why 
don't you go ahead and lead us off?
    Mr. Mulhern. On this one, Senator Carper, I am going to 
defer to my colleagues who are more expert in trade 
negotiations than I. I think they will have a better 
perspective than I will.
    Senator Carper. All right. Mr. Prickett?
    Mr. Prickett. That is a great question. I worked on NAFTA 
20-odd years ago, and certainly not everything in Washington 
has gotten better over that time, but I think trade and 
environmental policy have. I mentioned in my written remarks 
that there was a landmark agreement in 2007 between the Bush 
administration and the Congress on the environment to specify 
multilateral environmental agreements within trade agreements 
so that commitments countries have made under environmental 
agreements are actionable under trade agreements. And that has 
been a breakthrough.
    So the agreements we have seen since--particularly we have 
been talking about Peru--the terms of the Peru Trade Promotion 
Agreement are a dramatic improvement over what we had in NAFTA 
and earlier agreements, because the commitments are more 
specific and they are enforceable. Again, that is only good if 
they are enforced, but the precision and the weight of trade 
agreements on environmental matters at least has gone up 
significantly over time, and Congress and successive 
administrations get credit for that.
    Senator Carper. All right. Thank you.
    Mr. Tepp?
    Mr. Tepp. Thank you, Senator. I think in one way, in terms 
of the intellectual property chapters, there is a great deal of 
consistency over our trade agreements, and I think that 
reflects the importance of the sector to our economy. I 
mentioned in my opening statement that two-thirds of U.S. 
merchandise exports are from IP-intensive industries, and there 
are 40 million jobs and $5 trillion to the U.S. economy--GDP--
that come from that sector.
    In terms of what Mr. Murphy said about making sure that our 
partners will implement their full set of obligations, even 
subject to transition periods, one thing that I think has been 
learned is, I see that in the TPP there is a requirement for 
our trading partners to report along the way on their progress 
towards implementing those obligations. I think that is 
helpful. Ultimately, though, there is still a leverage problem 
if the agreement enters into force before the transition period 
ends. We need to be serious about that. And because we have not 
taken a single case in dispute under any of our FTA IP 
provisions ever, or under TRIPS for almost a decade, I think we 
need to reestablish our credibility in that area. There are 
certainly a number of areas that are ripe.
    Senator Carper. All right. Thank you all. Thanks very much.
    Yes, sir, please?
    Mr. Mulhern. Senator, I would add one thing that does come 
to mind in TPP, and it is the language in the agreement on 
geographical indications, GIs, which has been a problem for our 
industry in particular and several other food-producing 
industries.
    Up to this point, when the EU in particular is negotiating 
FTAs with third countries, there is not transparency. There is 
no ability for us to engage in that process. The language in 
TPP that will commit TPP partners to have an open, transparent 
process, to at least have an opportunity for us to weigh in 
during the process of establishing what is a legitimate GI in a 
third market, is going to be very important for the dairy 
industry in particular going forward, so that we are not 
blocked out of exporting our cheese products into those 
countries.
    Senator Carper. Great. Thanks.
    The Chairman. Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. I want to pick 
up on my colleague Senator Brown's comments, because I really 
do believe that not having this TPP agreement being discussed--
you know, next December in the dark of night is not good for 
us. If we are going to have this discussion, we should have it 
now, and it should be in the broad daylight, and we should 
discuss issues about enforcement and Trade Adjustment Authority 
and also workforce training issues here at home.
    So I am very disappointed that the other side, at least 
over in the House, maybe even here in the Senate, seems to 
think, well, you know, if you are going to get a trade 
agreement, then you have to cut Trade Adjustment Assistance, 
which we did, and you have to limit the focus on actually doing 
enforcement. So as Mr. Murphy said, we authorized enforcement, 
but we did not fund enforcement because the House did not want 
to fund enforcement, even though they said to everybody and 
Speaker Ryan promised, ``Oh, we will do enforcement.''
    Now here we are having this discussion this morning about 
the lack of structure for enforcement, and so I am going to 
keep pushing on this issue, because I come from a State--I tell 
people we were trading with China before Lewis and Clark showed 
up, okay? So we know about trade. But this is about creating a 
system that is a fair system and that has a structure.
    So much of the world's economy is going to be happening on 
a global basis, and if we want to compete, then we have to 
chase those market opportunities, but we also have to have 
cooperation and we have to have enforcement.
    So there are definitely more people up here on the dais 
than there are in our enforcement operations, and yet the 
economy of the United States that we need to chase is outside 
of our borders. So we need to get enforcement.
    I want to point out that a GAO audit on enforcement 
provisions of the free trade agreements found that since 2008 
the Department had resolved only one single complaint out of 
five that had been filed, and that the relevant agencies 
responsible for enforcing these provisions suffered from 
constant staffing and resource complaints. So to me, this is a 
key issue, and, Mr. Prickett, you specifically stated in your 
discussion about the Peru Free Trade Agreement that we need 
robust training on enforcement with local officials, coupled 
with continued monitoring.
    So I sit here and I think, oh, my gosh, I applaud what was 
in the Peru agreement as far as sustainable forestry practices. 
I look at what is being discussed in TPP with addressing 
illegal and unsustainable fishing practices and combating 
illegal wildlife trade, and I want to applaud. I think these 
are great standards to be setting around the globe 
environmentally. And yet if we do not have the money or the 
other side will not fund enforcement, how are we going to make 
this work?
    So I wanted to hear from you, Mr. Prickett, what you think 
we need to do to help get enforcement funded. And, Mr. Murphy, 
thank you for your commitment to Washington and the same with 
you, if you have ideas about what we should be doing on this 
particular case in Korea--that is, what the U.S. Government 
could do. I am assuming you think it is better to have the 
agreement than not to have the agreement, but, if you could, 
comment on that. And, obviously, Mr. Mulhern, please add 
anything you want to say about what we should be doing on 
dairy. I mean, I am excited that wheat and potatoes would get 
better treatment under the Trans-Pacific Partnership, but I 
know that you have some concerns about dairy. So as quick as 
people can be----
    Mr. Prickett. Well, thank you, Senator, for your concerns 
about illegal logging, illegal fishing, and wildlife 
trafficking. These are crises for the environment that are 
going to go on and accelerate with or without trade agreements, 
to set that context. We think that having them addressed in the 
TPP is a good step which provides the United States and the NGO 
community, frankly, more leverage to try to get a handle on the 
problems. And as I said earlier, the governments themselves 
that we trade with see these illegal activities as a problem 
that they want to tackle. So the trade agreement not only gives 
us more leverage, but it gets us a higher-
profile platform in which to cooperate on enforcement.
    So, point one, enforcement certainly applies to the United 
States and how we police the trade agreements and the resources 
we provide to our own agencies, but it also applies in the 
first instance to the developing countries where the illegal 
activity is happening. So I would start with enforcement in 
those nations and the need for the U.S. Government and 
organizations like mine to provide more support, financial and 
technical, to strengthen their capacity.
    And then I think you said it: we need to provide the 
resources here in our government so that the agencies who want 
to do their job can do their job. And we need to hold their 
feet to the fire to take action when the other countries are 
not living up to their obligations.
    Senator Cantwell. Mr. Murphy, do we need enforcement?
    Mr. Murphy. Absolutely. And again, I want to commend your 
work on the recent enforcement bill. I agree with you about the 
importance of ensuring that the administration's trade 
enforcement officials have adequate resources, something I 
spoke about in my prepared statement. It is of utmost 
importance. Effective enforcement is not only an important 
aspect of domestic confidence-
building, it is critical to ensure that we achieve the benefits 
that we negotiated for.
    With respect to the matter in Korea you raised, one area 
where the U.S. Government could be helpful is to recognize that 
there is a problem. Perhaps too often antitrust cases abroad 
are seen as sort of a garden variety law enforcement matter. In 
reality, if you look more closely, you will see that there is 
something animating many of these cases that is not legitimate 
antitrust enforcement. I think there are protectionist and 
industrial policy issues that we need to address. And where the 
U.S. Government could be helpful would be a ``one-government'' 
or a ``whole-government'' approach to these problems. There is 
a critical need for U.S. antitrust officials as well as U.S. 
trade officials to come together, look at some of these issues 
holistically, look at the trend--again, Qualcomm is one of some 
40 American companies that has been the subject of an antitrust 
investigation in Korea since the KORUS entered into effect 4 
years ago. Senator Hatch yesterday sent a letter to the Korean 
ambassador spelling out some of the very serious concerns that 
we and other companies have about the KFTC and other aspects of 
KORUS implementation. And it is very important that the 
administration is responsive to those concerns.
    Senator Cantwell. Thank you. My time has expired, and I 
have gone over. Maybe Mr. Mulhern could submit something for 
the record. Thank you.
    Senator Wyden [presiding]. That would be great.
    [The response appears in the appendix on p. 64.]
    Senator Wyden. Senator Thune, before we go to you, I just 
want to indicate that I am going to put into the Congressional 
Record the exact details of some of these issues with respect 
to TAA. For example, TAA was expanded to permanently include 
service workers, which was a lifeline in my home State where 
Levi workers, several hundred of them, were laid off. They were 
able to get help, and also the legislation doubled TAA funding.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman, and I think many of 
us share the concerns that were voiced by Senator Cantwell 
about enforcement and funding for that. There was a trust fund 
created in the Customs bill that I think Chairman Hatch is 
interested in trying to make sure has the dollars in there, 
appropriated funds, to make sure that there are resources there 
to follow through on some of these enforcement issues that are 
so important.
    I think today's hearing is really important, because we 
have too many Americans who see trade as one-sided, where our 
trading partners violate the rules without repercussions. And 
when that happens, it is all too easy to ignore the many 
benefits of trade and focus only on the negatives, and that is 
why Congress did recently enact a strong trade enforcement law, 
and that is why the Trade Promotion Authority law is rightly 
focused on holding our trading partners' feet to the fire.
    Simply put, if we want to build the public support that is 
necessary for new trade agreements, we have to convince the 
American people that we are not only opening new markets to our 
goods and services, but that we have the ability to ensure that 
our trading partners play by the rules as well. So I am going 
to be very interested in following up too. And there are some 
issues that specifically impact my State of South Dakota in 
that regard, and that is why some of us on this committee--
Senator Wyden and I, going way back to a few years ago when he 
was the chair of the Trade Subcommittee, had hearings on----
    Senator Wyden. I coined the legendary term from you, 
``honey laundering.''
    Senator Thune. ``Honey laundering.'' And I think we made 
some good headway in this last bill on that front.
    But let me just ask a question here, and anybody can feel 
free to answer this. But the new trade law specifies that the 
government must examine how a nation has adhered to its 
existing trade obligations when considering if the U.S. will 
enter into a new trade agreement with that nation. I am just 
wondering if you agree with that as a right approach, and 
maybe, put another way, how important is past compliance when 
considering if a country is likely to comply with the terms of 
a new trade agreement?
    Mr. Mulhern. I will jump in first, Senator, and say I think 
it is very important. I completely agree with you. And Canada 
is, in our view, a case study in that. The limited access we 
have been granted in previous trade agreements in dairy, they 
have already, as I said in my statement, tried to figure out 
ways to evade that. And even before the TPP agreement goes into 
effect, is even approved, there are already efforts underway in 
Canada to try to, again, circumvent some access that the U.S. 
dairy industry has into that market.
    So those kind of commitments are very important with 
respect to TPP, and, frankly, given the long history of 
nontariff trade barriers deployed by the European Union in 
agriculture and in dairy specifically, we are very concerned 
about the TTIP agreement as well. The discussions to date have 
been too much on the European agenda and not enough on the 
American agenda when it comes to dairy access and dairy trade. 
There are a number of barriers that the Europeans have 
routinely put up as nontariff trade barriers to our access to 
that market. And it is important from our perspective for those 
issues to be dealt with before there is any possibility that we 
could support a TTIP agreement.
    Senator Thune. Let me follow up, because in your testimony 
you described our neighbor to the north, Canada, as actively 
seeking to thwart dairy trade obligations, and you say that 
this merits a unique approach by the United States. Could you 
elaborate on what you mean by that?
    Mr. Mulhern. I think what we are looking for, in cases like 
this is, I think we need a sector-specific approach. We have 
been working with USTR on these issues. We are in active 
discussions with them. They are aware of our concerns and have 
been helpful to date in trying to address them. But it does 
give us great pause when we see a good trading partner for the 
United States--Canada--as Senator Coats mentioned in his 
comments, try to deploy efforts to circumvent agreements that 
we think we have with them on paper.
    So it is making sure through specific language, a written 
agreement, that the access that is supposed to be granted in 
one of these agreements is not circumvented through other 
efforts.
    Senator Thune. And what is so different about how Canada 
treats dairy? Just for purposes of the record.
    Mr. Mulhern. Well, Canada is committed certainly to 
protecting its domestic dairy industry, because they have a 
supply management program within Canada which limits domestic 
production. In order to do that, to keep a price level, they 
have long had their policy to greatly limit imports of dairy 
into that country.
    Our point through the TPP negotiations was, if you are 
going to be part of a free trade agreement, free trade is about 
free trade, and you cannot pick and choose. Frankly, we did not 
get the access into Canada that we had hoped to get in the TPP 
agreement, and that is an issue for us. But the limited access 
we did get we would like to be able to utilize.
    Senator Thune. You, in your testimony, also focused at 
length on the issue of geographical indications and how their 
misuse is threatening to create barriers to U.S. exports in a 
wide range of markets. As the U.S. explores how best to address 
this nontariff trade barrier, is it the European Union that we 
need to take to task? Or should we turn our attention to our 
trading partners who are agreeing to some of these 
restrictions?
    Mr. Mulhern. We need to do both. Number one, we need to 
address this issue head-on with the European Union. This is 
something that should be addressed perhaps on the side of the 
TTIP, because I think in our view it is going to hold it up if 
they try to keep pushing their approach through the TTIP 
negotiations. But it is also important that the U.S. Government 
deal with this directly in third markets where the EU is 
actively engaged in trade negotiations.
    TPP, frankly, has very good language which will help, and 
we pushed that GI language in TPP. That will be helpful. But it 
is happening in other markets as well. USTR has been engaged in 
this. They announced yesterday an agreement with Honduras to 
address GI issues in that market that we had raised as 
concerns. So I think we can see that progress can be made, but 
it is an effort that has to be done both directly with the EU 
first, and if we cannot stop that effort, we are going to have 
to continue to do what we are doing right now, which is in 
third countries' markets.
    Senator Thune. Thank you.
    Mr. Chairman, my time has expired. I hope we can figure out 
a path forward on dairy. That is the one area--not the only 
area, but certainly one area that causes great concern in this 
country with regard to implementation of the trade agreements 
that are in front of us. And by and large, most of the people, 
organizations that I represent that are in production 
agriculture, are very supportive of TPP, and I hope we get a 
good TTIP agreement. But dairy is certainly an outlier in that, 
and I hope we can make some headway that gets us to where this 
is a good deal for them as well.
    Thank you, Mr. Chairman.
    Senator Wyden. Thank you, Senator Thune. I am glad you 
brought up the dairy issue, and I intend to submit some 
questions in writing for that purpose as well.
    The chairman and I want to wrap this up by thanking all of 
you. We very much appreciate your being here and our colleagues 
participating. We have learned a lot at this hearing, and we 
are going to continue to work on both sides of the aisle to 
look at ways to improve U.S. trade policy, and particularly 
potential issues that may be encountered through implementation 
of future trade agreements, both in the United States and 
abroad.
    The chairman requests that any written questions for the 
record be submitted by Thursday, March 17th of this year.
    With that, the Finance Committee is adjourned.
    [Whereupon, at 11:35 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


           Submissions for the Record From Hon. Sherrod Brown

                      A GOLD STANDARD FOR WORKERS?

                     The State of Labor Rights in 
                  Trans-Pacific Partnership Countries




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                                AFL-CIO

Commonly Used Abbreviations:

Collective Bargaining Agreement (CBA)
Department of Labor (DOL)
Department of State (DOS)
Free Trade Agreement (FTA)
International Labor Organization (ILO)
Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC)
North American Agreement on Labor Cooperation (NAALC)
North American Free Trade Agreement (NAFTA)
Office of Trade and Labor Affairs (OTLA)
Organisation for Economic Co-operation and Development (OECD)
Trans-Pacific Partnership (TPP)
United Nations (UN)
United States Trade Representative (USTR)

                              INTRODUCTION

This report seeks to shed light on the state of labor rights and 
commitments among the Trans-Pacific Partnership (TPP) partner 
countries. Respect for labor rights is at the core of increasing jobs, 
raising wages and creating broadly shared prosperity. The Obama 
administration had promised that the TPP would be a 21st century 
agreement, a ``gold standard,'' that would promote and respect labor 
rights, and raise wages for U.S. workers and workers across the Pacific 
Rim. Unfortunately, the grim conditions facing workers in TPP partner 
countries were not effectively addressed in the TPP text or consistency 
plans. Many commitments to improve labor rights remain vague, and the 
proposed enforcement scheme relies on the discretion of the next 
administration. The failure of the TPP to incorporate needed 
improvements to labor commitments that already have proved themselves 
inadequate in previous agreements belies the agreement's stated 
commitment to workers. It is clear that, as currently drafted, the TPP 
would increase corporate profits and skew benefits to economic elites, 
while leaving workers to bear the brunt of the TPP's shortcomings, 
including lost jobs, lower wages and continued repression of worker 
rights.

The majority of this analysis is based on the submission of the Labor 
Advisory Committee for Trade Negotiations and Trade Policy (LAC), a 
body consisting of U.S. trade union leaders with a statutory 
responsibility to provide advice to U.S. trade negotiators. The LAC had 
the statutory duty to respond to three questions concerning the TPP:

1.  Is the Trans-Pacific Partnership in the economic interests of the 
United States?

2.  Does the TPP achieve the applicable overall and principal 
negotiating objectives?

3.  Does the TPP provide equity and reciprocity for labor interests?

On all three of these crucial questions, the LAC concluded that the TPP 
fell short. Overall, the LAC found the TPP is likely to harm U.S. 
manufacturing interests, cost good jobs, suppress wages, and threaten 
our democracy and economic security interests, while doing little to 
improve conditions for workers in the United States and overseas.

Before dealing with the question of labor conditions in the TPP 
countries, it is important to dispel some of the arguments that the 
supporters of the Trans-Pacific Partnership advance regarding the labor 
rights provisions in the text of the TPP.

``Enforceable'' Labor Rights Provisions

The TPP's supporters note that the TPP's labor provisions are 
``enforceable.'' This is the wrong measuring stick. The correct 
measurement is whether there are sufficient provisions to provide 
confidence that they will be enforced. The United States has never 
imposed trade sanctions or even a fine as a response to labor 
violations by FTA partner countries. It has only attempted dispute 
settlement once, against Guatemala. The Guatemala case has been ongoing 
since 2008 and workers have yet to experience any measurable 
improvements as a result.\1\ Despite receiving numerous specific 
recommendations, informed by experience, on how to turn theoretical 
enforceability into actual enforcement, the United States Trade 
Representative (USTR) failed to incorporate these recommendations. For 
example:
---------------------------------------------------------------------------
    \1\ As of February 1, 2016, a panel report from the first hearing 
(held in June 2015) has not even been published. Publication of the 
report is far from the end of the process. The case seems likely to 
drag on for years.

  The TPP fails to require parties to advance to the next stage in the 
dispute settlement process when an earlier stage proves ineffective 
(Article 19.15). This failure means that future labor submissions are 
---------------------------------------------------------------------------
likely to languish as the Guatemala case has.

  The TPP fails to include deadlines for its public submission process 
that would require parties to advance TPP submissions they receive in a 
timely manner (Article 19.9). This failure means that parties will be 
able to use ``administrative delays'' to indefinitely defer acting on 
such submissions, as happened with the Honduras case, in which the 
petitioners waited for an initial report for two and half years, and 
formal consultations have still not commenced.

  The TPP fails to clarify the obligations of the parties with respect 
to International Labor Organization (ILO) standards (Article 19.3). 
This vagueness as to what the obligation regarding freedom of 
association and other fundamental labor rights mean makes it less 
likely the labor obligations will be enforced effectively.

  The TPP fails to include measurable benchmarks or an independent 
evaluation to determine whether the consistency plans for Vietnam, 
Brunei and Malaysia are met. This failure means the determination that 
a consistency plan has been fulfilled and the TPP is ready for entry 
into force is wholly discretionary. The decision will be subject to 
immense commercial pressures to prematurely declare fulfillment. Such 
pressure was brought to bear regarding the Colombia Labor Action Plan 
(LAP), which also contained positive objectives, but lacked 
benchmarking criteria or an independent evaluation mechanism. As a 
result, success was declared prematurely, and Colombia has been out of 
compliance with its labor obligations since Day One of the agreement. 
This premature certification of compliance with the LAP apparently has 
deterred the U.S. government from self-initiating labor consultations 
with Colombia even though workers continue to be subjected to threats 
and violence, up to and including murder, in order to discourage them 
from the free exercise of their fundamental labor rights. There is no 
reason to expect a different outcome from the TPP plans.

  The TPP contains different dispute settlement mechanisms for foreign 
investors and working people (Chapters 9 and 19). Foreign investors can 
bring cases against TPP parties on their own, without having to 
petition their own government to do so. Working people must petition 
their governments, and then engage in years-long campaigns to attempt 
to move the cases through the arduous process. The negotiators 
demonstrated they know how to create effective dispute settlement 
mechanisms when they want to (Article 9). Thus, we conclude the failure 
to equalize the dispute settlement procedures available to workers was 
purposeful.

The TPP's supporters say the labor chapter responded to all of labor's 
concerns. This is a spurious claim--one that easily can be 
disproved.\2\ As detailed in the section above, a number of important 
labor recommendations were wholly ignored. Those proposals that were 
not wholly ignored were included in a weakened form that would 
undermine their effectiveness.
---------------------------------------------------------------------------
    \2\  See ``Report on the Impacts of the Trans-Pacific Partnership'' 
by The Labor Advisory Committee on Trade Negotiations and Trade Policy, 
December 2, 2015, especially Chapter V and Annex 1.

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After providing high levels of engagement at the initial stages of the 
TPP negotiations, USTR moved in the opposite direction. Between 
February 21, 2012, and July 2015, the USTR and the Department of Labor 
(DOL) provided no updated texts of the labor chapter (and the same was 
true for many chapters of interest to working people). Furthermore, the 
LAC was never allowed to review the text or substance of the draft 
labor consistency plans for Vietnam, Malaysia and Brunei, despite 
numerous requests. Given that these arrangements are focused on these 
countries' labor and employment laws, the unwillingness of U.S. 
negotiators to share draft text of these arrangements with its labor 
advisers (who have security clearances) is indicative of the 
indifference USTR generally displayed toward its consultation process 
with the LAC throughout TPP negotiations. The gaps in labor rights 
coverage and lack of accountability mechanisms in the TPP exemplify the 
outcome of such an approach. The LAC could have offered advice that 
would have plugged holes and strengthened weak spots, but we were not 
provided an opportunity to do so, despite our role pursuant to the 
---------------------------------------------------------------------------
Trade Act of 1974.

The TPP's supporters say it is much stronger than the May 10th labor 
chapter. USTR argues the TPP labor chapter greatly improves on language 
developed in 2007 known as the ``May 10th'' agreement on labor, which 
included ``enforceable'' language requiring countries to adopt and 
maintain in their laws, and to practice five basic internationally 
recognized labor principles as stated in the ILO Declaration on 
Fundamental Principles and Rights at Work. Yet the changes are minor 
and provide little value to workers (for example, TPP parties must set 
a minimum wage, but there is no level below which that wage cannot go). 
As the AFL-CIO noted at the time, the May 10th agreement, though an 
important step forward from previous FTAs, was ``by no means a complete 
fix appropriate for any country or any situation.'' \3\
---------------------------------------------------------------------------
    \3\ Letter from Bill Samuel, director, Department of Legislation, 
AFL-CIO, to Congress. Available at: www.massaflcio.org/sites/
massaflcio.org/files/PERUlettertoHouse.907.pdf.

Because both the May 10th agreement and earlier labor provisions have 
been weakly enforced,\4\ the labor movement worked hard to develop 
proposals, provide recommendations and engage positively with USTR to 
reform labor texts that had proved ineffective, even when dealing with 
countries with less severe labor and human rights issues than Vietnam 
and Malaysia. Rather than trying a new model, the TPP incorporates 
without improvement numerous provisions, including the discretion to 
indefinitely delay acting on labor rights violations, already known to 
be ineffective. Because employers in our trading partner countries will 
continue to abuse workplace rights, workers throughout the TPP region 
will continue to make lower wages and will have fewer benefits and more 
dangerous workplaces than they otherwise might. An injury to a worker 
in Vietnam will indeed affect his or her American counterpart by 
driving down wages and working conditions.
---------------------------------------------------------------------------
    \4\ Government Accountability Office (GAO), ``Free Trade 
Agreements: U.S. Partners Are Addressing Labor Commitments, But More 
Monitoring and Enforcement Are Needed,'' November 2014. Available at: 
www.gao.gov/assets/670/666787.pdf; GAO, ``Four Free Trade Agreements 
GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on 
Labor and Environment Remain,'' July 2009. Available at: www.gao.gov/
products/GAO-09-439.

TPP supporters say the TPP would, for the first time, require parties 
to have laws concerning ``acceptable conditions of work with respect to 
minimum wages, hours of work and occupational safety and health.'' 
Unfortunately, because the TPP sets no minimum standards for these 
laws, this provision is not as valuable as it might first appear. The 
TPP explicitly provides that these obligations will be satisfied ``as 
determined by'' each country (Article 19.3.2). As a result, a TPP 
country can set a minimum wage of a penny an hour, or allow shifts of 
20 hours per day with no overtime pay, or require workers to provide 
their own safety gear--and yet be fully compliant with the TPP. Thus, 
this provision adds little in terms of meaningful new protections for 
---------------------------------------------------------------------------
workers in TPP countries.

TPP supporters say it requires TPP countries to combat trade in goods 
made with forced labor. Rather than requiring countries to prohibit or 
even combat trade in goods made with forced labor, the TPP requires 
parties only to ``discourage'' trade in such goods ``through 
initiatives it considers appropriate'' (Article 19.6). This language 
ensures a TPP party can judge for itself whether it is ``discouraging'' 
such trade. A TPP country not inclined to do much might, for example, 
put up a poster alerting customs employees that trade in goods made 
with forced labor should be discouraged. The provision allows parties 
to judge for themselves whether their initiatives are adequate, and 
even contains a footnote noting the provision provides no authorization 
to discourage trade in goods made with forced labor if such activities 
would violate obligations made in other trade deals. Thus, this 
provision provides no assurances that workers would be protected from 
forced or compulsory labor, including forced or compulsory child 
labor--and explicitly prioritizes trade obligations over obligations to 
protect human rights.

TPP supporters say the TPP obligates parties not to waive or derogate 
from statutes or regulations implementing minimum wages, hours of work, 
and occupational safety and health in a special trade zone or customs 
area. This is yet another provision that adds little for workers. As 
explained above, a TPP party's laws need not set meaningful standards 
regarding minimum wages, hours of work, and occupational safety and 
health. While preventing TPP parties from reducing these standards 
through waiver or derogation is a laudable goal, this particular 
obligation only applies ``in a special trade or customs area, such as 
an export processing zone or foreign trade zone, in the Party's 
territory.'' Thus, it leaves the vast majority of TPP workers without 
this protection. The AFL-CIO had requested that parties not be allowed 
to waive or derogate from laws regarding acceptable conditions of work 
for any worker--as such a commitment would have been useful. Limiting 
the reach of this provision to special zones only limits its 
usefulness.

The TPP's supporters say it requires countries to eliminate 
discrimination in employment. Unfortunately, the text of the TPP itself 
is vague regarding what types of discrimination are prohibited, even 
though a number of TPP countries have entrenched in practice (and in 
some cases in law) discrimination against disfavored groups. For 
example, Vietnam's consistency plan only requires Vietnam to prohibit 
discrimination on the basis of color, race and national extraction. It 
fails to mention religion, political opinion, LGBT status or 
immigration status.\5\ These glaring omissions leave open the strong 
possibility that these other bases of discrimination will be used as a 
pretext to discourage unions and deter workers from exercising their 
rights. Similarly, the Malaysia consistency plan fails to address 
discrimination on the basis of LGBT or immigration status, even though 
discrimination on these grounds is pervasive throughout Malaysia. 
Likewise, the Brunei consistency plan fails to address LGBT or 
immigration status even though it enacted a Sharia legal code during 
the TPP negotiations that includes the death penalty for illicit sexual 
relations.\6\ Moreover, neither the TPP text nor the consistency plans 
address basic human rights, including freedom of expression. Without 
even basic protections for such freedoms, it seems insincere to argue 
that governments that have engaged in years of repression against free 
and independent labor unions will not resort to other legal means at 
their disposal to continue to undermine workplace rights. These glaring 
omissions mean that workers who should be protected likely will 
continue to face major threats and discrimination that the TPP, on its 
face, will be unable to address.
---------------------------------------------------------------------------
    \5\ While gender also is not mentioned in the Vietnam consistency 
plan, Vietnam already has strong gender equity laws.
    \6\ Quratul-Ain Bandial and Bandar Seri Begawan, ``A New Era for 
Brunei,'' The Brunei Times, April 30, 2014. Available at: 
www.bt.com.bn/frontpage/2014/04/30/new-era-brunei.

TPP supporters argue that the TPP is ``one of the best tools we have to 
fight forced labor and human trafficking'' in Malaysia.\7\ Similar 
promises were made about the Colombia trade deal. The ``strong labor 
provisions'' of that trade deal were supposed to provide leverage to 
raise standards for a country with notoriously abusive labor practices, 
which had reduced labor density to 1% through a campaign of terror 
against labor leaders and activists. Unfortunately, because the 
Colombia trade deal went into effect before it had complied in both law 
and practice with its labor obligations, the promised leverage was 
lost. Now, even though threats and violence against trade unionists 
have increased since the deal's entry into force, the United States has 
failed to respond. The commercial pressure to keep trade flowing freely 
has superseded efforts to protect workers so they can act collectively 
to raise their wages and conditions of work. Likewise, the TPP includes 
Malaysia, a country with a notoriously bad record on human trafficking 
and forced labor. To deal with this, labor unions suggested new 
protections for migrant workers that would have obligated all TPP 
countries to prohibit certain practices by employers and labor 
recruiters that are linked to forced labor and human trafficking. We 
also recommended a clause making clear that migrant workers are 
entitled to the same rights and remedies as all other workers. Both of 
these recommendations were soundly rejected. Since the trafficking 
provisions in the Malaysia consistency plan apply only to Malaysia and 
have no independent evaluation mechanism, it is unlikely the TPP will 
prove effective at addressing trafficking and forced labor.
---------------------------------------------------------------------------
    \7\ https://medium.com/the-trans-pacific-partnership/frequently-
asked-questions-on-the-trans-pacific-partnership-
eddc8d87ac73#.rn5kzfxr8.

         ANALYSIS OF LABOR CONDITIONS IN TPP PARTNER COUNTRIES

The TPP includes countries with entrenched labor and human rights 
abuses that are unlikely to be solved during a short implementation 
period.\8\
---------------------------------------------------------------------------
    \8\ It is important to note the United States is also out of 
compliance in a number of ways with fundamental labor rights. As Human 
Rights Watch put it, ``Freedom of association is a right under severe, 
often buckling pressure when workers in the United States try to 
exercise it.'' Particularly egregious examples include restrictions and 
in some cases even prohibitions on the rights of freedom of association 
and collective bargaining for many public employees (at the federal, 
state and local levels), child labor in the agricultural sector, many 
prison labor systems, and the lack of a federal regime sufficient to 
deter private-sector employers from routinely interfering with the 
right to freedom of association.

The following summary of the labor and human rights practices of other 
TPP countries is broken down into three categories: countries with 
critical labor rights violations, countries with serious concerns and 
selected labor rights violations in partner countries. Holistically, 
each partner country is assessed on the basis of its adherence to the 
ILO's five fundamental labor rights: the right to freedom of 
association, the right to collectively bargain, the abolition of forced 
or compulsory labor, the abolition of child labor and 
nondiscrimination. This report also will consider how the TPP and, in 
some cases, U.S.-negotiated labor consistency plans (side agreements 
for Vietnam, Malaysia and Brunei) would impact the situation for 
workers in the future. It will conclude with recommendations for a 
---------------------------------------------------------------------------
worker-centered trade policy.



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I. Countries with Critical Labor Rights Violations (Out of Compliance)

Mexico

The human and labor rights situation in Mexico is rapidly 
deteriorating. Mexico currently fails to adopt and implement laws that 
protect the ILO's core labor standards. Indeed, the Department of State 
(DOS) Mexico 2014 Human Rights Report concludes that:

        The government did not consistently protect worker rights in 
        practice. Its general failure to enforce labor and other laws 
        left workers without much recourse with regard to violations of 
        freedom of association, working conditions, or other 
        problems.\9\
---------------------------------------------------------------------------
    \9\ DOS, DRL, ``Country Reports on Human Rights Practices for 2014: 
Mexico,'' 2014. Available at: www.state.gov/j/drl/rls/hrrpt/
humanrightsreport/index.htm#wrapper.

The use of ``protection contracts'' (agreements masquerading as 
collective bargaining agreements (CBAs) signed between an employer and 
an employer-dominated union, often without the knowledge of the 
workers) is the most serious threat to freedom of association and 
collective bargaining in Mexico. Today, there are estimated to be tens 
of thousands of protection contracts and tens of thousands of 
workplaces in Mexico covering millions of workers. In thousands of 
workplaces, workers are governed by contracts they have never ratified, 
---------------------------------------------------------------------------
were never consulted on, and in many cases have never seen.

When workers attempt to bring complaints about protection contracts, 
these complaints are heard by Mexico's Conciliation and Arbitration 
Boards (CABs), which are politically biased and corrupt.\10\ Instead of 
ensuring workers can exercise their rights under Mexican and 
international law, the CABs, the labor authorities and sometimes 
privately hired or public police forces have interfered with workers' 
freedom of association. This situation presents itself at the worksites 
of many multinational companies, including Atento, Excellon, Honda, PKC 
and Teksid.\11\ In the agricultural sector, child labor, forced labor 
and inhumane working conditions exist on farms that export fresh 
produce into the United States, which then is sold at major retailers, 
including Walmart and Safeway.\12\ The recent mobilizations in Baja 
California for better wages in the agricultural sector and the right to 
form independent unions were met with police repression.\13\
---------------------------------------------------------------------------
    \10\ Graciela Bensusan and Arturo Alcalde, ``El sistema de justicia 
laboral en Mexico: situacion actual y perspectivas,'' (June 2013). 
Available at: www.fesmex.org/common/Documentos/Libros/
Paper_AP_Justicia_Laboral_Bensusan-Alcalde_Jun2013.pdf; U.S. National 
Administrative Office, public review of submission 9703 (Itapsa) 
(evidence ``raises questions about the impartiality of the CAB and the 
fairness, equitableness and transparency of its proceedings and 
decisions''); public review of submission 9702 (Han Young); Julie M. 
Wilson, ``Mexican Arbitral Corruption and the North American Agreement 
on Labor Cooperation: A Case Study.'' Swords and Ploughshares: A 
Journal of International Affairs 12, No. 1 (Spring 2003): 61-77; Adam 
Bookman and Jeffrey K. Staton, ``A Political Narrative of Mexican 
Labour Arbitration Boards and Legal Strategies.'' Paper prepared for 
presentation at the Conference on the Scientific Study of Judicial 
Politics. Texas A&M. October 21-23. Political Science Working Paper 
#375. It has been suggested that the boards can be made more efficient 
by adopting oral procedures. See Instituto Mexicano para la 
Competitividad, Por una mejor justicia laboral (2014). However, it has 
been reported that in some labor boards the recordings of these 
proceedings are being used to bring criminal complaints against workers 
and their attorneys. Manuel Fuentes Muniz, La justicia laboral de 
embudo, July 1, 2014. Available at: http://
manuelfuentesmuniz.blogspot.com/2014/07/la-justicia-laboral-de-embudo-
la-silla.html.
    \11\ Sindicato Mexicano de Electricistas, Public Communication 
under the North American Agreement on Labor Cooperation (November 4, 
2011): 5-6. Available at: www.dol.gov/ilab/submissions/pdf/
MexicoSubmission2011.pdf.
    \12\  Marosi, Richard, ``Product of Mexico,'' Los Angeles Times, 
December 7, 2014. Available at: http://graphics.latimes.com/product-of-
mexico-camps/.
    \13\ Binkowski, Brooke, ``Arrests as Mexico farming wage strike 
turns violent,'' Al Jazeera, May 12, 2015. Available at: 
www.aljazeera.com/news/2015/05/150512051555205.html.

The union certification process is designed to limit worker 
representation. For example, a requirement known as toma de nota has 
been used by the labor authorities as a tool to deny union office to 
leaders who are politically disfavored under the guise of an elections 
certification process. Labor authorities also have denied legal 
registration to independent unions on seemingly arbitrary or technical 
grounds. They continue to assert that unions may represent only workers 
in specific industries, and that the state may restrict a union to a 
specific ``radius of action'' (radio de accion).\14\
---------------------------------------------------------------------------
    \14\ See Secretaria Auxiliar de Conflictos Colectivos, Junta 
Especial Numero Quince, Expediente Numero: IV.54J2012.

The magnitude of these problems has been well documented in public 
reports, submissions under the North American Agreement on Labor 
Cooperation (NAALC),\15\ reports of the ILO Committee on Freedom of 
Association,\16\ academic investigations \17\ and recent case 
studies.\18\ Although Mexico and the United States have had more than 
20 years to work on bringing Mexican labor law and practice up to 
minimum international standards through the NAALC process, labor abuses 
in many cases are worse now than before the North American Free Trade 
Agreement (NAFTA), and these abuses appear to be concentrated in supply 
chains that feed U.S. markets.
---------------------------------------------------------------------------
    \15\ See U.S. National Administrative Office, public reports of 
review for public submissions 940003 (Sony), 2003-01 (Puebla), 2005-03 
(Hidalgo), 9702 (Han Young), 9703 (Itapsa).
    \16\ See, e.g., ILO CFA cases 2115, 2207, 2282, 2308, 2346, 2347, 
2393.
    \17\ Jose Alfonso Bouzas Ortiz (Coordinador) EVALUACION DE LA 
CONTRATACION COLECTIVA EN EL DISTRITO FEDERAL, Friedrich Ebert 
Foundation, 2009. Available at: www.democraciaylibertadsindical.org.mx/
media_ files/LIBRO_BOUZAS.pdf; Carlos de Buen Unna, ``Collective 
bargaining agreements for employer protection (`protection contracts') 
in Mexico,'' Friedrich Ebert Foundation, 2011. Available at: 
www.democraciaylibertadsindical.org.mx/media_ files/
Paper_Charles_De_Buen.pdf; Chris Tilly and Jose Luis Alvarez Galvan, 
``Lousy Jobs, Invisible Unions: The Mexican Retail Sector in the Age of 
Globalization.'' International Labor and Working-Class History 70 
(2006), pp. 1-25.
    \18\ See, e.g., Worker Rights Consortium, Violations of 
International Labor Standards at Arneses Y Accesorios De Mexico, S.A. 
DE C.V. (PKC GROUP), June 18, 2013. Available at: http://
workersrights.org/Freports/
WRC%20Findings%20and%20Recommendations%20re%20Arneses%
20y%20Accesorios%20de%20Mexico%2006.18.13.pdf; Centro de Reflexion y 
Accion Laboral, ``After the Reform: Fifth report about the labor 
conditions of Mexico's electronics industry,'' August 2013. Available 
at: www.fomento.org.mx/novedades/Informe2013-ingles.pdf.

In short, NAFTA has contributed to labor abuses, not improvements. 
NAFTA also contributed to massive displacement of Mexican 
campesinos.\19\ Some of these workers searched for promised new jobs in 
the maquiladoras. Many others migrated north to the United States, 
either through irregular channels or by utilizing often-exploitative 
labor recruitment firms and guestworker visa programs. As documented in 
a 2011 NAALC petition, migrant workers in the United States are subject 
to a range of labor rights violations.\20\ Meanwhile, companies have 
shifted manufacturing work to Mexico for decades to take advantage of 
displaced campesinos and other impoverished workers who lack the most 
basic workplace protections.
---------------------------------------------------------------------------
    \19\ M. Angeles Villarreal, ``NAFTA and the Mexican Economy,'' 
Congressional Research Service, June 3, 2010.
    \20\ Petition on Labor Law Matters Arising in the United States 
submitted to the National Administrative Office (NAO) of Mexico under 
the NAALC, ``Regarding the Failure of the U.S. Government to 
Effectively Enforce its Domestic Labor Laws, Promote Compliance with 
Minimum Employment Standards, and Protect Migrant Workers,'' September 
19, 2011.

There is currently a crisis of violence and impunity taking place in 
Mexico that raises doubts about whether the Mexican government can and 
will fulfill its obligations under the TPP. The disappearance last year 
of 43 students, now declared dead, from the teachers' college in 
Ayotzinapa, Guerrero, by local police and criminal gangs widely 
believed to be responsible, is a horrific example of violence, 
corruption and dissolution of the rule of law. More than 22,000 persons 
have disappeared since 2007, including more than 5,000 in 2014 
alone.\21\ These crimes rarely are investigated and almost never 
prosecuted, allowing public security forces--the same that have 
sporadically engaged in violent worker repression over the years--to 
operate with impunity.
---------------------------------------------------------------------------
    \21\ ``Law and Order in Mexico,'' The New York Times, November 11, 
2014. Available at: www.nytimes.com/2014/11/12/opinion/murder-in-
mexico.html?_r0; ``Mexico's Disappeared,'' Human Rights Watch, February 
20, 2013. Available at: www.hrw.org/reports/2013/02/20/mexicos-
disappeared-0.

There is nothing in the TPP's labor chapter that would ensure Mexico's 
history of worker abuse and exploitation will be remedied. No 
provisions were added to the enforcement section to ensure monitoring 
and enforcement of the labor obligations will be deliberate, 
consistent, timely, vigilant, effective or automatic. There is not even 
a ``consistency plan'' for Mexico despite the U.S. government's 
extensive knowledge of the problems--problems that not only impoverish 
Mexico's workers, but also act as an inducement to transfer production 
out of the United States. The TPP fails to even include any specific 
protections for equal rights and remedies for migrant workers, or 
specific prohibitions against exploitive or fraudulent international 
labor recruitment, which labor union presidents had recommended 
---------------------------------------------------------------------------
strongly.

In December 2015 in Cancun, Mexico, President Pena Nieto announced he 
would send new labor law reform proposals to Congress early this year, 
but to date there is no clear process to include independent unions and 
civil society in developing these proposals.

The president of Mexico also sent ILO Convention 98 on the right to 
organize and collective bargaining to the Senate for ratification, and 
the labor secretary has announced a new inspection protocol that 
supposedly would verify whether workers understand their contracts, but 
workers still would lack the right to get a copy of their contract, 
which reinforces the current protection contract model.

On January 20, 2016, the Mexican Supreme Court ruled the government can 
cap back pay at one year in lawsuits over unjust firings, although on 
average these cases take more than three years to resolve. This ruling 
creates a perverse incentive to fire workers who attempt to organize 
democratic unions.

Despite public statements promising to address worker rights issues, 
the Mexican government has failed to address systemic worker rights 
violations. The government continues to fail to eliminate the CABs and 
replace them with independent labor judges, create transparency in the 
union contracts and certification, or ensure that union democracy is 
protected through improved election and certification processes. Labor 
rights must be enforced, not be just potentially enforceable, to have 
an impact on the ground. As currently written, the TPP fails to meet 
this benchmark, and would reward Mexico with more trade benefits before 
the government makes fundamental and structural changes to its labor 
system to bring it into compliance with international labor law.

Vietnam

Vietnam has an authoritarian government that limits political rights, 
civil liberties and freedom of association. The government maintains a 
prohibition on independent human rights organizations and other civil 
society groups. Without the freedom to exercise fundamental labor 
rights, labor abuses in Vietnam are pervasive, artificially suppressing 
wages, stifling the ability of Vietnamese workers to escape poverty, 
and putting U.S. and other workers at a disadvantage in the global 
market. Labor provisions in the TPP and the labor consistency plan do 
not appear to be carefully crafted to effectively mitigate this urgent 
problem or empower workers to improve conditions.

The Vietnamese government currently restricts union activity outside 
the official unions affiliated with the Communist Party's Vietnam 
General Confederation of Labor (VGCL), which actually controls the 
union registration process.\22\ Workplace-level VGCL unions generally 
have management serving in leadership positions, and when that is not 
the case, workers cannot meet as the union without management 
present.\23\ This effectively bars the possibility of establishing 
independent trade unions in Vietnam. Further, there is no right to 
strike in Vietnam. Wildcat strikes and industrial actions outside VGCL 
unions have led to government retaliation, including prosecution and 
imprisonment.
---------------------------------------------------------------------------
    \22\ U.S. DOS, ``Vietnam 2014 Human Rights Report,'' 2014. 
Available at: www.state.gov/documents/organization/236702.pdf.
    \23\ ITUC, ``Survey of Violations of Trade Union Rights: Vietnam,'' 
2014. Available at: http://survey.ituc-csi.org/
Vietnam.html?lang=en#tabs-3.



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Government repression of civil liberties further undermines industrial 
relations in Vietnam. Corruption in the judicial system and widespread 
law enforcement abuse, including arbitrary killings, stifles 
whistleblowers and labor activists, as well as human rights 
defenders.\24\ The government blocks access to politically sensitive 
websites and monitors the Internet for the organization of unauthorized 
demonstrations.\25\
---------------------------------------------------------------------------
    \24\ Human Rights Watch, ``World Report 2015: Vietnam,'' 2015. 
Available at: https://www.hrw.org/world-report/2015/country-chapters/
vietnam.
    \25\ DOS, ``Vietnam 2014 Human Rights Report,'' 2014.

Vietnam has significant problems with forced labor and child labor. The 
U.S. DOL finds that child labor is prevalent in the production of 
bricks and garments. Forced labor and human trafficking also is 
prevalent in the garment sector and in the informal economy.\26\ 
Vietnam is the second-largest source of apparel and textile imports to 
the United States, totaling just under $10 billion in value \27\ and 
employing more than 2 million workers.\28\ Many of the clothes contain 
textiles produced in small workshops subcontracted to larger factories. 
These workshops frequently use child labor, including forced labor 
involving the trafficking of children from rural areas into cities.\29\
---------------------------------------------------------------------------
    \26\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced 
Labor: Vietnam,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Vietnam; Office to Monitor and Combat 
Trafficking in Persons, 2015 Trafficking in Persons Report, 
``Vietnam.'' Available at: www.state.gov/documents/organization/
243562.pdf; scroll down to Vietnam report, page 362.
    \27\ ITA, Office of Textiles and Apparel, ``Major Shippers Report: 
U.S. General Imports By Country,'' September 2015. Available at: http:/
/otexa.trade.gov/msrcty/v5520.htm.
    \28\ Worker Rights Consortium, ``Made in Vietnam,'' May 2013. 
Available at: www.
workersrights.org/linkeddocs/WRC_Vietnam_Briefing_Paper.pdf.
    \29\ Ibid.

The government of Vietnam also actively imposes compulsory labor on 
drug offenders. In these work centers styled as drug treatment centers, 
detainees are harassed and physically abused when they do not meet 
their daily factory quotas in so-called ``labor therapy.'' An estimated 
309,000 people were detained in Vietnam's drug detention centers from 
2000 to 2010. The detainees receive little or no pay for their 
work.\30\
---------------------------------------------------------------------------
    \30\ Human Rights Watch, ``World Report 2015: Vietnam,'' Adeline 
Zensius, ``Forced Labor in Vietnam: A Violation of ILO Convention 29, 
``International Labor Rights Forum, December 2011. Available at: http:/
/laborrightsblog.typepad.com/international_labor_right/2011/09/forced-
labor-in-vietnam-a-violation-of-ilo-convention-
29-.html#sthash.FJEFKvw8.dpuf.

The labor consistency plan with Vietnam offers many improvements on 
paper, but few of them are likely to be actualized given that full TPP 
membership and market access will be granted after ratification and 
before changes are made. The plan contains a number of other 
shortcomings. It allows Vietnam to give ``independent'' unions 
``mandatory political obligations and responsibilities'' so long as 
they are not ``inconsistent with labor rights as stated in the ILO 
Declaration.'' It is inconsistent with the concept of free and 
independent unions to allow the government to saddle them with 
``political obligations'' of any kind. The plan calls for a prohibition 
on discrimination, but does not include religion, political opinion, 
immigration status and sexual orientation/gender expression as 
protected categories. Despite important language clarifying the right 
to strike, the right of unions to independently manage their own 
affairs and elect their own leadership, and to create independent 
federations, it is not clear that penalties for employer violation of 
---------------------------------------------------------------------------
these rights will be established.

Further, the plan provides a free pass to Vietnam to deny the right to 
freedom of association above the enterprise level for at least the 
first 5 years after the TPP's entry into force. The potential penalty 
is only a delay of future tariff reductions. However, by Year Six of 
the agreement, Vietnam already will enjoy the bulk of the tariff 
reductions required by the TPP, including significant market access in 
the all-important garment sector. By providing a grace period, the 
agreement gives away important leverage that could improve the 
situation now.

The market opening benefits of the TPP should not apply to Vietnam 
unless and until Vietnam comes into full compliance with fundamental 
labor rights. Anything less essentially will create a permanent ceiling 
on labor and human rights in Vietnam, stunting Vietnamese wage growth, 
suppressing Vietnamese demand and continuing to allow social dumping on 
world markets.

Malaysia

Malaysia has grave problems with every one of the five fundamental 
labor rights. Particularly troubling is its profound failures to 
protect workers from forced labor and human trafficking. The DOL 
reports that forced labor is prominent in the electronics and garment 
industries, and the palm oil sector, which also uses child labor.\31\ 
The majority of the victims of forced labor in Malaysia are among the 
country's 4 million migrant workers--40% of the overall workforce.\32\ 
The government of Malaysia's failure to uphold labor rights, or even 
basic human dignity, puts the products of forced labor into the hands 
of U.S. consumers, and forces U.S. workers to compete with a workforce 
with few rights and protections.\33\ Under current conditions, it is 
difficult, if not impossible, to imagine these workers moving into the 
middle class and becoming a significant market for U.S. exports.
---------------------------------------------------------------------------
    \31\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced 
Labor: Malaysia,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Malaysia.
    \32\ ``Immigration in Malaysia: Assessment of its Economic Effects, 
and a Review of the Policy and System,'' The World Bank: Human 
Development Social Protection and Labor Unit East Asia and Pacific 
Region, 2013. Available at: http://psu.um.edu.my/images/psu/doc/
Recommended
%20Reading/Immigration%20in%20Malaysia.pdf.
    \33\ Verite, ``Forced Labor in the Production of Electronic Goods 
in Malaysia: A Comprehensive Study of Scope and Characteristics,'' 
2014. Available at: https://www.verite.org/research/
electronicsmalaysia.

Freedom of association is strictly limited, as there are many legal 
restrictions on industrial action and police permission is required for 
public gatherings of more than five people.\34\ Collective bargaining 
also is restricted, especially for migrants and public-sector workers. 
Employers use provisions that allow for multiple unions at the 
enterprise level to set up company-dominated unions and erode the 
bargaining power of representative unions. Trade union leaders and 
workers report that employers regularly terminate or penalize workers 
for expressing their political opinions or highlighting alleged 
wrongdoings by employers. These practices contribute to the overall 
level of exploitation, suppressing wages and driving demand down.
---------------------------------------------------------------------------
    \34\ ITUC, ``Survey of Violations of Trade Union Rights: 
Malaysia,'' 2015. Available at: http://survey.ituc-csi.org/
Malaysia.html?lang=en#tabs-2.

Migrants to Malaysia face a range of abuses related to their 
recruitment and placement, and often are threatened with deportation 
for speaking out. Migrant workers in agriculture, construction, 
textiles and electronics, and domestic workers throughout Malaysia, are 
subjected to restrictions on movement, deceit and fraud in wages, 
document confiscation, and debts by recruitment agents or employers. 
Migrants also are limited in their ability to improve these conditions. 
While the Malaysian Employment Act of 1955 guarantees all workers, 
including migrant workers, the right to join a trade union, employers 
and government authorities discourage union activity among migrants, 
and work contracts and subcontracting procedures often undermine worker 
agency.\35\
---------------------------------------------------------------------------
    \35\ Human Rights Watch, ``US/Malaysia: Letter to Secretary Kerry 
on Trafficking in Persons in Malaysia,'' July 31, 2015. Available at: 
https://www.hrw.org/news/2015/07/31/us/malaysia-letter-secretary-kerry-
trafficking-persons-malaysia; Kosh Raj Koirala, ``Malaysia flouts own 
law on migrants' trade union rights,'' Nepal Republic Media, June 26, 
2015. Available at: www.myrepublica.com/politics/story/23544/plight-of-
nepalis-in-malaysia-flouting-own-law-malaysia-prevents-migrants-
joining-trade-union.html#sthash.txEWzuIN.dpuf.

Some of the most recognizable electronics brands operate or source 
components from Malaysia, including Intel, Advanced Micro Devices, Dell 
and Flextronics.\36\ Verite interviewed more than 500 workers and found 
that approximately 28% of electronics workers toiled in conditions of 
forced labor. Additionally, 73% of workers reported violations that put 
them at risk for forced labor, such as outsourcing, debt from 
recruitment fees, constrained movement, isolation and document 
retention.\37\
---------------------------------------------------------------------------
    \36\ Malaysia Investment Development Authority, ``Top 10 U.S. 
Companies in Malaysia,'' 2012. Available at: www.mida.gov.my/env3/
uploads/events/TIMUSA29042012/02Top10USCompan
ies.pdf.
    \37\ Verite, ``Forced Labor in the Production of Electronic Goods 
in Malaysia.''

In May 2015, Malaysian police uncovered 139 makeshift graves in the 
jungle alongside abandoned cages used to detain migrant workers--an 
operation so massive many believe local officials were complicit.\38\ 
Not long after, the U.S. State Department made the disastrous and 
apparently political decision to upgrade Malaysia in its annual 
Trafficking in Persons Report from Tier 3 to the Tier 2 watch list--
removing the country from the threat of trade restrictions under the 
TPP or other sanctions tied to Tier 3 status.\39\ The situation in 
Malaysia has not improved: forced labor, human trafficking and 
exploitation remain pervasive.
---------------------------------------------------------------------------
    \38\ Wang Kelian, ``Malaysia finds 139 graves in `cruel' jungle 
trafficking camps,'' Reuters, May 25, 2014. Available at: 
www.reuters.com/article/us-asia-migrants-idUSKBN0OA06W20150525#
lbtiVKhvKl33D1cQ.97; Ambiga Sreenevasan, ``Malaysia's deadly 
connection,'' MalayMail, July 24, 2014. Available at: 
www.themalaymailonline.com/what-you-think/article/malaysias-deadly-
connection-ambiga-sreenevasan.
    \39\ Office to Monitor and Combat Trafficking in Persons, 2015 
Trafficking in Persons Report, ``Malaysia.'' Available at: 
www.state.gov/j/tip/rls/tiprpt/countries/2015/243485.htm.



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Fundamental reforms must be taken in terms of Malaysia's labor, 
immigration and industrial policies before workers will be able to 
escape the cycle of exploitation and vulnerability that often leads to 
labor abuses and trafficking. Despite Malaysia's notorious failure to 
combat human trafficking and protect the rights of migrant workers, the 
TPP fails to even include any specific protections for equal treatment 
for migrant workers or against exploitive or fraudulent international 
---------------------------------------------------------------------------
labor recruitment.

The TPP labor provisions and the Malaysia consistency plan have some 
helpful provisions. For example, the consistency plan calls on Malaysia 
to amend its laws to limit the ability of labor officials to deny trade 
union registration and affiliation; make it illegal to retain a 
worker's passport; expand the right to strike; and allow migrant 
workers improved trade union rights. However, despite these provisions, 
they do not appear sufficient to ensure working people in Malaysia will 
be able to exercise their fundamental labor rights.

The plan does not clearly call for an expansion of the right to bargain 
collectively in all sectors, nor does it appear to hold employers fully 
accountable for abuses in subcontracting and recruitment processes--
major factors in the perpetuation of forced labor. Improved rules 
regarding access to justice, recruitment fees, targeted labor 
enforcement in industries known to be problematic and victim services 
still could be lacking even under the agreement. Nor does the agreement 
address basic human rights, including the right to free assembly and 
lack of civil rights for LGBT persons. As such, employers and 
government officials still may attack workers for their advocacy, while 
claiming to be using a different section of Malaysia's legal code to do 
so.

All workers in Malaysia must be broadly empowered to improve wages and 
working conditions. The consistency plan fails to meet this benchmark 
and lacks any specific measurements or criteria to evaluate the 
implementation and enforcement of the required reforms. Given that 
Malaysia could be rewarded with greater market access under the Trans-
Pacific Partnership without having to first enforce the changes it 
promises to make on paper, there will be little incentive for the 
government to end exploitative working conditions or the brutality of 
forced labor after entry into force.

Brunei

The human and labor rights situation in Brunei is dire. Under the 
Sultan of Brunei, whose family has ruled for more than six centuries, 
the country adheres to a strict penal code based on Sharia law, which 
mandates flogging, dismemberment and death by stoning for crimes such 
as adultery, alcohol consumption and homosexuality. Despite widespread 
calls from U.S. labor, LGBT and human rights groups to exclude Brunei 
from the TPP, it appears the agreement and the consistency plan situate 
the U.S. and Brunei governments to enter into a permanent trading 
relationship without ensuring that working families can exercise their 
fundamental human and labor rights in Brunei.

Freedom of speech in Brunei is severely limited, and the legislature 
has a limited role.\40\ It is difficult, if not impossible, to imagine 
freedom of association will exist where the right to free speech does 
not accompany it. Under the Internal Security Act, activists deemed to 
be anti-government can be detained without trial indefinitely, 
renewable for two-year periods.\41\ Harsh punishment stifles worker 
activism, and there is a nationwide prohibition on collective 
bargaining.
---------------------------------------------------------------------------
    \40\ U.S. Department of State (hereinafter DOS), ``Brunei 2014 
Human Rights Report,'' 2014. Available at: www.state.gov/documents/
organization/236638.pdf.
    \41\ Amnesty International, ``Amnesty International Report 2014/15: 
Brunei Darussalam,'' 2015. Available at: https://www.amnesty.org/en/
countries/asia-and-the-pacific/brunei-darussalam/report-brunei/.

Workers, and migrant workers in particular, have few protections for 
their basic rights. The government prohibits strikes. The law does not 
provide for reinstatement for dismissal related to union activity. The 
government can refuse to register trade unions.\42\ Government 
permission is required for holding a public meeting involving more than 
10 people, and the police can break up any unofficial meeting of more 
than five people if they regard it as liable to disturb the peace.\43\
---------------------------------------------------------------------------
    \42\ U.N. Human Rights Council, ``Report of the Working Group on 
the Universal Periodic Review Brunei Darussalam,'' July 7, 2014. 
Available at: www.upr-info.org/sites/default/files/document/
brunei_darussalam/session_19_-_april_2014/a_hrc_27_11_e.pdf.
    \43\ DOS, ``Brunei 2014 Human Rights Report.''; ITUC, 2010 Annual 
Survey of violations of trade union rights--Brunei Darussalam,'' March 
3, 2010. Available at: http://survey.ituc-csi.org/Brunei-
Darussalam.html?lang=en#tabs-2.

Many of the 85,000 migrant workers in Brunei face labor exploitation 
and trafficking related to debt bondage from labor recruitment fees, 
wage theft, passport confiscation, abuse and confinement. Immigration 
law allows for prison sentences and caning for workers who overstay 
their visas, fall into irregular status, or work or change employers 
without a permit.\44\ This traps migrant workers in abusive employment 
and impedes access to justice and compensation if a migrant worker 
chooses to leave an exploitative employment relationship.
---------------------------------------------------------------------------
    \44\ U.S. DOS, ``Brunei 2014 Human Rights Report,'' 2014.

The labor consistency plan with Brunei is wholly inadequate to deal 
with the serious problems indicated above. For example, it calls for an 
end to document confiscation and ``an outreach program to inform and 
educate stakeholders,'' but does not address excessive recruitment fees 
or the criminalization of migrant workers. While it requires that 
employment discrimination be made unlawful, it fails to include LGBT 
workers within this new protection. Moreover, it fails to provide for 
labor courts or other structures free from the political influence of 
---------------------------------------------------------------------------
the sultan.

The labor side letter fails to include any specific benchmarks to 
evaluate the implementation and enforcement of the required legal and 
regulatory changes. The letter includes no independent evaluation 
mechanism, which means that partial and ineffective fulfillment of the 
plan's elements or changes on paper could be substituted for actual 
changes in workers' lives. In short, the Brunei side letter seems 
likely to be partially implemented on paper, but likely will continue 
to leave workers without the ability to freely exercise their 
fundamental rights.\45\
---------------------------------------------------------------------------
    \45\ For a thorough explanation of the need for labor provisions in 
trade agreements that incorporate robust monitoring and enforcement 
mechanisms, as well as measurable benchmarks for change instead of a 
rigid focus on rules to the exclusion of implementation, see Barenberg, 
Mark, ``Sustaining Workers' Bargaining Power in an Age of 
Globalization: Institutions for the meaningful enforcement of 
international labor rights,'' EPI Briefing Paper No. 246, October 9, 
2009.
---------------------------------------------------------------------------

II. Countries of Serious Concern

Chile \46\
---------------------------------------------------------------------------

    \46\ ITUC, ``Survey of Violations of Trade Union Rights: Chile,'' 
2015. Available at: http://survey.ituc-csi.org/Chile.html.

Today, 25 years after the end of the Pinochet regime, workers confront 
a profound lack of legal guarantees and effective protection by the 
state. The current labor legislation remains largely the same and thus 
perpetuates the destructive legacy of the past. As a result, there has 
been a steep decline in the rate of unionization--from 30% in 1973 to 
only 8% today. Today, Chile has among the lowest unionization rates 
among all OECD members. While the current government has formulated 
amendments to address some of the issues described below, the 
---------------------------------------------------------------------------
legislation has yet to pass.

Freedom of association is restricted, particularly in the public 
sector. Police, military personnel and civil servants of the judiciary 
are prohibited from joining a union. Temporary workers also have no 
right to organize. The constitution also provides that the holding of a 
trade union office is incompatible with active membership in a 
political party, and that the law shall lay down related sanctions 
(Political Constitution, Art. 23). In addition, broad powers are 
granted to the Directorate of Labor for supervision of union accounts, 
and financial and property transactions.

Collective bargaining also is restricted in a number of ways. 
Industrywide agreements that set minimum standards for wages and 
working conditions for all workers once were common, but since largely 
have disappeared as the law does not require bargaining above the 
enterprise level. In addition, workers without permanent contracts and 
other temporary workers are excluded from collective negotiations, a 
serious problem as employers are shifting to short-term contracts even 
for work that in reality is full time. The law also permits groups of 
workers to submit draft collective agreements, even when there are 
unions present, undermining the role of unions as a bargaining 
representative.

Finally, Chile also circumscribes the right to strike. According to the 
Labor Code, a strike must be agreed to by an absolute majority of the 
company's employees (Sections 372 and 373) and must be carried out 
within three days of the decision to call the strike (374). No strike 
action may be taken by workers if they are deemed to provide services 
of a public utility, or it would present a serious threat to health, 
the country's economy or national security. This goes beyond the 
``essential services'' strike restrictions acceptable under ILO 
guidance. Section 254 of the Penal Code provides for criminal penalties 
in the event of the interruption of public services or public utilities 
or dereliction of duty by public employees, and Act No. 12927 
authorizes the imprisonment of anyone involved in the interruption or 
collective suspension, stoppage, or strike in public services or public 
utilities. Section 381 provides for the possibility of hiring 
replacement workers during a strike. Agricultural workers are not 
guaranteed the right to strike.

Peru

Since the U.S.-Peru free trade agreement (FTA) came into force, Peru 
has reduced protections for workers and weakened mechanisms to enforce 
labor legislation. Peruvian unions report there are low levels of 
public investment to eliminate child labor and forced labor, promote 
equality and nondiscrimination in employment, and to ensure the right 
to organize and collectively bargain. Labor rights, generally, and 
rights in export sectors, in particular, have been eroded by a 
disproportionate increase in temporary employment.

According to the DOS, Peru does not fully comply with the minimum 
standards for the elimination of trafficking. Peruvian workers are 
exploited in conditions of forced labor, primarily in informal gold 
mining, logging, agriculture, brick making and domestic service. Many 
of these victims are indigenous, rural or migrant workers who face 
deceptive recruitment, debt bondage, restricted freedom of movement or 
inability to leave, withholding or nonpayment of wages, and threats and 
use of physical violence. Forced child labor occurs in begging, street 
vending and criminal activities.\47\ The DOL also has found significant 
instances of child labor in the production of bricks, coca, fireworks, 
fish, gold and timber.\48\
---------------------------------------------------------------------------
    \47\ Office to Monitor and Combat Trafficking in Persons, 2015 
Trafficking in Persons Report, ``Peru.'' Available at: www.state.gov/
documents/organization/243561.pdf; scroll down to Peru report, page 
277.
    \48\ DOL ILAB, ``List of Goods Produced by Child Labor or Forced 
Labor: Peru,'' 2014. Available at: www.dol.gov/ilab/reports/child-
labor/list-of-goods/countries/?q=Peru.

Last year, the Peruvian government passed a series of laws to roll back 
health, safety and environmental regulations--purportedly ``to create a 
more friendly environment, to reduce the impediments to investment.'' 
Despite the fact that regressive laws likely violated trade 
commitments, the government turned back 2011 improvements to 
occupational health and safety and inspections processes. It also 
weakened enforcement mechanisms, fines and mandated action plans.\49\
---------------------------------------------------------------------------
    \49\ ``Paquetazo laboral viola tres TLC,'' Diario Uno, July 13, 
2014. Available at: http://diariouno.pe/columna/paquetazo-laboral-
viola-tres-tlc/?fb_action_ids=10203308215938885&fb_
action_types=og.likes%20; ``Moody's: Peru crecera hacia un 6% para el 
2016, asegura ministro Castilla,'' America Noticias, February 7, 2014. 
Available at: www.americatv.com.pe/noticias/actualidad/miguel-castilla-
sobre-informe-moodys-peru-crecera-hacia-6-2016-n143824.

Further, it has been well documented by national and international 
organizations, including the ILO and the UN Office of the High 
Commissioner for Human Rights (OHCHR), that the Peruvian government is 
not enforcing its own labor laws in the sectors of garments, textiles 
and agricultural product exports, which together employ hundreds of 
thousands of workers who produce billions of dollars of goods for the 
U.S. market.\50\ In the textile and garment industry, the Law for the 
Promotion of Non-Traditional Exports (Law No. 22342)--designed to 
encourage investment by allowing workers to be hired under an 
indefinite number of short-term contracts--has been a major obstacle to 
the promotion of labor rights. The largest textile and garment 
companies are the major beneficiaries of the law, and the 30 largest 
companies account for more than 70% of the contracts covered by these 
regulations. Employers can issue contracts as short as 15 days and 
renew the contract every two weeks for as long as 15 years. The law 
allows employers to discriminate against trade unionists by firing them 
under the pretext of not renewing their contract because of ``economic 
circumstances.''
---------------------------------------------------------------------------
    \50\ See Report Number 357 of the Committee on Freedom of 
Association (CFA), June 2010, case 2675; Office of the United Nations 
High Commissioner for Human Rights (OHCHR), ITUC submission to the URP. 
Available at: http://lib.ohchr.org/HRBodies/UPR/Documents/Session2
/PE/
CSI_PER_UPR_S2_2008_InternationalTradeUnionConfederation_uprsubmission.p
df.

As documented in a recent submission to the Office of Trade and Labor 
Affairs (OTLA) on the failure of the government of Peru to comply with 
labor standards under the FTA, employers routinely have abused their 
power to renew short-term contracts of their workers when they are 
trying to constitute or become members of a union, making them 
permanent victims of firings for this purpose.\51\ This is the second 
submission regarding Peru's labor practices in less than a decade, 
while many also have requested U.S. action on Peru's violation of its 
environmental obligations as well.\52\ The lack of robust action by the 
USTR to enforce the first ``May 10th'' agreement sends the wrong 
message to TPP parties: that despite the ``historic'' nature of the 
obligations, these obligations are unlikely to be enforced.
---------------------------------------------------------------------------
    \51\ ``PUBLIC PRESENTATION TO THE OFFICE OF TRADE AND LABOR ISSUES 
(OTLA) UNDER CHAPTERS 17 (LABOR) AND 21 (DISPUTE SETTLEMENT) OF THE 
TRADE PROMOTION AGREEMENT BETWEEN THE U.S. AND PERU,'' July 23, 2015.
    \52\ See: USTR, ``Review of 2012 EIA Petition Regarding Bigleaf 
Mahogany and Spanish Cedar Exports,'' 2013. Available at: https://
ustr.gov/sites/default/files/EIA%20Review%20Summary
.pdf. Environmental Investigation Agency, ``Implementation and 
Enforcement Failures in the U.S.-Peru Free Trade Agreement (FTA) Allows 
Illegal Logging Crisis to Continue,'' June 2015. Available at: http://
eia-global.org/images/uploads/Implementation_and_Enforcement_Failures
_in_the_US-
Peru_Free_Trade_Agreement_(FTA)_Allows_Illegal_Logging_Crisis_to_Continu
e.pdf.

The TPP Labor Chapter does not make significant and meaningful 
improvements to substantive labor provisions of the U.S.-Peru FTA and 
offers no improvements to the enforcement mechanisms. This, combined 
with 20 years of lackluster labor enforcement by the U.S. government, 
makes it clear that TPP will do little to improve working conditions or 
raise wages in Peru. Because Peru is currently in violation of the 
U.S.-Peru FTA, Peru will be in clear violation from the moment the TPP 
enters into force unless both governments take immediate actions to 
---------------------------------------------------------------------------
secure Peru's compliance.



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Singapore \53\
---------------------------------------------------------------------------

    \53\ ITUC, ``Survey of Violations of Trade Union Rights: 
Singapore,'' 2015. Available at: http://survey.ituc-csi.org/
Singapore.html.
---------------------------------------------------------------------------
Substantial legal limitations on freedom of association, collective 
bargaining and the right to strike exist in Singapore. The Registrar of 
Trade Unions has wide-ranging powers to refuse to register a union or 
cancel registration. The parliament may impose restrictions on the 
formation of a union on the grounds of security, public order or 
morality. The registrar has the right to refuse the rule change if she 
or he deems it either unlawful or ``oppressive or unreasonable.''

The Trade Unions Act limits what unions can spend their funds on and 
prohibits payments to political parties or the use of funds for 
political purposes. Although the Trade Unions Act prohibits government 
employees from joining trade unions, the law gives the president of 
Singapore the right to make exceptions to this provision. The 
Amalgamated Union of Public Employees (AUPE) was granted such an 
exemption, and its scope of representation now covers all public-sector 
employees except the most senior civil servants.

Migrant workers particularly are limited in exercising their rights. 
The Trade Unions Act bars any person ``who is not a citizen of 
Singapore'' from serving as a national or branch officer of a trade 
union unless prior written approval is received from the minister. The 
act also stipulates that a foreign national cannot be hired as an 
employee of a trade union without prior written agreement from the 
minister. Similarly, a foreign national is forbidden to serve as a 
trustee of a trade union without the minister's written permission.

As in other countries with existing serious rights violations, the 
United States failed to secure a labor consistency plan with Singapore. 
The TPP, as in other countries, will come into force, offering 
Singapore enhanced benefits, before any changes are required.

III. Selected Labor Rights Concerns in Other TPP Countries

Freedom of Association and the Right to Collective Bargaining

In Japan, all national and local public employees and some employees of 
private companies or state-run companies that provide essential 
services such as electricity are banned from striking. Dismissal and 
fines or imprisonment for up to three years can be imposed if a trade 
union leader is convicted of inciting a strike action in the public 
sector--this limitation for public-sector workers is a serious 
violation of the ILO forced labor convention (C. 105), which remains 
unratified by Japan.\54\
---------------------------------------------------------------------------
    \54\ ITUC, ``Survey of Violations of Trade Union Rights: Japan,'' 
2015. Available at: http://
survey.ituc-csi.org/Japan.html.

New Zealand's employment law allowing employers in the film and video 
game production industry to classify workers as contractors, denying 
them rights to collective bargaining and minimum labor standards, was 
introduced specifically to attract investment to that industry at the 
demand of Warner Brothers.\55\
---------------------------------------------------------------------------
    \55\ www.theguardian.com/business/2010/oct/31/warner-bros-new-
zealand-hobbit-film.

In March 2015, changes to New Zealand's Employment Relations 2000 came 
into force. Key changes to collective bargaining allow employers to end 
negotiation more easily, weaken good faith negotiations, remove 
protections for new workers and make collective bargaining more 
difficult. The changes specifically allow employers to opt out of 
multiemployer negotiations without providing reasons or being subject 
to industrial action.\56\
---------------------------------------------------------------------------
    \56\ ITUC, ``Survey of Violations of Trade Union Rights: New 
Zealand,'' 2015. Available at: http://survey.ituc-csi.org/New-
Zealand.html.

In Australia, there are a number of legal obstacles with regard to 
freedom of association and the right to collectively bargain. The Fair 
Work Act of 2009 imposes a number of restrictions related to trade 
union rights to elect representatives and to draw up their constitution 
and rules. Any person who has been convicted of a prescribed offense at 
any time is prohibited from holding trade union office, and individuals 
in vocational placement cannot join a registered union in connection 
with their work on that vocational placement. A 2015 amendment to the 
act further restricts freedom of association and the right to 
collectively bargain, in particular by setting an expiry date for 
negotiations in greenfield workplaces, after which an employer's 
``draft agreement'' will be treated as a collective bargaining 
agreement when, in truth, the workers never agreed to it. Due to the 
act, a representative trade union also may be just one of a number of 
bargaining representatives taking part in the negotiations, which 
reduces the power of collective bargaining.\57\
---------------------------------------------------------------------------
    \57\ ITUC, ``Survey of Violations of Trade Union Rights: 
Australia,'' 2015. Available at: http://survey.ituc-csi.org/
Australia.html.

In Canada, federal labor law applies only to approximately 10% of 
workers; in workplaces and occupations that are not federally 
regulated, provincial and territorial governments are responsible for 
labor laws. This translates into a number of categories of workers 
being prohibited or limited from forming or joining a union or holding 
a union office, due to their professional designation or sector (such 
as in the medical professions or in agriculture). In the public sector, 
the government of Canada gave itself the exclusive right to define what 
constitutes an essential service, and to unilaterally designate its 
employees as essential. If 80% or more of the bargaining unit is 
designated as essential, strikes are prohibited.\58\
---------------------------------------------------------------------------
    \58\ ITUC, ``Survey of Violations of Trade Union Rights: Canada,'' 
2015. Available at: http://survey.ituc-csi.org/Canada.html.

Forced Labor and Child Labor

New Zealand has no minimum age of employment.

In Australia, forced and compulsory labor are explicitly prohibited by 
law; however, there have been a few reports of temporary workers in 
such sectors as agriculture, cleaning, construction, hospitality, 
manufacturing and domestic service being subject to forced labor. There 
also are numerous instances of foreign workers on temporary work visas 
being underpaid, exploited and denied their rights under Australian 
law.

Canada prohibits all forms of forced labor, and the government enforces 
the law. Some reports indicated that child labor occurred, especially 
in the agricultural sector. In British Columbia, children as young as 
12 years old can work legally in any industry; a letter from the parent 
is all that is required, and the province places no legislative or 
regulatory restrictions on the occupations, tasks or time of day a 
child can work. There is some evidence of forced labor trafficking of 
workers from Eastern Europe, Asia, Latin America and Africa who are 
subjected to forced labor in agriculture, construction, restaurants, 
hospitality, food processing plants and as domestic workers.

Discrimination

Japan mandates equal pay for men and women. However, the Japanese Trade 
Union Confederation (JTUC-RENGO) reports many cases of discrimination 
against union members or activists as well as gender discrimination in 
wages and working conditions.

Canada prohibits discrimination with respect to employment or 
occupation on the basis of race, gender, etc. However, the Public 
Service Equitable Compensation Act makes it a criminal offense for a 
union to encourage or assist any employee in filing or proceeding with 
a pay equity complaint. Unions are subject to summary conviction and 
fined up to $50,000 if they assist their members in any way in 
advancing pay equity complaints.

                    CONCLUSIONS AND RECOMMENDATIONS

The TPP, as currently written, is troubling in numerous ways. Of 
course, the agreement covers not just traditional trade issues, such as 
tariffs and quotas, but sets rules that will limit our democracy and 
how our government can regulate in the public interest. The TPP creates 
new and expansive legal rights for foreign investors--including their 
very own private legal system that is outside the reach of U.S. courts. 
The current labor chapter, even with improved language, does not 
represent a counterbalance to the protections and privileges gained by 
corporations. In the TPP, the interests of workers and the promotion of 
their rights are embedded in a failed model.

The labor movement has now had years of experience with labor rights 
language in trade agreements. As documented by the Government 
Accountability Office, the U.S. government does little to actively 
monitor or enforce commitments made in the labor chapter.\59\ Unlike 
corporations that are able to unilaterally access dispute settlement 
mechanisms, workers do not have the power to initiate complaints and 
must petition their governments to advocate on their behalf. For 
workers denied their rights, trying to convince another government to 
initiate a complaint focused on the rights of foreign workers has 
resulted in an unworkable process. The fact is no worker in the global 
economy has won the right to form an independent union and to bargain 
collectively as a result of the enforcement of a worker rights 
provision in a trade agreement. There has never been a single monetary 
fine or tariff penalty imposed for labor violations in any U.S. trade 
agreement.
---------------------------------------------------------------------------
    \59\ Government Accountability Office (GAO), ``Free Trade 
Agreements: U.S. Partners Are Addressing Labor Commitments, But More 
Monitoring and Enforcement Are Needed,'' November 2014. Available at: 
www.gao.gov/assets/670/666787.pdf; GAO, ``Four Free Trade Agreements 
GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on 
Labor and Environment Remain,'' July 2009. Available at: www.gao.gov/
products/GAO-09-439.

To make matters worse, as outlined above, the United States seeks to 
enter into the TPP with a number of Pacific Rim nations with troubling 
anti-worker practices. USTR gave away crucial negotiating leverage by 
not insisting that trade benefits be contingent on adherence and 
promotion of the core labor standards. To let the TPP enter into force 
without full compliance with all labor commitments from all 12 
countries undermines the entire agreement. It sends the message that 
promises to comply--in any area--are sufficient. If the TPP is going to 
---------------------------------------------------------------------------
have beneficial effects, promises and changes on paper are not enough.



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Nor does the TPP rebalance the playing field in ways beneficial for 
workers in the United States or globally. The chapters setting out 
rules for services, financial services, food safety and other 
regulations put some economic decision making a step further from 
democratic control, encircling domestic decision making within the 
neoliberal, deregulatory, Washington consensus indefinitely. This means 
that when political winds blow in the opposite direction, seeking more 
activist policies regarding Wall Street or food safety or government 
purchasing, foreign countries and foreign companies will be empowered 
to challenge those policies. Even if the labor promises of the TPP's 
authors were to come to fruition, the labor chapter alone would not 
create an equity of benefits for workers. The rules included in the 
other chapters enshrine an inequitable ``you're on your own'' economic 
model that places all of the downside risk of trade on working people 
without setting up adequate countermeasures that ensure future economic 
growth will be sustainable and inclusive.

As it currently stands, the TPP fails workers. The AFL-CIO and global 
labor movement stand in opposition to the agreement. To be effective at 
creating shared prosperity and inclusive growth, the TPP must be 
renegotiated to include protections for workers, as well as the 
environment and other public interest issues, that are as strong as all 
other protections in the agreement--including those for investors. 
Moreover, the other chapters must be renegotiated to include rules that 
promote rather than inhibit progressive economic policies that correct 
market failures, ensure adequate government investment in 
infrastructure and human development, and provide certainty for 
workers, not just global businesses. The AFL-CIO urges Congress to only 
support a people-centered trade approach that will guarantee the 
benefits of trade can improve the working and living lives of millions 
of workers and their families in the United States and throughout TPP 
countries. Further, we stand ready to work with Congress and the 
administration to renegotiate the TPP so that it works for people who 
work.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 
 
 
AFL-CIO            RICHARD L. TRUMKA  ELIZABETH H.      TEFERE GEBRE
                   President           SHULER           Executive Vice
                                      Secretary-         President
                                       Treasurer
 


                                 ______
                                 

TIMELINE FOR AFL COMPLAINT FILED AGAINST GUATEMALA FOR LABOR VIOLATIONS 
                             UNDER CAFTA-DR

April 2008--DOL receives submission from AFL

June 2008--DOL accepts submission for review

January 2009--DOL issues report without recommending consultations

June 2009--DOL reassesses and concludes Guatemala has made insufficient 
progress

July 2010--USTR requests formal consultations with Guatemala

August 2011--Consultations fail; USTR requests arbitration panel

November 2012--Arbitration panel is constituted

April 2013--Arbitration panel suspended in lieu of an Enforcement Plan

April 2014--Enforcement Plan deadline passes without full 
implementation of plan; USTR grants Guatemala 4-month extension

September 2014--U.S. government reconvenes arbitration panel

June 2015--Dispute settlement panel hearing is held

September 2015--Dispute settlement panel initial report deadline of 
October is extended to December

November 2015--Dispute settlement panelist resigns, no new date for 
report deadline established

February 2016--Anticipated publication date of dispute settlement panel 
report is announced as June 2016

Sources: GAO Report GAO-15-160, AFL

                                 ______
                                 

              Ford Japan Business Operations Announcement

January 25, 2016

The following statement is attributable to Karen Hampton, VP of 
Communications, Ford Asia-Pacific:

Ford remains committed to serving global markets while aggressively 
restructuring parts of our business which have no reasonable path to 
achieve sales growth or sustained profitability, particularly in areas 
where market dynamics prevent us from competing effectively. After 
pursuing every possible option, it has become clear that there is no 
path to sustained profitability for us in Japan. Therefore, we will 
cease all operations in Japan before the end of 2016 and concentrate 
our resources elsewhere.

This decision has just been made and has been communicated to our 
employees and dealers. As we work through the closures, our priorities 
are to ensure we treat our employees and our dealer partners with 
respect and support them in this transition. Additionally, we are 
reaching out to our customers to explain our commitment to facilitate 
ongoing servicing, spare parts and warranty support for their vehicles 
following the closures.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing examining 
implementation of existing free trade agreements with the United 
States' trade partners:

    I would like to welcome everyone to this morning's hearing.

    Last year, with the passage of our bipartisan legislation to renew 
Trade Promotion Authority, or TPA, Congress provided the administration 
with the necessary tools to negotiate and conclude trade agreements to 
further open foreign markets to American goods and services. In doing 
so, Congress included high-standard negotiating objectives that must be 
achieved for any agreement to be eligible for expedited TPA procedures 
in Congress.

    But setting the appropriate negotiating objectives is only the 
first step in the process for concluding and implementing trade 
agreements. Once those high standards are set, the administration must 
consult closely with Congress and stakeholders throughout the 
negotiations. And, once an agreement is concluded, Congress must 
closely scrutinize the agreement to determine whether it meets the high 
standards of the TPA statute and whether it is eligible for expedited 
TPA procedures in the House and Senate.

    That stage--the stage where Congress closely scrutinizes and 
evaluates a trade agreement--is where we are with regard the Trans-
Pacific Partnership, or TPP, the trade agreement most recently signed 
by the Obama administration.

    Ultimately, a high-standard, free trade agreement only takes effect 
once Congress passes implementing legislation pursuant to the narrow 
legislative scope of TPA. But, even when that process is complete, our 
work will not be finished. In many ways, the hardest work will just be 
beginning.

    After a trade agreement is approved by Congress, the administration 
must make sure that our trading partners fully and faithfully implement 
their obligations under that agreement before allowing the agreement to 
enter into force. After all, a strong trade agreement that is not fully 
and faithfully implemented and enforced isn't worth much more than the 
paper it is written on.

    It is that part of the puzzle--full and faithful implementation--
that we will examine today. As a guidepost for this examination, we 
will look at some of the lessons we've learned under our existing trade 
agreements to see what has worked and where we can do better in the 
future.

    Over the past 3 decades, the United States has entered into 14 free 
trade agreements with 20 countries. Each of these agreements has 
provided significant economic benefits to the United States. In fact, 
although these 20 countries represent less than 10 percent of the 
global economy outside the U.S., they purchase almost half of all our 
Nation's exports.

    Further, on average, in the first 5 years after a free trade 
agreement enters into force, U.S. exports to these partners have grown 
roughly three times more rapidly than the global rate of growth for 
U.S. exports generally. Just as important, free trade agreements have 
provided significant cost savings and expanded choices for U.S. 
consumers.

    However, despite these significant gains, there is widespread 
agreement that many of our partners in existing free trade agreements 
have not fully and faithfully complied with all of their obligations 
under our agreements. Just yesterday, I sent letters to the Korean and 
Colombian Ambassadors to the United States outlining my concerns with 
their countries' implementation of and compliance with the U.S.-Korea 
and the U.S.-Colombia free trade agreements.

    In addition, a review of stakeholder submissions to the 
administration, in connection with mandated reports to Congress, 
including the Special 301 Report, suggests that many of our trading 
partners have not implemented, or are out of compliance with, their 
international trade obligations.

    While there are many examples across the board, this problem seems 
to be most pronounced when it comes to implementation of intellectual 
property rights protections. This is true with regard to trading 
partners across the globe, including many TPP countries. And, all too 
often, those countries are never held accountable for their non-
compliance. Thus, they get the benefits of a negotiated trade agreement 
with the United States without fulfilling all of their obligations.

    This is, to put it bluntly, unfair, and it must stop.

    Last year, with a number of different pieces of legislation, 
Congress developed new tools to address these concerns. For example, we 
included language in the TPA statute requiring enhanced consultations 
before the administration may allow any trade agreement to enter into 
force.

    We also established the Interagency Center on Trade Implementation, 
Monitoring, and Enforcement within the Office of the United States 
Trade Representative, or USTR, to monitor our trading partners' 
implementation of trade agreements and to assist in investigating 
violations of trade agreement obligations.

    We also established a Chief Innovation and Intellectual Property 
Negotiator at USTR, with the rank of Ambassador and required Senate 
confirmation, whose responsibilities include enforcing the intellectual 
property rights obligations of our trade agreements. Furthermore, we 
established a trade enforcement trust fund of up to 15 million dollars 
a year for use in improving the ability of USTR to monitor and enforce 
existing trade agreements.

    Despite these new tools, I know that there is much more that can be 
done. So today we are going to examine the implementation of our 
existing free trade agreements and see what lessons can be drawn.

    We have some very accomplished witnesses here with us from a 
variety of sectors, including agriculture, high-tech, the environment, 
and intellectual property. I am very much looking forward to their 
testimonies and to what I hope will be a robust discussion of how the 
U.S. Government can more effectively ensure that our workers, 
consumers, and job creators receive the full benefits of our 
international trade agreements going forward.

                                 ______
                                 
   Prepared Statement of Jim Mulhern, President and Chief Executive 
              Officer, National Milk Producers Federation
    I am Jim Mulhern, and I am here this afternoon representing the 
National Milk Producers Federation (NMPF). I appreciate the opportunity 
to express the views of America's dairy farmers on the issues our 
industry has encountered in the implementation of prior U.S. free trade 
agreements (FTAs).

    NMPF develops and carries out policies that advance the well-being 
of dairy producers and the cooperatives they own. The members of NMPF's 
31 cooperatives produce the majority of the U.S. milk supply, making 
NMPF the voice of more than 40,000 dairy producers on Capitol Hill and 
with government agencies.
                           executive summary
    Diligent implementation of U.S. free trade agreements (FTAs) is a 
vital component to ensuring their effectiveness. Past experience in the 
dairy industry has demonstrated to us the clear value in strong 
engagement with our trading partners to foster compliance with their 
obligations to the U.S.

    In some cases this type of engagement has yielded quite positive 
results such as with Korea prior to Congressional consideration of the 
U.S.-Korea FTA and subsequently during the early stages of 
implementation. In other countries such as Canada there is in contrast 
a pervasive pattern of actively seeking to thwart dairy trade 
obligations that must merit a unique approach in order to effectively 
ensure that current market access opportunities are not continually 
eroded and that future trade opportunities can in practice be realized. 
Another pervasively problematic challenge our industry has faced are 
the trade barriers various countries are erecting as a result of 
geographical indication (GI) provisions in their FTAs with the European 
Union. The U.S. has rightly recognized that a strong focus on even 
smaller markets is vital to sending the right message to our trading 
partners that the U.S. rejects inappropriate GIs that impair the use of 
common food names.

    Based on past experience, we believe that it is clear that the 
greatest window of opportunity for influencing how countries will 
implement their obligations to the U.S. is during the period prior to 
Congressional approval of an agreement. Action during this window not 
only ensures that Congress has a clear understanding of how the 
agreement is intended to work in practice, but it utilizes the 
strongest point of leverage the U.S. possesses: whether or not we will 
decide to put in place a strengthening of our trade ties with the FTA 
partner.

    Given that the U.S. has recently concluded FTA negotiations with a 
large group of important trading partners (the Trans-Pacific 
Partnership) and is working to try to conclude an agreement with the 
EU, we believe that this hearing is an excellent opportunity to ensure 
that we carefully examine how past U.S. actions during the 
implementation and pre-implementation stages have helped to shape the 
impact of our prior trade agreements.
                               background
    Our nation has gone from exporting less than $1 billion in 2000 to 
exporting over $5.2 billion in 2015, an increase of 435 percent. (Sales 
in 2014 even greater at over $7 billion before retrenching during a 
global dairy recession last year as noted below.) It is not 
coincidental that the enormous growth over this period occurred when 
the U.S. began negotiating market-opening free trade agreements and the 
Uruguay Round took steps to reduce export subsidies and implement the 
first SPS agreement. These agreements lowered and ultimately removed 
tariffs and in many cases they gave our products a preferential 
advantage over other supplying countries. They also helped remove 
technical and regulatory barriers to our trade. Over that period, our 
exports of dairy products to FTA partners grew by 489 percent as 
compared to 384 percent to non-FTA countries.

    We must acknowledge that dairy exports last year temporarily 
dropped from the record $7.1 billion achieved in 2014. This was due in 
large part to a significant drop in global prices for milk powders and 
cheeses. In addition, the increased value of the dollar and the strong 
global milk supply have contributed to the decline in prices. But it is 
also worth noting that, while our exports to non-FTA countries 
contracted by 32 percent, they fell by only 20 percent to our FTA 
partner countries.

    Our FTAs have created important new market access opportunities for 
us and we have worked very hard through our market development efforts 
to ensure that we are taking full advantage of them. Two to three 
decades ago our industry feared trade agreements. Now, we fear that if 
we fail to take advantage of such agreements to tear down foreign 
barriers to our products and effectively enforce the terms of U.S. 
agreements, we will lose out to competitors who are themselves cutting 
FTA deals around the world.

    However, negotiating these trade deals is only part of the job. We 
have found that in a number of cases it has been necessary to work just 
as hard to ensure that the market access terms of the agreements are 
not subsequently undermined, or even violated entirely, by governments 
under pressure from domestic producers to keep imports at bay.

    This has been a full-time and, regrettably, not always entirely 
successful undertaking, as I will outline here. But I must also point 
out that of the 20 U.S. FTAs now in place, many are working well for 
dairy with little or no compliance problems.
                                 canada
    Canada gets top billing as the FTA partner that has not only kept 
its old barriers, but erected the most new impediments to dairy access 
negotiated in a free trade agreement, in this case it is the 1989 U.S.-
Canada Free Trade Agreement and later the North American Free Trade 
Agreement (NAFTA). The examples I am providing below are not all-
inclusive, but are representative of the types of efforts the Canadian 
government has engaged in, and is likely to continue to engage in, to 
shield its industry from the import access it committed to allow in our 
trade agreements.
Cheese Standards
    In 2007 Canada altered its cheese standards in order to more 
tightly restrict the range of permissible ingredients in standardized 
cheeses sold in Canada. The regulatory changes placed percentage limits 
on the amount of non-fluid dairy ingredients used in standardized 
cheeses that could be incorporated in the product from non-fluid 
sources.

    These changes were prompted by pressure from Canadian dairy farmers 
to find a way to restrict imports of U.S. milk protein concentrates 
(and to a lesser extent other dried protein imports such as casein/
caseinates). Canada undertook a WTO Article 28 tariff renegotiation to 
allow it to raise tariffs on imports from other sources, but NAFTA 
prevented this from applying to products from the U.S. The new cheese 
standards were explicitly discussed by the Canadian legislature as 
providing a way to also limit imports of these products from the U.S.

    Our industry and the U.S. Government undertook ample efforts to 
prevent this action, arguing that it was an impairment of concessions 
granted the U.S. under NAFTA, but we were ultimately unsuccessful in 
preventing the changes from taking effect. The changes have adversely 
affected not only opportunities for imported ingredients but also 
imposed additional requirements on imported cheeses, since all cheeses 
sold in Canada were required to document compliance with the 
requirements.
Yogurt Standards
    Canadian dairy farmers have more recently been encouraging their 
government to put in place similar restrictions with respect to yogurt. 
Again, the primary goal of this action would be to restrict the ability 
of Canadian yogurt manufacturers to make use of imported dairy 
products, particularly those that could be exported under low to zero 
duty tariff-lines secured by the U.S. under NAFTA. These have not yet 
been adopted, but it is something we continue to monitor.
Ultra-Filtered Milk Requirements
    Canada has also begun consideration of how to further restrict 
other U.S. dairy imports through such standards. In response to 
complaints by Canadian dairy farmers about growing imports of ultra-
filtered milk, which is currently unrestricted in use in standardized 
Canadian cheeses, the government is reportedly considering a few 
possible options.

    One is to administratively determine that U.S. exports of 85% 
protein level ultra-filtered milk are ``diafiltered milk,'' rather than 
unrestricted ultra-filtered milk. Since ``diafiltration'' is simply one 
possible step in the ultra-filtration process and it does not result in 
an entirely different product, the final product is still ultra-
filtered milk. If Canada adopts this measure it would clearly be solely 
for the purpose of evading its NAFTA obligations.

    The other option the Canadian government may be considering is to 
arbitrarily cap the level of protein in ultra-filtered milk that is 
allowed at unrestricted levels in standardized cheeses. Imposition of 
such a limit would have no science-based health or safety 
justification. The only grounds for such a change could be to force a 
tariff classification change in such a way that the product currently 
entering Canada under duty-free NAFTA status is no longer permitted and 
would be allowed entry only at a prohibitively high tariff level.

    In addition to cheese standard revisions aimed at impairing these 
U.S. imports, the province of Ontario has recently approved a special 
milk class for ingredient usage that is designed directly to force out 
competition from U.S. imports. This is just the latest in a series of 
narrowly targeted milk classes that have been created over the past few 
years specifically in order to displace imports. Although Canada is not 
alone in having different classes for milk usage and it is not our view 
that milk classes are in and of themselves problematic, the way Canada 
has utilized its milk class system is unique.

    Canada's milk class system is regularly evolving in order to 
constrain imports. Canada's ``Special Milk Class Permit Program'' was 
created in 1995 and provides lower-priced fluid milk to Canadian 
processors for use in certain narrowly defined groups of products. The 
way in which Canada is operating its milk class pricing system suggests 
an intent to erect trade barriers.
Tariff Reclassification
    In 2013 Canada enacted a law that reversed multiple rulings by the 
Canadian Border Services Agency (which had been upheld by Canada's 
International Trade Tribunal) that imports of a food preparation 
product containing mozzarella, pepperoni, oil and spices were being 
properly imported from the U.S. under the appropriate duty-free tariff 
line (1601.00.90.90). This law was in direct conflict with multiple 
Canadian Customs rulings that determined that the product was correctly 
classified. By reclassifying the cheese portion of the products from 
that tariff line into one with a duty of over 200%, the intent and 
effect of the legislation was to block all imports of these food 
preparation products from the U.S. This action thereby impaired the 
value of U.S. market access secured for that tariff line under NAFTA.
Limiting ``Cross-Border'' Shopping
    Although the Uruguay Round of multilateral trade agreement under 
the World Trade Organization (WTO) is not an FTA, it is worth noting 
that in that agreement, Canada obligated itself to provide a TRQ to 
allow access for 64,500 MT of fluid milk (0401.10.1000). But Canada 
then banned commercial shipments from making use of this TRQ. To our 
knowledge, Canada does not track cross-border shoppers in order to 
ensure compliance with its WTO obligation but instead simply asserts 
that cross-border shoppers between the U.S. and Canada fill this TRQ. 
Our industry continues to believe this is a grievous distortion of the 
access Canada committed to provide for fluid milk. Similarly, Canada 
restricts access to its 484 MT TRQ for ice cream to imports in retail 
size containers, meaning that ice cream mix for further processing in 
Canada is not permitted to enter under that TRQ.

    We note these Uruguay Round compliance issues here since they help 
to illuminate a consistent and deeply problematic pattern of Canada 
systemically working to undermine the value of concessions that it has 
granted in prior agreements. Due to Canada's well-documented strategy 
of erecting regulatory barriers to impair the full utilization of U.S. 
dairy market access, we have serious concerns about whether Canada will 
comply with future trade obligations to which it has committed itself.

    Almost immediately upon the close of Trans-Pacific Partnership 
(TPP) talks, Canada announced that it would be taking steps that appear 
designed to take with one hand what they committed to provide with the 
other. Canada announced the introduction of several subsidy programs 
intended to help ease the burden of transition for its producers. We do 
not take issue with Canada's right to create these domestic support 
tools but we do strongly object to the accompanying pledges to take 
measures to further constrain dairy imports.

    For instance, the previous government pledged to exclude supply-
managed products from the Government of Canada's Duties Relief Program 
and the new government has not yet signaled an intention to preserve 
this access. A large portion of current U.S. dairy exports to Canada 
enter under the current Duties Relief Program whereby a processor is 
able to import dairy ingredients duty-free provided that the final 
product in which they are used is subsequently exported. Elimination of 
this program would create substantial disruption in U.S.-Canadian trade 
and underscore industry concerns that the TPP access Canada has 
committed to provide may not translate to truly new sales opportunities 
compared to the pre-TPP status quo.

    It is critical that the U.S. formulate this year a much stronger 
strategy than has to date been in place throughout the implementation 
of NAFTA (and the Uruguay Round) in order to curb Canada's consistent 
and intentional impairment of the value of dairy concessions to the 
U.S. Without this, dairy trade with our northern neighbor will continue 
to be much more volatile than should be reasonably expected and U.S. 
companies will be hesitant to depend upon reliable access to the market 
openings Canada has committed in trade negotiations to provide.
                                colombia
    Colombia has overall proven to be a reliable and responsive FTA 
partner, although some issues have arisen over the course of the U.S.-
Colombia FTA. One of those issues currently still under discussion is 
detailed here; another relates to restrictions on U.S. exports of 
asiago and feta, both of which have been blocked as a result of the EU-
Colombia FTA. Although these limitations on commonly produced U.S. 
cheeses have restricted the range of opportunities for U.S. exporters 
in Colombia, Colombia has also taken some helpful steps to clarify that 
U.S. companies can continue to ship products such as parmesan and 
provolone. These types of clarifications have been critical in clearly 
establishing for U.S. companies the range of permitted cheeses that can 
continue to be shipped to Colombia under our FTA with that country, 
despite GI-driven restrictions in Colombia's agreement with the EU.
Risk Categorization and Associated Import Requirements
    Colombia has implemented risk categories through INVIMA Resolution 
719 of 2015 as a basis for new import requirements. Ministry of Health 
Decree 539 of March 12, 2014 establishes numerous new requirements for 
high risk foods, including plant registration with INVIMA and the 
inspection of facilities intending to export to Colombia. Colombia did 
not notify the WTO and accept comments from trading partners before 
this decree was issued, and the implementing regulations corresponding 
to this decree risked closure of the Colombian market in September 
2015. The strong relationships built through the U.S.-Colombia FTA, 
however, were successful in helping swiftly respond to this threat and 
permitting trade to continue. In response to industry concerns, USDA's 
Foreign Agricultural Service and the Colombia government moved quickly 
to head off the tremendous trade disruption that abrupt imposition of 
this implementing regulation would have caused for U.S. exports and as 
a result additional time for a more careful examination of the plant 
registration requirements was granted.

    At this stage Colombia has indicated its intention to develop new 
implementing requirements and notify them to the WTO, but dairy remains 
at risk for burdensome requirements which could again have the 
potential to close the market as long as it remains in the high risk 
category. We must note that the criteria that Colombia has used to 
assign risk were not compliant with Codex risk category principles and 
Codex guidelines, and also ignored OIE and Codex guidance on the impact 
of heat treatment on dairy products. Colombia placed all dairy products 
in the high risk category regardless of processing or packaging. The 
U.S. has challenged these risk categories. We appreciate the 
administration's work with Colombia to ensure that shipments under the 
FTA can continue without undue burden and that regulations reflect a 
recognition of the high level of food safety assured by U.S. dairy 
regulations and oversight.
                                 mexico
    In contrast to Canada, our other NAFTA partner, Mexico, has been 
much less inclined to use back door means to negate commitments 
undertaken in our trade agreement. And where problems did arise, 
particularly during the implementation period while tariffs were being 
eliminated, our government was generally been able to resolve them. As 
a result, with limited exceptions, trade in dairy products is now 
operating fairly smoothly. We consider Mexico not only to be our best 
foreign market but also a very good trading partner. This situation has 
not resulted accidentally, however; it is the result of considerable 
hard work over the years by the U.S. to enforce NAFTA commitments when 
problems arose and actively work to help establish today's much 
smoother trading conditions.

    One element that does merit review is the sometimes excessive 
documentation requests from Mexico regarding Rules of Origin. Although 
we very much support the importance of rules of origin in FTAs, the 
requirements for meeting these rules must be clearly outlined and not 
unduly burdensome. Overly invasive requests can work to the detriment 
of U.S. companies and undermine market access. Lack of sufficient 
oversight however can be similarly harmful. Towards that end we 
encourage U.S. Customs to investigate butterfat shipments from Mexico 
into the United States to verify that the product is actually from 
Mexico and not a transshipment.
                                  peru
    Peru has also been a relatively reliable trading partner since the 
implementation of the U.S.-Peru FTA. U.S. exports have grown and trade 
problems are quite infrequent in this market. With that said, some 
issues have arisen.

    The GI restrictions cited above in Colombia are also present in 
Peru and impose regrettable limitations on the value of Peru's 
concessions for cheese in its FTA with the U.S. This over-arching issue 
is detailed further below.

    Another issue of concern has been the reports by U.S. companies 
that Peru may not be fully complying with U.S. regulations for and the 
U.S.-Peru FTA's rules of origin and standards of identity for 
evaporated and condensed milk. We would appreciate an analysis by U.S. 
Customs and the Food and Drug Administration to determine whether or 
not Peru's shipments of this product are in keeping with the terms of 
the FTA as well as U.S. standards of identity set by FDA. Careful 
enforcement of the provisions of our agreements--both for imports and 
for exports--are critical to upholding confidence in the bargains 
struck with our trading partners.
                              south korea
    Although the Korea-U.S. Free Trade Agreement (KORUS) has been in 
place only since 2012 and full free trade is still years away, it has 
played an important role in opening up more export opportunities for 
many U.S. companies and has already helped expand U.S. dairy product 
shipments to that market. Dairy exports to Korea in 2015 totaled over 
$305 million, more than double the average of the three full years 
prior to KORUS, despite being down from 2014.

    We believe that KORUS is a good example of how the U.S. could deal 
successfully with an FTA partner's market access sensitivities 
regarding dairy products and had hoped it would serve as a useful model 
for our efforts in the Trans-Pacific Partnership (TPP) negotiations 
with Japan and Canada.

    Still, a few issues have arisen that required assistance from our 
government to help ensure that the terms of the agreement were being 
honored. Korea's response to these concerns to date has been 
encouraging and we hope that a similarly successful way forward can be 
found on a current in-process concern.
TRQ Administration
    For instance, early on we and other sectors had concerns about how 
Korea was administering the auction system it used to manage certain 
dairy tariff rate import quotas (TRQs). The initial auctions were not 
very successful in fully filling the quotas granted to the U.S. under 
KORUS. The administration engaged extensively with Korea to understand 
why this was occurring and explore ways to ensure that the auction was 
not interfering with market demand for U.S. dairy products. USTR and 
USDA's prompt and sustained work in this area was critical to ensuring 
effective implementation of this vital avenue of KORUS agricultural 
access. As a result, the process has greatly improved and we are 
currently satisfied with how it is operating. We will continue to 
monitor it, however, to ensure that problems do not recur.
Organic Certification
    Another issue that has been successfully resolved involved imports 
of organic products generally and, for us, organic dairy products in 
particular. In late 2013, Korea announced its intention to begin 
enforcing organic certification regulations adopted in 2008 but which 
were not previously enforced. These regulations would have halted 
exports of organic products while exporters attempted to comply. 
Successful efforts by USDA and USTR, however, resulted in adoption of 
an organic equivalency agreement that ensured continued access to the 
Korean market for these high-value products.
Rules-of-Origin
    Similarly, the administration worked extensively to address a 
pattern of overly burdensome rules-of-origin requests for U.S. 
agricultural exports from the Korean Customs Service. We worked with 
our exporters to ensure that they provided to Korean Customs 
information necessary to comply with the KORUS rules of origin 
requirements and FAS, together with other U.S. agencies, worked to 
ensure that Korean Customs stopped demanding overly invasive and 
burdensome information in a manner designed to impede trade. If left 
unresolved, this issue could have led to serious disruptions in KORUS 
market access. But prompt and sustained U.S. work with Korea appears to 
have established a more reasonable approach to documenting rules of 
origin issues while still ensuring that the product is fully in 
compliance with the terms of KORUS.
Inequity Vis-a-Vis New Zealand's FTA

    There is another KORUS-related issue that we are currently 
pursuing, as a result of more favorable treatment granted to New 
Zealand for cheddar cheese under the New Zealand-Korea FTA and an 
unusual staging of the tariff elimination for U.S. cheddar cheese under 
KORUS. New Zealand negotiated a tariff and TRQ phase out for cheddar 
cheese that occurs in year 7 of their agreement, which was implemented 
at the end of 2015. Under KORUS the tariff for this product is 
eliminated in year 10 of our own FTA. Year 7 of the Korea-New Zealand 
FTA and year 10 of KORUS are both 2021. However, due to how the timing 
of the tariff elimination is structured in the New Zealand agreement 
vs. under KORUS, New Zealand cheddar will be subject to a lower tariff 
in the critical final 2 years prior to the elimination of the tariff 
for all suppliers.

    In 2019 New Zealand will enjoy a tariff almost 40% less than that 
U.S. exporters will pay under KORUS (10.3% vs. 16.8% for the U.S.); in 
2020 this gap will grow such that New Zealand cheddar will face a 
tariff approximately \1/3\ the size of that paid by U.S. exporters 
(5.1% vs. 14.4% for the U.S.). While not strictly a compliance issue, 
we do not believe that U.S. and Korean negotiators intended that such a 
situation should arise and we hope that the phase out for the quota and 
the tariff on U.S. cheddar cheese can be aligned to avoid this problem 
in order to avoid undermining the market share the U.S. has established 
under KORUS.
Geographical Indication Requirements
    A final concern in Korea relates to Korea's implementation of 
restrictions on the use of generic names for certain dairy products as 
a result of Korea's FTA with the EU. The EU insisted that Korea adopt 
rules that prevent the use of these ``geographical indications'' (GIs) 
by any country other than those in the EU. The Administration made 
excellent use of the period prior to the implementation of KORUS to 
secure a very clear understanding from Korea regarding the scope of 
protection for the numerous multi-term GIs (e.g., Mozzarella di Bufala 
Campana) that were on the list of GIs included in the EU-Korea FTA. 
This written clarification was essential in ensuring that KORUS market 
access opportunities for various cheeses were preserved. We were not 
able, however, to restore access for several U.S. cheeses directly 
banned by the terms of the EU-Korea agreement (asiago, feta, fontina 
and gorgonzola). U.S. exporters have faced increasing enforcement 
against shipments of these products over the past year.

    While stressing that my industry's overall experience with KORUS to 
date has been positive, the residual GI-driven restrictions in Korea 
have in practice undermined the value of the cheese concessions granted 
under KORUS and the same problem is spreading around the world through 
the EU's many other FTAs, as I describe in detail below.
             geographical indications in eu ftas undermine 
                    the value to dairy of u.s. ftas

    In a nutshell, the EU has been using its market-size muscle to lean 
on countries around the world to block imports of products from 
countries that allow the use of product names the EU inappropriately 
seeks to reserve for itself. The EU-Korea FTA and its impact on our 
KORUS agreement was the first indication of what has turned into a 
massive world-wide problem for us and for other dairy-producing 
countries.

    We very much appreciate the work of Chairman Hatch and Senator 
Wyden, as well as the many members of this committee and throughout 
Congress, who have expressed serious concerns about this issue and have 
helped shine a spotlight on the impacts of the EU's activities. For 
those who may not be as familiar with some of the details of this 
issue, let me provide a little background.

    Many well-known names for cheeses, meats and other foods trace 
their origins to Europe, but thanks to generations of emigration and 
trade, these products are now made and enjoyed throughout much of the 
world. This has greatly increased the popularity of certain cheeses 
such as parmesan, romano, feta and others to the commercial benefit of 
both European and non-European producers.

    However, the EU has been working in recent years to monopolize 
usage of many of these terms, while resisting efforts to clearly 
identify which names have already entered into wide-spread common 
usage. This is being done through use of the EU's geographical 
indication (GI) system, which is aimed initially at keeping such 
products out of its own market. It is now also being done on the global 
level, however, through EU efforts to negotiate exclusive use of many 
EU GIs through its free trade agreements, including with many U.S. FTA 
partners, and through multi-lateral efforts within the World 
Intellectual Property Organization. This greatly hinders effective 
competition with EU products in those markets, as well as in the EU 
market, since U.S. companies are prohibited from accurately labeling 
their products.

    For instance, as noted above, the EU-Korea FTA forbids the use of 
the terms gorgonzola, feta, asiago and fontina by non-EU suppliers. It 
also required Korea to register the EU GIs automatically; that is, 
stakeholders with an interest in the Korean market had no opportunity 
to present arguments that the GIs at issue were in fact widely used 
generic names or otherwise should not have been protected in Korea. 
Even the EU provides a case-by-case opposition procedure, something it 
prevented Korea from adopting as part of their FTA. U.S. companies have 
had to forego sales opportunities in Korea due to these restrictions.

    After its initial success in the EU-Korea FTA, the EU has busied 
itself expanding that model to many other markets around the world, 
including countries with which the U.S. has FTAs, such as Peru, 
Colombia, Canada, Central American countries and Singapore. U.S. 
engagement with these countries on this issue has been mixed, with some 
having provided assurances similar to those provided by Korea for 
multi-term GIs, while others continue to flout U.S. efforts to obtain 
sufficient clarity regarding the scope of protection they have granted 
to GIs registered under their FTA with the EU. After extensive U.S. 
outreach, some countries such as Guatemala and El Salvador have chosen 
to do the right thing and preserve access for many key U.S. exports but 
others such as Costa Rica have introduced harmful new restrictions on 
the use of certain common names.

    Other countries such as Nicaragua and Morocco have to date not 
published any information regarding which components of multi-term GIs 
are subject to restriction and which can continue to enjoy common 
usage. Morocco has compounded this problem significantly by proposing 
to grant protection to all EU GIs en masse despite any apparent 
individual examination of each GI and no public opportunity for comment 
on these new trade restrictions. Across all EU FTA markets, 
restrictions on U.S. exports of asiago, feta, fontina and gorgonzola 
are proliferating, even where these markets are also U.S. FTA partners.

    As noted earlier, the case of Costa Rica has been particularly 
concerning. In that country the government interpreted its trade 
commitments as requiring it to restrict the use of parmesan and 
provolone, despite the fact that the applied-for GIs were ``Parmigiano 
Reggiano'' and ``Provolone Valpadana.'' This was done despite the fact 
that even the EU does not currently restrict use of ``provolone'' and 
the Central America-EU FTA clearly permits a country to decline to 
restrict use of generic terms such as parmesan and provolone which were 
both used by the local industry for decades and more recently by U.S. 
exporters under CAFTA.

    The EU has also included GI requirements in FTAs it has negotiated 
with several members of the Trans-Pacific Partnership (TPP), i.e., 
Canada, Peru, Singapore and Vietnam. Of these, the agreement with 
Vietnam provides the greatest clarity to date regarding the scope of 
protection for multi-term GIs yet it too commits to a ban starting in 
2017 on new U.S. exports of asiago, feta, fontina and gorgonzola. The 
EU is also pursuing GI commitments in its ongoing negotiations with 
Japan, Malaysia and Mexico.

    Of course, we are also in the middle of negotiations on an FTA with 
the EU--the Transatlantic Trade and Investment Partnership (TTIP)--and 
it is abundantly clear that EU producers and politicians expect their 
negotiators to deliver an agreement that imposes strict EU GI rules on 
the United States. Our industry is even more adamant in its expectation 
that our negotiators should only come to an agreement on GIs with the 
EU if it simultaneously rejects restrictions in the U.S. market on 
common names, addresses the trade barriers erected against U.S. exports 
to third country markets and restores access into the EU for key U.S. 
exports such as parmesan and feta, labeled as such.

    I want to make it entirely clear that we are not opposed to 
legitimate GIs. Having an avenue to protect GIs is an existing 
international obligation and the U.S. complies with that obligation by 
permitting the registration of both U.S. and foreign GIs through our 
trademark system. In fact, the EU already has a number of GIs 
registered in the U.S. system. They have available to them all the same 
enforcement opportunities as do U.S. companies, many of which are small 
or medium size operations themselves.

    In other words, we have no problem with the existing registrations 
in the U.S.--or elsewhere around the world--of names such as 
``Provolone Valpadana'' or ``Parmigiano Reggiano.'' What we oppose is 
the EU's effort to effectively license to itself names that are 
commonly (and globally) used to identify a type of cheese. Production 
of such cheeses outside the European region to which the EU wants to 
provide a monopoly often represents a very sizable portion of global 
production, a clear indication that the name is not a term unique to 
one corner of the world. In some cases the names were even used 
generically in the EU until the EU decided to bestow just one country 
the permanent claim to them. (This was the case for parmesan and feta, 
which were produced by many European countries until roughly a decade 
ago when the EU made its final decision to award sole use within the EU 
of those generic names decides to Italy and Greece respectively.)

    The EU's approach to restricting common food names through the use 
of GI registrations abuses a good concept in order to impose trade 
barriers against competitors. This has no place in TTIP or any other 
trade agreement. In forcing its trading partners to adopt the same 
trade-restrictive GIs in recent FTAs, the EU has turned FTAs, which are 
supposed to expand trade, into tools for discriminating against third 
countries to gain unfair market shares.

    This is a major issue for our industry and it will continue to be 
so as long as new U.S. and EU FTAs are negotiated and implemented and 
the EU continues using GI's as a means of protectionism.
                               conclusion

    We look forward to working with the members of this committee to 
address implementation issues in free trade agreements and we will 
continue to collaborate closely with USTR and USDA to resolve problems 
as they arise. Active enforcement of not only the clearly enunciated 
commitments in an FTA but also the overall value of the package 
provided under that trade agreement is absolutely critical to upholding 
confidence in those deals. Agreements on paper mean little without the 
threat of strong enforcement measures behind them.

    Based on past experience, we also believe that it is clear that the 
greatest window of opportunity for influencing how countries will 
implement their obligations to the U.S. is during the period prior to 
Congressional approval of an agreement. Action during this window not 
only ensures that Congress has a clear understanding of how the 
agreement is intended to work in practice, but it utilizes the 
strongest point of leverage the U.S. possesses: whether or not we will 
decide to put in place a strengthening of our trade ties with the FTA 
partner.

    Where trading partners have demonstrated a consistent flouting of 
their trade commitments to us in certain sector--as is the case with 
Canada and dairy--additional and specifically-focused measures are 
needed to curtail this problem. Canada's consistent behavior in 
creatively finding new ways to constrain trade is reminiscent of 
another potential U.S. FTA partner--the EU. It is in part because of 
our past experience with Canada that we believe it is essential for the 
U.S. to secure clear dairy-specific results from the EU as part of TTIP 
in order to help try to guard against the type of shifting requirements 
that have proved to be so problematic with one of our oldest FTA 
partners. We are deeply concerned that the goal of concluding TTIP this 
year is not compatible with the type of high-quality dairy-specific 
result needed on nontariff issues given the lack of concrete progress 
towards that goal.

    If the U.S. lets major trading partners evade their commitments to 
us through complex regulations that are nonetheless intentionally 
designed to negatively impact U.S. exports, we run a high risk that 
this emboldens other countries to similarly impair the letter and/or 
the spirit of their commitments to us. As an industry that exports $5 
to $7 billion a year, this is a dynamic the U.S. dairy industry simply 
cannot afford to see develop. When a country has demonstrated a 
sustained commitment to limiting trade, the U.S. must adopt uniquely 
targeted approaches to hold that trading partner to account.

    That is also why U.S. actions with other major countries--even when 
not FTA partners--is very important. Russia undertook several 
obligations upon joining the WTO. Its current ban on many U.S. 
agricultural products, including dairy, has created severe upheaval in 
global markets and is not in keeping with its WTO commitments. In a 
similar vein, the EU is not currently an FTA partner, yet it too is 
bound by existing WTO obligations, including the Agreement on Technical 
Barriers to Trade. Its continued moves toward the imposition of 
restrictions on more and more common names runs directly counter to its 
obligations under that agreement.

    NMPF believes U.S. enforcement of both WTO obligations and existing 
FTA obligations is vitally important to ensuring the future faithful 
adherence of our FTA partners with their commitments. Without this, 
U.S. companies cannot be assured of the value of U.S. FTAs which would 
seriously undermine support for those future agreements.

    I appreciate the opportunity to testify here today on this issue 
and look forward to continuing to work with this committee, as well as 
with the administration, on the important issue of faithful FTA 
implementation.

                                 ______
                                 
           Questions Submitted for the Record to Jim Mulhern
               Question Submitted by Hon. Orrin G. Hatch
                           russia enforcement
    Question. Mr. Mulhern, USTR stated in its 2015 Report on the 
Implementation and Enforcement of Russia's WTO Commitments that, 
``currently, only a limited number of U.S. agricultural products enter 
the Russian market due to the ban on certain imported food products, 
and Russia is also restricting the transit of some U.S. agricultural 
shipments through its territory to other markets.'' Russia is clearly 
breaching its WTO obligations by imposing an import ban on U.S. 
agricultural products. This is just one example of non-compliance. 
Russia has taken a nearly countless number of economic measures against 
the United States, many of which USTR itself acknowledges ``are not 
consistent with Russia's WTO obligations.''

    Are you surprised that, despite the fact that Russia has been a WTO 
Member for nearly 4 years, USTR has not brought a single dispute 
against Russia?

    Answer. In our view, aggressive enforcement of U.S. trade 
agreements is critical to ensuring confidence in trade and in the U.S. 
Government's commitment to holding our trading partners to account. 
Russia has been a particularly frustrating trading partner given its 
blatant flouting of WTO agricultural commitments, even prior to the 
current ban on imports. The current ban has had a tremendous impact on 
global dairy trade by cutting off access for some of our largest 
competitors which has in turn driven those exports to other markets we 
have normally supplied. In addition to being a major agricultural 
market, Russia is of course a leading global player. Other countries 
are therefore carefully watching what the U.S. and others such as the 
EU opt to do in terms of insisting on WTO compliance. We hope that USTR 
is examining how to best address the numerous problematic trade 
concerns Russia has prompted in the past few years.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. Congress just passed a trade enforcement bill, which I 
hope will significantly up the game for U.S. trade enforcement, 
including by helping ensure that trade enforcers have the resources 
they need to get the job done. Each of you has identified some areas 
where trade agreement implementation has fallen short, yet you all seem 
to agree on the importance of the implementation process and having the 
right resources to get it done right. If more resources are dedicated 
to trade capacity and enforcement in coming months and years, what 
areas related to implementation are in your view in greatest need of 
additional resources?

    Answer. We suggest three primary points of focus:

    1.  In addition to simply verifying whether a country has made the 
appropriate shifts to its laws to come into compliance with the letter 
of the agreement, it's critical to be also examining--prior to 
implementation of an FTA--whether they are actively in compliance with 
existing obligations. If they are not--particularly if the degree of 
noncompliance demonstrates a pervasive pattern of blocking trade as is 
the case with dairy and Canada--then we need to first shore up the 
existing situation before extending new benefits to a country. If a 
country is consistently working to undermine market access granted in 
prior agreements, as we have seen time and again with Canada's dairy 
policies in particular, it is essential that the U.S. take specific 
steps to address that pre-existing problem. Otherwise, our trading 
partners are likely to assume that ``business as usual'' will be fine 
moving forward.

    2.  We believe additional resources should be devoted to bringing 
cases against countries demonstrating habitual flouting of trade 
commitments. In particular, this effort should encompass countries that 
utilize a range of tools to impair trade, including through 
nullification of concessions, rather than simply one primary 
regulation. Countries' use of a complex combination of regulatory and 
policy approaches designed to intentionally thwart trade need to be 
taken into account, rather than viewing each policy in isolation. 
Again, we cite Canada's approach to dairy as a strong example of this 
type of pattern.

    3.  Resources are also critical to invest when a challenge is 
global in nature, as is the problem we face with geographical 
indications currently. Due to the EU's efforts to block competition 
from the U.S. and other suppliers, we are seeing a proliferation of GI 
restrictions in numerous markets. USTR has worked aggressively to 
combat this dynamic and been successful in numerous cases. Yet despite 
this, U.S. exports still face a growing number of restrictions. 
Enforcement efforts for challenges that are global in scope such as 
this issue necessitate an approach design to address the core of the 
problem and then demonstrate to other trading partners what types of 
policies will not be tolerated.

    We appreciate the administration's and Congress's recognition of 
the importance of trade agreement compliance.

    Question. You have highlighted an important trade barrier for 
cheese producers in Oregon, and throughout the country: the spread of 
restrictive Geographical Indications regimes. If a market is closed to 
U.S. goods using generic terms, such as ``parmesan,'' ``mozzarella,'' 
and ``provolone,'' our farmers and cheese producers simply can't 
compete there. It is critical that we use every tool in our toolbox to 
combat this unfair trade practice. Could you elaborate on how 
implementation could further the goal of keeping markets open for U.S. 
cheese?

    Answer. As noted above, this is a critical issue for our industry. 
The EU's abuse of geographical indications--both in its own market and 
around the world--to restrict competition in common food product 
categories must be rejected as an unacceptable nontariff trade barrier. 
The driver of a policy is often an important element in determining 
whether trade impacts are unintentional collateral of a sound 
underlying policy priority--or whether trade impacts are the direct 
intention of a policy. In the case of how the EU has developed its 
approach to GIs too often we are seeing the latter situation whereby 
the EU is wielding these provisions specifically in a way designed to 
shut down trade. The CATO institute illuminated this dynamic well in a 
recent report entitled: Reign of Terroir: http://www.cato.org/
publications/policy-analysis/reign-terroir-how-resist-europes-efforts-
control-common-food-names.

    TPP breaks new ground in establishing stronger tools to help us 
better tackle this growing global threat to U.S. exports. However, it 
is critical to send the signal to countries that we fully expect 
compliance with both the letter and spirit of those commitments. 
Several TPP partners--as well as potential future TPP countries--are in 
active negotiations with the EU on GIs or are likely to implement EU 
FTAs in the near-term. As those countries weigh precisely how to handle 
EU requests to restrict trade and face the same pressure the U.S. is 
experiencing in TTIP to impose new limits on competition simply to 
placate EU desires to unfairly gain a leg up on other suppliers, it is 
essential that the U.S. also be consistently reminding them of the 
importance of these commitments and the expectation that the U.S. will 
be able to actually make use of full value of the market access 
packages negotiated under both TPP and previously under the Uruguay 
Round.

                                 ______
                                 
               Question Submitted by Hon. Maria Cantwell
    Question. Mr. Mulhern, I understand the dairy industry did a study 
that found that the free trade agreements the U.S. concluded with its 
partners generated $8.3 billion in profit for the U.S. dairy over 10 
years.

    For example, in the decade following implementation of the North 
American Free Trade Agreement (NAFTA), U.S. dairy exports to Mexico 
increased from $250 million to $1.6 billion. And after the U.S.--Korea 
Free Trade agreement went into effect, U.S. dairy exports to South 
Korea have increased from $223.7 million in 2011 before the entry into 
force of the agreement in 2012) to $416 million in 2014, an increase of 
86%.

    Now, I have also heard from other growers and agricultural 
producers in my state that will benefit from lower tariffs in Vietnam 
and Japan on potatoes and wheat under the Trans-Pacific Partnership 
(TPP). At the same time, I understand the dairy industry has had mixed 
views of the Trans-Pacific Partnership. It provides some benefits but 
also has some challenges on access in some markets.

    What should be done regarding dairy as Congress prepares to 
consider the Trans-Pacific Partnership this year?

    Answer. Although at the time of the hearing NMPF did not yet have a 
position on TPP, we have now announced our support for the agreement. 
That decision was very carefully taken given both pluses and minuses in 
the TPP dairy market access results, as well as our disappointment that 
the dairy export provisions with Canada and Japan did not go as far as 
prior U.S. FTAs. On the whole, however, and taking non-tariff elements 
such as TPP's SPS and GI provisions into account, we believe the terms 
of the TPP agreement will be positive for our industry and are 
recommending that Congress approve it. A key factor in that, however, 
is what Canada plans to do since our analysis assumes that we will not 
encounter trade barriers that cut off current access avenues and that 
Canada will faithfully implement its obligations. If Canada backtracks, 
however, on even its current market access commitments under NAFTA, as 
it is currently considering doing, dairy trade with Canada could 
actually move backwards, rather than forward.

    We look forward to working with USTR and Congress to ensure that 
Canada does not impair existing NAFTA access out of an effort to 
effectively ``exchange'' the new TPP dairy commitments with a removal 
of current access opportunities. It's vital that the U.S. be clear that 
this behavior cannot be tolerated and that we will not move forward 
with an expanded agreement with Canada if they continue to erect these 
unjustified barriers to our products.

                                 ______
                                 
                 Question Submitted by Hon. Bill Nelson
    Question. In your testimony, you mention that Mexico continues to 
ask for excessive documentation to verify the origin of U.S. dairy. In 
Florida, we had similar trouble with South Korea after the U.S.-Korea 
free trade agreement entered into force. Korean officials didn't agree 
with the USDA's method of certifying country-of-origin for U.S. juice. 
It stopped our citrus growers from gaining the benefits of the Korean 
agreement until 2 years after the agreement went into force--all the 
while Korean producers were enjoying open access to the U.S. market. 
How can we avoid having this scenario happen again for the Trans-
Pacific Partnership agreement?

    Answer. This is an important issue and one we too had experience 
with in Korea for our dairy shipments. It is our understanding that 
USTR and USDA took some of the lessons learned from the Korean country 
of origin documentation experience and sought to improve the TPP text 
in this area to aim to curtail future similar problems. Each FTA builds 
on the past one. It's an unfortunate reality that sometimes we need to 
learn the hard way where the gaps in the text of our agreements are.

    What's vital is that we ensure--both in the text of the agreement 
and through the process prior to implementation--that those types of 
issues are not replicated moving forward.

    This approach of learning from past experiences is a key part of 
why we have been so insistent that the U.S. needs a heightened approach 
to dealing with dairy trade with Canada. For too long our industry has 
had to deal with Canada's active and creative efforts to hinder 
legitimate U.S. dairy exports to that market when they begin to make 
inroads after significant investments by U.S. companies under Canada's 
existing regulations. Canada then regularly shifts the regulations to 
change the rules of the game half way through, intentionally to disrupt 
trade.

    Just as we know that USTR and USDA's approach to COO issues has 
been honed by the Korea ordeal, we expect that this long history of a 
clear pattern of blocking dairy trade must inform a different path 
forward for dealing with Canada as we prepare to move forward with TPP.

                                 ______
                                 
   Prepared Statement of Sean P. Murphy, Vice President and Counsel, 
        International Government Affairs, Qualcomm Incorporated
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
I am pleased to be here today to examine the implementation of U.S. 
free trade agreements and consider what lessons can be learned and 
applied in the future.

    My name is Sean Murphy, and I am Vice President and Counsel of 
International Government Affairs at Qualcomm, based at the company's 
headquarters in San Diego, California. I manage a range of 
international public policy issues for Qualcomm, including intellectual 
property, international trade, and innovation policy.

    I applaud the Committee for convening this hearing on the important 
topic of trade agreement implementation. I quite literally have been 
thinking about ways to enhance trade agreement monitoring, 
implementation and enforcement, and options for leverage, since the 
1990s when I served in the Office of the U.S. Trade Representative 
(USTR). So, it is a privilege for me and Qualcomm to be able to 
contribute to this important dialogue.

    Qualcomm has been and remains a strong supporter of international 
trade agreements. As I have testified previously before the Trade 
Subcommittee of this Committee, Qualcomm has been particularly 
supportive of the U.S.-Korea Free Trade Agreement (KORUS), which 
created an updated template for future trade agreement negotiations by 
the United States. We also strongly supported the conclusion of the 
Trans-Pacific Partnership (TPP) negotiations, which successfully builds 
upon KORUS to not only open new markets in the Asia-Pacific region for 
our sector but also to create new standards to advance market 
opportunities in the 21st century economy. As one of the company co-
chairs of the U.S. Coalition for TPP, we look forward to its approval 
by Congress at the earliest opportunity.

    Qualcomm also strongly supported expansion of the World Trade 
Organization International Technology Agreement (WTO ITA), which will 
eliminate tariffs on 201 technology products that weren't even 
conceived of when the ITA was first concluded in the late 1990s. And 
finally, we also support the ongoing negotiations of the Trans-Atlantic 
Trade and Investment Partnership (T-TIP). We believe that these 
agreements, if faithfully implemented and enforced, all have the 
potential to enable global innovation and connectivity, enhanced 
productivity, research and development, and economic growth and job 
creation.

    As the United States and its trading partners work diligently to 
secure ratification and then entry-into-force of the TPP, and to 
conclude T-TIP, we very much appreciate this opportunity to share 
lessons learned regarding the implementation and enforcement of prior 
trade agreements. We recognize that in order to secure continued 
political support for TPP and future trade agreements, it is important 
that the U.S. Government demonstrate its commitment to ensuring that 
America's trading partners are implementing and living up to their 
existing trade obligations.
                          overview of qualcomm
    Founded in 1985, Qualcomm is a world leader in 3G, 4G and next-
generation mobile technologies. If you have a smart phone, tablet or 
other advanced mobile device, you are using some form of Qualcomm-
developed technologies. Our research and development efforts, as well 
as strategic partnerships with other innovative companies, allow us to 
develop breakthrough technologies mobile companies need to power their 
businesses. We channel our innovations into the global marketplace in 
two ways.

    First, we broadly license our global portfolio of more than 100,000 
issued or pending patents to nearly 300 licensee customers across the 
mobile industry. Many of our patented technologies have been 
incorporated into industry-wide technical standards. Qualcomm makes 
available for licensing both its standardized and non-standardized 
patented technologies. To help fuel cutting edge innovation, promote 
interoperability, competition and expanded consumer choice, and enhance 
widespread dissemination of new technologies, Qualcomm is active in 
over 150 technology standards bodies around the world. Our innovation- 
and patent-intensive business model has and continues to provide all 
companies--big or small--opportunities to enter and compete in the 
dynamic mobile ecosystem. International standardization is essential 
for the global mobile industry to achieve scale, which helps drive down 
prices, expands access, and improves performance. For example, 4G 
mobile networks offer data speeds that are 12,000 times faster than 
networks using 2G standards.

    Second, we sell advanced semiconductor chipsets and software 
implementing some of our innovations, which are incorporated into 
mobile devices manufactured by our customers and then sold globally. 
The diversity of supply and competition between these device 
manufacturers translates into greater innovation, enhanced consumer 
choice and lower prices.

    Qualcomm led the development and commercialization of a pioneering 
digital communications technology called Code Division Multiple Access 
(CDMA), and we play a similar role for next-generation mobile 
technologies known as 4G Long-Term Evolution (LTE). We take pride in 
our contributions in helping to make mobile communications the biggest, 
most pervasive information platform in history--with nearly 8 billion 
mobile connections in a world of 7.3 billion people.

    Today, we are the fourth largest semiconductor supplier by revenue 
and the world's largest ``fabless'' semiconductor company--meaning that 
we invest heavily in research and development, and design our chips in-
house, but do not own or operate our own semiconductor fabrication 
facilities.

    Since our founding just over 30 years ago, Qualcomm has evolved 
into a global business that derives more than 90 percent of our 
revenues outside the United States. Last year, our worldwide revenues 
exceeded $25 billion, with roughly 60 percent resulting from the sale 
of chipsets and more than 30 percent from patent licensing.

    We license our global portfolio to smartphone and other device 
manufacturers around the world--including in China, Europe, India, 
Japan, Korea and Taiwan--and consistently invest more than 20 percent 
of our total annual revenues in research and development. Since 1985, 
Qualcomm has invested more than $38 billion in R&D, with the majority 
spent here in the United States.

    Qualcomm has made important contributions to the U.S. mobile 
communications sector--which accounted for an estimated $548 billion or 
about 3.2 percent of U.S. GDP and sustains more than 1 million American 
jobs. While Qualcomm is a global company, approximately 60 percent of 
our 30,000 employees (65 percent of whom are engineers) are based in 
the United States. Thus, while Qualcomm drives billions of dollars into 
a virtuous cycle of innovation and intellectual property creation 
worldwide, we are also creating and sustaining a significant number of 
high-skill, high-wage jobs for U.S. workers.

    This is why Qualcomm urges government officials around the world to 
think about international trade in terms of intangible exports in 
addition to physical products. IP-intensive industries account for over 
$8 trillion in value added, or over a third of U.S. gross domestic 
product. America's most IP-intensive industries generated direct 
employment of 27.1 million jobs in 2010 and an additional 12.9 million 
jobs through indirect activities associated with these industries, for 
a total of 40 million IP-supported jobs. These 40 million jobs 
represent 27.7 percent of all jobs in the U.S. economy.

    The growth in sales of mobile products has been enormous--in fact, 
much greater than previous generations of products. Moreover, the 
products offered to the consumer have evolved with new technologies at 
an astounding pace. Consider the cell phone of ten years ago, compared 
with today's most advanced smartphones. Continued innovation within the 
United States and throughout the world depends on strong and 
enforceable intellectual property rights, and viable technical 
standards enabled by a voluntary private sector-driven technology 
standard-setting environment, and access to open, competitive markets.
Qualcomm's Strong Support for High-Standard Trade Agreements
    Given the importance of international markets to Qualcomm's growth, 
it is no surprise that the company strongly supports the negotiation 
and implementation of ambitious, high-standard U.S. free trade 
agreements. Over the past 15 years that I have been at the company, 
Qualcomm has actively supported each FTA concluded by the United 
States, as well as Trade Promotion Authority (TPA) legislation, and 
multilateral trade negotiations, including expansion of the 
International Technology Agreement (ITA) and the Trade in Services 
Agreement (TISA) and Environmental Goods Agreement (EGA). Qualcomm's 
ability to continue innovating and drive a more competitive wireless 
industry rests heavily on open markets for information and 
communications technology goods and services, reliable protection and 
enforcement of intellectual property rights, regulatory transparency 
and due process protections.

    The foundation of the international trading system is established 
by the agreements of the World Trade Organization (WTO). Alongside the 
WTO however, are a web of preferential trade agreements, many of which 
exclude the United States. According to the WTO, there are more than 
400 bilateral and regional trade agreements in force around the globe, 
and another hundred are being negotiated. Of those, the United States 
is a party to just 14 agreements in effect with 20 countries.

    These U.S. trade agreements, however, are generally among, if not 
the most comprehensive and high-standard trade agreements negotiated 
between trading partners. Each FTA concluded by the United States 
generally builds upon the agreements that precede it, raising the bar 
and evolving to promote meaningful access to new markets and protect 
U.S. investments in these markets. For example, the U.S.-Israel FTA did 
not originally include rules on intellectual property protection. The 
NAFTA included IPR provisions, but did not cover basic 
telecommunications services. The Singapore FTA was the first to include 
disciplines on government-linked corporations, what we would today 
refer to as state-owned enterprises, which are the subject of an entire 
chapter of the TPP.

    Early U.S. FTAs, such as NAFTA, the Middle East agreements and the 
Central American FTA (CAFTA), as well as the conclusion of the WTO's 
ITA in 1996, played a key role in promoting the global competitiveness 
and expansion of the U.S. information and communication technologies 
industry. The fact that it took almost two decades to update the ITA 
demonstrates the importance of the evolution of U.S. FTAs, which 
continued to build upon existing WTO and other regional and bilateral 
agreements, over that same time period.

    These agreements also provide important opportunities for the 
United States to influence and set the rules of the road. This is 
critical now more than ever to combat a growing array of non-tariff 
market barriers and ``behind the border'' impediments to trade, 
including domestic policies that promote national champions, forced 
technology transfers and similar protectionist goals.

    Of the most recently concluded U.S. FTAs, KORUS and TPP are of the 
greatest commercial significance to Qualcomm. For example, Korea is the 
thirteenth largest economy, and the United States' sixth largest 
trading partner. It is also one of the most advanced mobile 
communications markets in the world. As a share of the Korean economy, 
mobile accounts for an estimated 11 percent of GDP, and a significant 
contributor to Korean jobs and 5 percent of exports. The mobile 
sector's share of Korean GDP is expected to grow from $143 billion in 
2015 to $187 billion by 2020. Qualcomm is proud of its contributions 
and partnerships in Korea that have helped to propel the impressive 
growth and success of Korea's mobile industry domestically and in 
export markets. Given this month marks the fourth anniversary of 
KORUS's entry into force, it is timely to consider Korea's 
implementation track record.

    The economies that make up TPP account for roughly 40 percent of 
global GDP and approximately 825,000,000 consumers. The Asia-Pacific 
region is a critical and growing market for ICT products and services. 
It is estimated that by 2020, more than 56 percent of all smart phone 
sales will be in the broader Asia-Pacific region. TPP includes an 
ambitious range of disciplines that will advance new market access 
opportunities for the ICT industry, while also promoting this 
industry's research and development capabilities and competitiveness. 
These include, among others, a requirement that all TPP parties must 
join the WTO's ITA, innovative new regulatory cooperation provisions 
concerning ICT products, strong IP protections, and due process 
protections in competition proceedings.
Lessons Learned From Existing Free Trade Agreements
    The value of an FTA commitment depends entirely on the extent to 
which it is implemented and enforced. This includes not only the 
commitments embodied in the agreements, but also any side accords, 
exchanges of letters or related understandings. I think it is fair to 
say that most of the time, countries abide by their FTA commitments. 
But in those instances where a country is not living up to its 
obligations, it is critical that the United States have an effective 
enforcement strategy in place.

    It is inevitable that implementation issues and differences of 
opinion about interpretations will arise. Based on Qualcomm's 
observations about the operation of various FTAs, I offer the following 
recommendations for the Committee's consideration.

    1.  Create a Mechanism To Solicit More Extensive Input From U.S. 
Stakeholders To Ensure Effective Implementation of All FTA Obligations 
Before Entry-Into-Force

    Before a trade agreement with the United States can enter into 
force, the President must determine that the trading partner has taken 
the necessary steps for implementation of all obligations that are to 
take effect on day one of the Agreement.

    I cannot emphasize enough how critical this certification process 
is to ensuring that a trading partner has the necessary laws and 
regulations in place to implement its obligations before an Agreement 
enters into force. It is during this certification process when our 
ability to secure any necessary protections in our trading partners' 
laws, consistent with the Agreement, is at its greatest. Certification 
may be the best opportunity the United States has to ensure that 
trading partners have taken all necessary domestic steps to implement 
and abide by their commitments.

    In light of the enormous undertaking this exercise presents, the 
U.S. Government should seek ways to improve effective analysis and 
verification that FTA partners have transposed FTA obligations into 
domestic law before presidential certification is made. Because the 
U.S. private sector may have relevant insights as to whether domestic 
measures have been sufficiently updated or changed consistent with FTA 
obligations, I recommend that the U.S. Government engage in closer 
consultation with the private sector before and during this analysis.

    We should consider a mechanism that enables the private sector to 
provide input, which may be technically complex and ``in the weeds,'' 
to be provided and considered as part of a pre-certification 
``scorecard'' or ``check list.'' I recognize such a pre-
certification procedure of this nature adds another step to the 
certification process. However, the importance of getting this 
``right'' makes going this extra mile worthwhile. And since TPA 
requires consultation between the administration and Congress before 
instruments of ratification are exchanged and FTAs enter into force, 
this committee has a critical role in ensuring a careful and considered 
analysis of whether our partners have taken sufficient steps to 
implement their FTA obligations.

    To illustrate the importance of this sort of analysis, I would like 
to discuss Qualcomm's recent experiences in Korea. As you may be aware, 
many U.S. companies, including Qualcomm presently, have had the 
experience of being involved in competition-related investigations 
conducted by the Korea Fair Trade Commission (``KFTC''), the agency 
responsible for applying Korea's competition law.

    One of the benefits of KORUS, which I highlighted in my prior 
testimony in July of 2014, is that it ``[e]xpanded existing procedures 
to ensure fairness, transparency and due process in Korean competition 
law investigations and enforcement actions.'' Indeed, the due process 
provisions for competition law investigations in KORUS Chapter 16 were 
important factors that contributed to Congressional and U.S. industry 
support for KORUS. The U.S. Advisory Committee for Trade Policy and 
Negotiations in 2007 endorsed KORUS in part due to the ``state of the 
art due process provisions'' in Chapter 16, noting in particular that 
KORUS ``clarifies that a [respondent in competition proceedings] should 
be able to cross-examine witnesses and review all documents on which 
the charges against it'' may be based.

    In particular, under KORUS, Korea must provide respondents in 
administrative competition hearings with the opportunity to ``review 
and rebut the evidence and any other collected information on which the 
determination may be based'' and ``to cross-examine any witnesses or 
other persons.'' Korea, however, has not yet implemented a procedure to 
provide the subject of an investigation access to all such materials, 
and to the best of our knowledge, does not have plans to do so. The 
KFTC appears to take the position that Chapter 16 does not require any 
revisions to KFTC procedures, and therefore many of the protections 
promised by KORUS, and the benefits that U.S. companies reasonably 
expected from the commitment, have not materialized. But that cannot be 
the right result. The Chapter 16 procedures were put into KORUS to 
effect change in the KFTC process, not to maintain a status quo that 
was of significant concern to U.S. companies.

    A pre-certification check list exercise that enables the private 
sector to provide input to the administration and Congress might have 
identified this inadequacy and ensured that Korean authorities took the 
requisite steps necessary to ensure that its antitrust regime was fully 
compliant with KORUS obligations prior to presidential certification 
and entry into force. Since KORUS took effect, the KFTC has stepped up 
its enforcement activity involving foreign firms, including some 40 
antitrust or consumer protection cases against U.S. companies. A pre-
certification process would also avoid any after-the-fact debate over 
whether an important provisions require any change in in-country 
policies or procedures. The question of whether Chapter 16 requires any 
change in KFTC process, for example, should not have been left open to 
debate after the fact.

    It is critical that the U.S. administration carefully analyze 
adherence to the TPP competition chapter's similar due process 
provisions during the certification process and require any changes 
needed to faithfully implement those provisions. Moreover, once TPP is 
approved and has entered into force, we urge the U.S. Government to 
scrutinize the antitrust procedures and practices of any parties that 
would like to join the Agreement and ensure compliance with the minimum 
transparency and procedural fairness standards set forth in the TPP 
competition chapter before allowing any new Party to join the 
agreement.

    2.   Provide Sufficient Resources To Enforce U.S. FTAs

    As the number of U.S. FTA partners grows, so too will the 
challenges of vigorously monitoring and enforcing existing FTA 
commitments. If agreements such as KORUS and TPP, which include state-
of-the-art provisions in intellectual property, e-commerce, and other 
important areas, are truly to establish new global standards, then the 
U.S. government must rigorously enforce these commitments. A failure to 
do so sends a negative message about the seriousness of these 
commitments not only to current FTA partners but also to those Parties 
that may seek to join TPP in the future.

    Toward that end, Qualcomm applauds the enactment of the long-
awaited Trade Facilitation and Trade Enforcement Act (H.R. 644). We are 
particularly pleased to see inclusion of a $15 million trade 
enforcement trust fund, championed by Senator Cantwell, which 
prioritizes the enforcement of intellectual property standards, along 
with several other disciplines.

    The United States' leadership and competitiveness in innovation 
continues to be challenged in a number of foreign markets. Such 
challenges include efforts to restrict market access, weaken patent 
rights, displace imported technologies and foreign intellectual 
property in favor of indigenous innovation and restrict technology 
licensors' ability to freely contract with their customers. In many 
cases, such actions are inconsistent with FTA obligations designed to 
protect patent rights, combat forced technology transfer or technology 
localization, and prohibit discriminatory treatment.

    The Trade Enforcement Fund is a useful contribution to ensuring the 
resources needed to identify and address failures to enforce existing 
FTA commitments. We hope the necessary funds are appropriated 
immediately and stand ready to work with Congressional appropriators to 
that end.

    3.  Make Better Use of Existing Trade Tools

    Dispute settlement is a critical element of U.S. FTAs by ensuring 
the binding and enforceable nature of the obligations. But litigation 
of disputes is not the only mechanism available to ensure compliance--
especially when one considers the time horizon and duration of formal 
dispute settlement procedures.

    Short of dispute settlement, U.S. trade officials have a number of 
other options at their disposal to address FTA-inconsistent practices. 
These include a range of tools--from consultations to FTA working 
groups to statutorily mandated ``naming and shaming'' reports--to 
mention a few.

    Looking again at KORUS, as an example, the agreement contains 
institutional provisions that create 19 separate permanent committees 
or working groups to ensure ongoing and continuous dialogue about 
implementation and compliance, and which provide a forum to have hard 
conversations when problems arise. However, these committees do not 
cover all chapters in the Agreement, nor do they appear to meet 
frequently. For example, last year's Trade Policy Agenda report noted 
that only three of the 19 committees met in 2014. It is worth exploring 
whether these groups are fulfilling their existing mission and if not, 
how best to improve the effectiveness of this forum for addressing 
implementation concerns without needing to resort to dispute 
settlement.

    USTR also produces annual reports that shed light on trade barriers 
in key markets, including in those of our U.S. FTA partners, such as 
the National Trade Estimate Report on Foreign Trade Barriers, and the 
Special 301 and Section 1377 reports, which cover intellectual property 
and telecommunication challenges respectively. In many cases, these 
reports provide useful leverage to encourage trading partners to live 
up to their obligations. However, in a smaller number of instances, the 
same markets are highlighted in these reports year-after-year without 
any meaningful changes to the policies that landed them on those lists. 
Qualcomm therefore supports the provisions in H.R. 644 that require 
USTR to develop actions plans with appropriate benchmarks to gauge 
progress for those countries listed on the Priority Watch List in 
Special 301. These new provisions also authorize enforcement action if 
it is determined that the country has not substantially met the 
benchmarks set forth in the action plan. We are optimistic that 
requirements like these can provide useful leverage to address new 
concerns as well as intractable problems.

    4.  Expand the FTA Enforcement Tool Box

    The United States must do whatever it takes to ensure effective 
enforcement of U.S. trade agreements. While the United States should 
continue to deploy all existing tools available to ensure compliance 
with its FTAs, in some cases, these tools may just not be enough. We 
therefore appreciate the interest of this Committee to have a renewed 
conversation about enforcement. This should be part of an ongoing 
dialogue about how to create new tools and make new forms of leverage 
available to U.S. trade officials so that they can more meaningfully 
engage their counterparts from FTA countries in results-oriented 
consultations prior to or in parallel to formal dispute settlement. The 
U.S. Government and should consider innovative ways to give 
administration trade policy and trade enforcement officials additional 
carrots and/or sticks to motivate or ensure implementation and 
compliance. This is critical to ensuring political legitimacy for trade 
on an enduring basis.

    For example, KORUS introduced a new, expedited dispute settlement 
process for auto-related measures that violate the FTA, whereby if 
Korea does not uphold its commitments in this area, U.S. concessions in 
the FTA can suspend benefits under the agreement, or in other words 
``snap back'' to pre-KORUS terms. It may be worthwhile to consider 
whether this policy tool could be utilized more broadly, particularly 
in instances where traditional trade tools might not be sufficient. 
Such a tool could be necessary to help motivate faster compliance than 
the conventional approach under most other FTAs which do not envision 
or authorize the withdrawal or suspension of benefits until after a 
party has prevailed following lengthy dispute settlement proceedings 
and possibly also an appeal. The harm to some companies and industries 
associated with a prolonged period of non-compliance with FTA 
obligations pending dispute settlement or appellate proceedings could 
be significant or even irreparable.
Conclusion
    For U.S. companies, innovators, employers and workers, the global 
trading system presents both significant challenges and opportunities. 
For Qualcomm, we believe there is no choice but to engage and compete 
in the dynamic global marketplace. Likewise, we believe that the role 
of the U.S. Government should also be to engage, and lead by example in 
pushing for further market-opening, high-standard trade disciplines, 
and creative solutions to the known and emerging trade barriers 
confronting American interests in the 21st century economy.

    Trade agreements are and will remain important vehicles to achieve 
these objectives. No trade agreement is perfect, but full and faith 
implementation and enforcement of these agreements are crucial to 
ensuring that the expected benefits accrue to companies, workers and 
consumers of the United States and also of our trading partners. And I 
hope that some of the recommendations I offered here today about how to 
get the most from our carefully negotiated agreements will help to 
spark further thinking and discussion.

    Thank you again for the opportunity to appear before this committee 
and share Qualcomm's views on this critical topic. I look forward to 
answering your questions.

                                 ______
                                 
          Questions Submitted for the Record to Sean P. Murphy
               Question Submitted by Hon. Orrin G. Hatch
                 ip enforcement and dispute settlement
    Question. Mr. Murphy, your testimony emphatically noted the need 
for the U.S. Government not only to establish high global standards but 
also to rigorously enforce them. You basically stated that a failure to 
do so sends a negative message about the seriousness of these 
commitments, not only to current FTA partners, but also to those 
parties that might join a trade agreement in the future. In his 
testimony, Mr. Tepp points out that since 2000, USTR has not initiated 
a single dispute under the IP chapter of any FTA, and that USTR has not 
initiated an IP dispute under the TRIPS Agreement in 9 years.

    As he said, it is certainly not for lack of candidates. In fact, my 
office released an illustrative list of problems with our current FTA 
partners this morning.

    Do you agree that it is high time for the U.S. Government to 
initiate a case to enforce intellectual property rights and that 
failure to do so sends the wrong message to our trading partners?

    Answer. Thank you, Chairman Hatch, for this important question and 
for being a tireless champion of strong protections for U.S. 
intellectual property rights.As you appreciate, strong IP protections 
are crucial to American competitiveness, leadership in creative and 
innovative industries, and the direct and indirect creation and 
maintenance of U.S. jobs. Therefore, I agree that U.S. trade 
enforcement officials should be particularly sensitive to the need to 
ensure that the carefully negotiated and bargained for intellectual 
property obligations under our trade agreements are adhered to by our 
trading partners. As you suggest, failures to enforce these critical 
protections could undermine the effectiveness of our trade agreements 
and send an unhelpful message globally--both to our FTA and non-FTA 
partners--about the importance and seriousness of these obligations.

    I am not familiar enough with the specific examples in your 
illustrative list to comment on the merits of these matters as 
potential dispute settlement cases. However, given the significant 
number of IP concerns highlighted by USTR in its annual Special 301 
report, the statistics noted by Mr. Tepp demonstrate that a more 
vigilant approach may be called for to ensure that our trading partners 
are living up to their commitments. That is why Qualcomm supported the 
passage of H.R. 644 (the Trade Facilitation and Trade Enforcement Act 
of 2015), which requires USTR to develop action plans with specific 
benchmarks to gauge progress by those countries listed on the Special 
301 Priority Watch List. These new provisions also authorize 
enforcement action if it is determined that the particular country at 
issue has not substantially met the benchmarks set forth in the action 
plan.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. Congress just passed a trade enforcement bill, which I 
hope will significantly up the game for U.S. trade enforcement, 
including by helping ensure that trade enforcers have the resources 
they need to get the job done. Each of you has identified some areas 
where trade agreement implementation has fallen short, yet you all seem 
to agree on the importance of the implementation process and having the 
right resources to get it done right. If more resources are dedicated 
to trade capacity and enforcement in coming months and years, what 
areas related to implementation are in your view in greatest need of 
additional resources?

    Answer. As I stated in my prepared statement, Qualcomm applauds 
Congress for the recent enactment of H.R. 644 (the Trade Facilitation 
and Trade Enforcement Act of 2015). We are particularly pleased with 
the authorization of a $15 million trade enforcement trust fund that 
prioritizes the enforcement of intellectual property rights. This fund 
is a useful contribution toward ensuring the availability of resources 
needed to identify and address FTA implementation concerns or new 
problems. We hope the necessary funds are appropriated as soon as 
possible, and we stand ready to work with Congressional appropriators 
to that end.

    Qualcomm supports the provisions in H.R. 644 that require USTR to 
develop action plans with specific benchmarks to gauge progress by 
those countries listed on the Special 301 Priority Watch List. These 
new provisions also authorize enforcement action if it is determined 
that the particular country at issue has not substantially met the 
benchmarks set forth in the action plan. We are hopeful that 
requirements like these can provide useful leverage to address the 
identified problems.

    In addition, as you note, Senator Wyden, there are other areas 
where the commitment of additional resources would be helpful and 
should be considered. These include funds for trade capacity building, 
the hiring and training of additional U.S. trade enforcement staff, and 
enforcement-related travel by government officials.

    Question. For years I have fought to protect the free and open 
Internet and ensure the free flow of data across borders. You mentioned 
the U.S.-Korea trade agreement, which included the first commitment on 
restrictions on cross border data flows. Some have raised concerns with 
the effectiveness of that commitment in addressing restrictions on data 
flows. This committee may in the future be considering the Trans-
Pacific Partnership agreement, which contains a broader set of new 
commitments to promote an open Internet. How can we use the 
implementation process to ensure that these new commitments are applied 
in a way that protects the Internet and ensures that countries do not 
adopt policies that would Balkanize the Internet and stop the flow of 
information at the border? In what ways does TPP improve upon the U.S.-
Korea trade agreement?

    Answer. Senator Wyden, the term ``Balkanization,'' that you use is 
an apt description of the potential impact of numerous threats facing 
the Internet. Obviously, there has to be an important balance, between, 
on the one hand, privacy rights and the protection of personal 
information, and, on theother hand, the free flow of information that 
is essential to the Internet and electronic commerce in our borderless 
global economy.

    Implicit in your question is another important point, which is that 
each U.S. trade agreement that is concluded stands on the shoulders of 
the prior one. We learn lessons from the negotiation, implementation 
and enforcement of prior trade agreements, and those experiences help 
to inform subsequent negotiations and to shape the outcomes of 
subsequent agreement negotiations. Over time, we have seen an evolution 
in the substantive rules in U.S. trade agreements and a gradual raising 
of the bar from one agreement to the next.

    For example, you rightly point out that the U.S.-Korea FTA (KORUS) 
was the first U.S. FTA to include rules on cross-border data flows. TPP 
not only builds upon and strengthens the KORUS e-commerce disciplines, 
but it also helps raise global standards in this area. For many 
industries, including the ICT sector, this is one of the most important 
achievements of TPP. That is why it is critical to ensure that these 
provisions are implemented by our trading partners before TPP goes into 
force, which, as I highlighted in my prepared statement, is when the 
U.S. has the greatest ability to encourage our partners to meet their 
existing obligations.

    TPP requires parties to the agreement to allow cross-border data 
flows. Without a basic obligation of this nature, we risk seeing a 
proliferation of different rules and a patchwork effect across the 
Asia-Pacific region.

    TPP's e-commerce chapter also includes prohibitions on forced 
localization and forced disclosure of source code, which is also of 
critical importance. These obligations will increase confidence and the 
ability for American companies to engage in business in the Asia-
Pacific region. In addition, the prohibition on data localization--that 
is to say, requirements that servers be located in the territory of 
each country and accompanying impediments on the free flow of 
information--would help American companies stay competitive by reducing 
costs while also protecting consumers with better information security. 
Specifically, data localization unnecessarily forces companies to 
replicate expensive data centers and undermines information security; 
instead of a company with data centers in one country that need to be 
protected, national rules requiring a company to locate servers in each 
country in which it operates makes the company responsible for 
maintaining multiple different secure data centers in multiple 
different economies, which potentially increases the risk of cyber-
attacks, other malicious conduct, and inadvertent disclosure or other 
breaches.

    To be clear, the threat of data localization requirements is not 
theoretical. Many countries are increasing restrictions on the 
transmission of data outside of their borders, while others are 
considering or passing outright bans. The cost of these actions to 
American companies, and to the security and privacy of consumers around 
the world, is real.

    Chapter 14 of TPP ensures that there are no duties on electronic 
transmissions, which is very important to helping promote vibrant 
competition, innovation and consumer choice. It also includes a 
requirement of non-discrimination and national treatment for digital 
products. We understand that the financial services industry is 
dissatisfied with where the TPP negotiations on this subject concluded. 
But we also understand and are encouraged that industry representatives 
are engaged with the administration and with the Congress to identify 
creative solutions to address those concerns before the committees of 
jurisdiction consider TPP.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. Mr. Murphy, you discussed how Qualcomm has faced 
antitrust investigation in South Korea in connection with its licensing 
practices. What role should the U.S. Government play in ensuring U.S. 
companies are being treated fairly under the laws of the host countries 
where they do business?

    Answer. Thank you, Senator Cantwell, for your sensitivity to the 
challenges that Qualcomm and other American companies are confronting 
concerning antitrust enforcement action in Korea on other 
jurisdictions.

    In response to your question how the U.S. Government can assist 
American companies confronting antitrust investigations abroad, as a 
threshold matter, it would be very helpful for the U.S. Government to 
recognize that not all foreign antitrust cases are ordinary or 
warranted examples of local law enforcement matters. In reality, if we 
look more closely, some antitrust investigation priorities and 
decisions reflect industrial policy goals or favoritism for domestic 
companies. In some cases, the scope of the investigations and remedies 
have the potential for effects that reach beyond local borders and 
outside the territories of the countries at issue.

    It is critical that the U.S. Government carefully ensures that the 
due process and transparency obligations in our trade agreements 
relating to competition and antitrust matters are upheld by our trading 
partners. It would also be very helpful for the U.S. Government to 
engage with foreign counterparts--and do so on a ``one-
government'' or a ``whole-government'' basis. There is a critical role 
for U.S. antitrust officials and U.S. trade officials to come together, 
look at some of these issues holistically, and examine antitrust 
enforcement motives, trends and practices in key foreign markets.

    With respect to Korea, as noted in my prepared statement, the KORUS 
due process and transparency provisions are one of the reasons for our 
original strong support for KORUS. We hope the U.S. administration will 
work together across agencies and use all available means to ensure 
that Korea adheres to its competition and transparency commitments.

    Question. I know concerns have been raised about how the South 
Korean government has acted in this case. What more should be done in 
South Korea? I am concerned about what your company has faced there.

    Answer. Thank you, again, Senator Cantwell, for your recognition of 
and concern about Qualcomm's recent experiences before the Korean Fair 
Trade Commission (KFTC). Qualcomm believes that its patent-licensing 
business practices are lawful, pro-competitive, and consistent with 
well-established, customary business norms in the mobile technology 
industry. We have and will continue to work cooperatively with the KFTC 
to further explain these points and defend our business.

    As detailed in my prepared statement, we currently believe the 
Korean government is not adhering to important bilateral FTA 
obligations. KORUS Article 16.1 requires the parties to ensure that 
companies that are the subject of antitrust investigations have the 
benefit of certain minimum standards and due process safeguards. Yet 
the KFTC has not adequately implemented these obligations. A number of 
U.S. companies are impacted by the absence of these transparency and 
due process safeguards, as Chairman Hatch noted in his March 2, 2016 
letter to the Korean Ambassador concerning KORUS implementation 
concerns.

    More broadly, we believe this situation underscores the importance, 
going forward, that the U.S. Government send a strong signal that it 
will look closely at whether a country is satisfactorily in compliance 
with the procedural, transparency and other obligations under an FTA or 
similar agreement's competition chapter before entry into force of that 
agreement. And, where a country already has existing trade agreements 
with the United States that include competition policy obligations, a 
careful assessment of how these agreements are being implemented also 
should be one important benchmark to weigh before any U.S. 
administration decides to enter into new negotiations. Furthermore, we 
encourage U.S. Government officials to work collaboratively with 
foreign counterparts to identify aspects of national regimes that need 
to change to conform to the minimum standards that the United States 
would expect under any new agreement. For example, since the conclusion 
of TPP negotiations, a number of countries--including Indonesia, Korea, 
the Philippines, Taiwan and Thailand--have expressed interest in 
joining the TPP. In considering the readiness of these or other TPP 
aspirants, U.S. officials should asses not only the candidate's trade, 
investment, intellectual property, etc. regimes, but also the trade-
related aspects of its antitrust regime and practices.

    Question. Your company and other U.S. companies have also faced 
challenges with competition law in the European Union where we are 
currently discussing the potential Transatlantic Trade and Investment 
Partnership (TTIP) agreement. Does it seem to give the U.S. any more 
leverage when a free trade agreement is in place?

    Answer. An important aspect of the Transatlantic Trade and 
Investment Partnership (TTIP) agreement could be a framework that 
promotes regulatory conformity with common core principles, ideally one 
that moves U.S. and European antitrust practices and procedures into 
closer compatibility, while noting that both the United States and the 
EU have different but strong rule of law traditions. Such an outcome 
would not only enhance the already strong U.S.-EU economic 
relationship, but would also hopefully promote coordinated leadership 
by Brussels and Washington in encouraging other governments to emulate 
this framework in their own national regimes and practices.

    As I noted in my testimony, and as our experience in Korea has 
shown, the U.S. Government has both the opportunity and influence to 
ensure adherence to trade obligations is before Presidential 
certification and entry-into-force. It is, of course, critical that the 
U.S. and Europe enshrine at a minimum, if not build upon, the important 
procedural fairness and transparency commitments found in KORUS and 
TPP. TTIP negotiations also present an important opportunity for U.S.-
EU joint leadership in helping drive the development of new 
international norms by adopting as trade agreement rules the currently 
voluntary best practices for antitrust investigative and enforcement 
proceedings enumerated by the OECD and International Competition 
Network (ICN). Whatever the outcome of TTIP negotiations on trade-
related competition rules, once concluded, it will be important to 
ensure that the trade agreement obligations are transposed into 
appropriate law and regulation before TTIP enters into force.

    The creation of obligations governing antitrust investigative and 
enforcement procedures and safeguards was also a goal and anticipated 
outcome of Chapter 16 of the U.S.-Korea (KORUS) FTA. Unfortunately, as 
detailed in my prepared statement, this has not been the case in KORUS, 
where key due process and transparency obligations and safeguards of 
the KORUS competition chapter have not been adequately transposed into 
domestic law and practice. For example, KORUS Article 16.1 requires the 
parties to ensure that companies that are the subject of antitrust 
investigations have the benefit of certain specific minimum due process 
safeguards and procedural rights. Yet the KFTC has not sufficiently 
implemented these obligations. As outlined in my prepared statement, 
more intensive engagement and consultations between the U.S. Government 
and industry stakeholders with experience operating in Korea as part of 
the process of Presidential certification of Korean KORUS compliance 
might have identified and enabled the U.S. Government to work with 
Korea to address these deficiencies before that FTA entered into force.

    The absence of procedures to enable a respondent company, for 
example, (1) to receive access to the evidence and other information 
collected by investigators at the Korean Fair Trade Commission, and (2) 
to effectively cross-examine any witness testifying in a hearing, are 
very problematic. We believe that these absences are, on their face, 
violations of Article 16.1(3), which impose unequivocal obligations on 
the Korean government. That provision states in full:Each Party shall 
ensure that a respondent in an administrative hearing convened to 
determine whether conduct violates its competition laws or what 
administrative sanctions or remedies should be ordered for violation of 
such laws is afforded the opportunity to present evidence in its 
defense and to be heard in the hearing. In particular, each Party shall 
ensure that the respondent has a reasonable opportunity to cross-
examine any witnesses or other persons who testify in the hearing and 
to review and rebut the evidence and any other collected information on 
which the determination may be based. (Emphasis added.)

    In contrast, the Korean government has changed other aspects of its 
antitrust regime and practices to transpose other KORUS Chapter 16 
obligations into national law and practice. For example, prior to 
KORUS, the KFTC did not have authority to enter into a voluntary 
settlement with a company that is the subject of an investigation under 
Korean antitrust law. As a result of KORUS Article 16.1(5), Korea's 
antitrust statute was amended to authorize the KFTC to enter into what 
in the United States is referred to as a consent decree.

    The existence of antitrust obligations in trade agreement should be 
helpful relative to situations where they are absent. Therefore, it 
will be telling, depending on how the currently pending KFTC 
investigation of Qualcomm is resolved, whether KORUS ultimately makes a 
positive difference. Until then, Qualcomm will continue to cooperate 
with the KFTC.

                                 ______
                                 
                Questions Submitted by Hon. Bill Nelson
    Question. In your testimony, you propose having a checklist to 
ensure a country is in compliance with its obligations before a free 
trade agreement enters into force. Would you support making the 
completion of a detailed public checklist a prerequisite for a free 
trade agreement to enter into force? Do you believe such a mechanism 
should be added to implementing legislation? If so, why? If not, why 
not?

    Answer. While I believe that use of a pre-entry into force 
consultations between the private sector and executive branch on the 
basis of a detailed checklist could go far in terms of identifying and 
addressing potential problems before they become after-the-fact 
implementation issues, it may not be necessary to mandate this approach 
through implementing legislation. Perhaps the proposed private/public 
cooperation procedure described in my prepared statement could be 
designed and tested administratively. This experience, and an analysis 
of the benefits and burdens, could subsequently help to inform a future 
decision whether this prerequisite should be adopted as a statutory 
procedural requirement.

    Question. Given the past difficulty we've seen in getting countries 
to comply with our trade agreements, is it still worth pursuing these 
agreements?

    Answer. I believe that the majority of the time, the trade 
agreements to which the United States is a party work well and 
substantially deliver the intended benefits that U.S. stakeholders 
expect. No trade agreement is perfect; but, in my opinion, we are 
better off pursuing and having trade agreements than not doing so. And 
where trade agreement implementation and compliance issues arise, they 
should be addressed by the U.S. Government.

    American engagement and leadership through trade agreements is 
important to opening foreign markets and establishing the rules of the 
road and high standards that govern international commerce. As I noted 
in my prepared statement, according to the WTO, there are more than 400 
bilateral and regional trade agreements in force around the globe; 
another hundred are being negotiated. Of those, the United States is a 
party to just 14 agreements in effect with 20 countries. The future 
implementation and entry-into-force of the Trans-Pacific Partnership 
(TPP) would increase that to 15 agreements with 25 trading partners. 
Unless the United States engages in trade negotiations and concludes 
high-standard agreements, others will set the norms and disadvantage 
American interests.

                                 ______
                                 
 Prepared Statement of Glenn Prickett, Chief External Affairs Officer, 
                         The Nature Conservancy
    Thank you, Mr. Chairman, Ranking Member Wyden, and members of the 
committee, for the opportunity to present the views of The Nature 
Conservancy on the implementation of international trade agreements 
entered into by the United States. Our views will focus largely on the 
environmental provisions of such agreements.

    The Nature Conservancy is the world's largest conservation 
organization with over 1 million members and on the ground programs in 
over 35 countries that aim to conserve the lands and waters upon which 
all life depends. In our work, we are continually faced with the 
environmental challenges caused by illegal or unsustainable patterns of 
trade and consumption, particularly around the illegal trade in 
wildlife and timber, and illegal and unsustainable fishing practices. 
Addressing these threats is essential if we are to secure the health of 
the world's forest, wildlife and oceans and ocean fisheries so that 
they can continue to provide their benefits to future generations.

    With this objective in mind, The Nature Conservancy has strongly 
supported and welcomed the increasing levels of environmental 
protection incorporated in sequential trade agreements over time. The 
Bush administration in 2007 agreed to a landmark agreement involving a 
bipartisan Congress and the White House to incorporate a specific list 
of multilateral environmental agreements (MEAs), including CITES, into 
future FTAs. This has paved the way for successful inclusion of 
environmental chapters in FTAs as well as stronger enforcement 
mechanisms. Linking trade to improved environmental management gives us 
valuable new leverage to encourage countries to deal with natural 
resource issues, many of which can be exacerbated by increased 
international trade--particularly in countries with important timber or 
other natural resources to export.

    While including environmental commitments as a core component of 
FTAs unquestionably provides an important enforcement tool to ensure 
compliance, it is also critical that we position countries to be able 
to comply by providing the resources, tools and technical assistance 
for them to do so. We commend Congress for its historically strong role 
in supporting effective implementation of environmental components of 
Free Trade Agreements--with over $177 million appropriated to support 
environmental cooperation and capacity building under FTAs with 20 
different trading partners over the past 10 years. This support has 
been crucial to the environmental progress we have seen under the 
agreements.

    While challenges to implementing these obligations remain, TNC 
believes these commitments have overall been successful and have 
resulted in positive developments for the environment. The initial 
effect of environmental FTA commitments has been to spur legislative 
action to create at least the legal enabling framework for compliance. 
Environmental provisions in past agreements have mobilized passage of 
important new environmental laws in our trading partners. For example, 
the Peru Forestry and Wildlife Law was in part a direct response to the 
U.S.-Peru TPA, and laws and policies driven by the Central American 
Free Trade Agreement (CAFTA) have been important to wildlife and 
protected areas conservation in those member states. We believe that 
FTAs have been an important contributor to the passage of these laws.

    TNC was directly involved in CAFTA implementation in the Dominican 
Republic through a USAID-funded project to improve environmental 
regulations, streamline its review of Environmental Impact Statements, 
build enforcement capacity of government regulatory agencies, and 
support biodiversity conservation. We feel these advances continue to 
play a role in enhancing environmental performance and outcomes in that 
country. Other studies have concluded that provisions for transparency 
and public engagement on environmental issues required by CAFTA were 
advantageous for civil society seeking to ensure enforcement of 
domestic wildlife conservation laws, specifically around sea turtle 
protection, through this FTA.\1\
---------------------------------------------------------------------------
    \1\ A. Lurie and M. Kalinina, ``Protecting Animals in International 
Trade: a Study of the Recent Successes at the WTO and in Free Trade 
Agreements,'' Am U Int'l L Rev, 2015.

    The Peru Trade Promotion Agreement included a groundbreaking 
approach to address core environmental concerns, and it continues to 
serve as a platform to support Peru's efforts to combat illegal 
logging. The provisions in the Peru agreement also committed Parties to 
biodiversity conservation, including non-consumptive use, and recognize 
the link between illegal logging and illegal wildlife trade. TNC was 
involved in an advisory role with many of the specifics around this 
agreement, which included arrangements for U.S.-Peru environmental 
---------------------------------------------------------------------------
cooperation to:

        Strengthen the legal, policy, and institutional 
framework governing the forest estate and the international trade in 
forest products;
        Build institutional capacity for forest law enforcement 
and the international trade in forest products;
        Improve the performance of the forest concession system 
in meeting economic, social, and ecological objectives;
        Increase public participation and improve transparency 
in forest resource planning and management decision-making; and
        Design and implement projects funded by USAID-Peru to 
promote sustainable production in the indigenous territories as a way 
to avoid deforestation and illegal logging.

    TNC pushed for a great deal of specificity in the Forest Sector 
Governance Annex with Peru, because we believe clear environmental 
obligations spelled out in the agreements, coupled with follow-on 
funding, technical assistance and capacity building to implement those 
obligations, are the main ingredients for success.

    However, the Peru case also illustrates the complex challenges 
involved. The recent disturbances in Peru in response to the 
independent forestry enforcement agency's (OSINFOR) attempts to enforce 
the U.S.-Peru FTA Forestry Annex gives us some idea of the scale of the 
problem. Even competent and honest officials are often no match for 
powerful and corrupt elements in the timber sector.

    What the U.S.-Peru FTA does create, however, is the transparency 
and opportunity to begin to address this problem. The electronic timber 
tracking system developed under the agreement has proven to be a very 
positive tool. It has increased transparency and has thwarted the 
ability of criminals to change source-origin documentation. We also now 
have detailed information in a public database--also available to U.S. 
importers trying to comply with the Lacey Act--about the concessions 
and companies involved in the Peruvian illegal timber trade. The 
systems created by the obligations in the Forestry Annex and built with 
U.S. assistance are proving their mettle by identifying the illegal 
actors and providing at least the means to hold these actors 
accountable. Without the agreement, it is likely we would have little 
to no information on the scope of the problem in Peru.

    But there are still gaps in the supply chain--namely, problems of 
documentation in the concession system that OSINFOR has brought to 
light. Due to lack of resources and time constraints, all the pieces 
have not yet fallen into place in Peru and work remains to be done both 
on technical tools and certainly on the political will to enforce 
violations.

    The ongoing lessons we draw from the implementation of the U.S.-
Peru agreement include the need to reinforce creation of a strong, 
independent agency to address legality issues in the forestry sector, 
as well as ongoing political and material support for their efforts. We 
also need to support robust training on enforcement for local 
officials, coupled with continued monitoring and oversight by U.S. 
officials. The transparency provisions embedded in these commitments 
are another crucial component, and can help improve governance, rule of 
law and public participation even beyond environmental matters.

    On a related note, we urge that implementation arrangements provide 
a significant role for civil society. Engaging NGOs can help provide 
accountability, information and public support to reinforce trade and 
environment measures, helping to reduce corruption in environmental 
regulation. We recommend that programs to implement environmental 
cooperation be public, subject to review and comment, and implemented 
by a broad stakeholder partnership to promote a culture of positive 
environmental engagement.

    While this discussion is about our past experience on trade 
implementation, I would just mention that the recently concluded Trans-
Pacific Partnership contains important new obligations for Parties to 
address illegal and unsustainable fisheries practices, and to combat 
illegal wildlife trade. The Nature Conservancy is very optimistic about 
the power of these provisions to tackle what are often systemic 
problems that are depleting ecosystems globally. We are also cognizant 
that effective compliance will involve significant capacity building 
and technical support among the partners. We look forward to working 
with Congress and U.S. Government agencies to ensure the robust 
implementation of TPP environmental commitments throughout the Pacific 
region.

    Thank you, Mr. Chairman, Members of the Committee.

                                 ______
                                 
          Questions Submitted for the Record to Glenn Prickett
                 Questions Submitted by Hon. Ron Wyden
    Question. Congress just passed a trade enforcement bill, which I 
hope will significantly up the game for U.S. trade enforcement, 
including by helping ensure that trade enforcers have the resources 
they need to get the job done. Each of you has identified some areas 
where trade agreement implementation has fallen short, yet you all seem 
to agree on the importance of the implementation process and having the 
right resources to get it done right. If more resources are dedicated 
to trade capacity and enforcement in coming months and years, what 
areas related to implementation are in your view in greatest need of 
additional resources?

    Answer. Within the environmental sphere, the fisheries provisions 
in the Trans-Pacific Partnership are a new and significant achievement, 
but also present unique challenges to implementation and enforcement. 
Responsible ocean governance and management is really in its infancy, 
and effective management even within countries' EEZs is beyond the 
capacity of many governments in the region. On a purely technical 
level, countries will need support to implement port state measures, to 
build capacity for applying data poor stock assessment methods, and to 
develop cost-effective management measures and monitoring that help 
fisheries move towards sustainability. Good enforcement requires that 
we have a high degree of confidence in the methods used to assess 
fishery sustainability, so that TPP parties can agree on which 
subsidies might still be permissible and which need to be eliminated 
upon entry into force of the agreement. It would also be helpful to 
provide technical assistance to partners to implement programs to 
account for and reduce by-catch, and to develop and deploy innovative 
technology to increase traceability in the supply chain as a tool for 
combatting IUU fishing.

    More generally, the government institutions responsible for 
environmental enforcement on forestry, wildlife and parks management 
tend to suffer from a lack of capacity--resources, trained staff, and 
equipment--to enforce existing regulations. Targeted U.S. support can 
vastly improve implementation and verification systems so that these 
agencies can be more efficient and effective, and can understand and 
follow international best practice. For timber legality assurance, for 
example, countries need not only responsible managers and auditors, but 
also mechanisms for broad stakeholder input, chain of custody systems, 
and methods for public reporting and independent monitoring of these 
systems and standards. In some cases, countries in Asia need to 
establish a clear definition of what is legal timber. We have seen 
valuable payoff from U.S.-supported capacity building of the Peruvian 
forest service and the supervisory agency (OSINFOR) created as a result 
of the Peru TPA; similar capacity building in some of the TPP countries 
will be required.

    Bolstering enforcement capacity of trade agreement environmental 
provisions is in alignment with U.S. development assistant goals for 
the environment, particularly seen through the lens of combatting 
illegally harvested timber, wildlife and fisheries. The U.S. Congress 
has ensured addressing these challenges to biodiversity will remain a 
priority for USAID and other development agencies. Enhancing 
enforcement capacity of our free trade agreements would complement 
these priorities.

    Question. Illegal logging doesn't just hurt the environment, it 
hurts sawmill workers in Oregon and around the country who have to 
compete with an influx of cheap stolen wood. Mr. Prickett, you 
described some of the innovative commitments on forestry that were 
included in the Peru agreement and how these commitments were used to 
fight illegal logging and the criminal enterprises that profit from it, 
but as you acknowledge, serious challenges remain when it comes to 
stopping illegal logging in Peru. This committee may in the future be 
considering the Trans-Pacific Partnership agreement, which also 
contains new commitments on forestry, including a commitment to combat 
and cooperate to prevent the trade of wildlife that was taken or traded 
illegally. Can you describe the value you see in the new commitments? 
What advice would you give Congress and the administration on what to 
do in coming months to ensure that this and other environmental 
commitments are fully implemented by TPP partners?

    Answer. The new TPP commitments on combating wildlife trafficking 
and trade in illegally taken wildlife are critical and complement well 
the commitment toward effective implementation of obligations under the 
Convention on International Trade in Endangered Species of Wild Fauna 
and Flora (CITES). Effective CITES implementation is critical to 
thwarting illegal wildlife trade. For example, ensuring that CITES 
authorities issue proper permits and monitor exports to ensure 
necessary permits accompany the wildlife products is one way to combat 
illegal trade. In underdeveloped countries this is often underfunded. 
Trade capacity building activities helps strengthen implementation of 
the convention and can also address issues related to illegal wildlife 
trade.

    Furthermore, CITES Parties have a variety of requirements to ensure 
that international trade is not detrimental to species, including 
making science-based non-
detriment findings before issuing export permits and undertaking 
enforcement action to prevent illegal trade. Congress and the 
administration must encourage trade partners to improve their 
compliance with these obligations. Article 20.17.2 of TPP requires the 
Parties to adopt, maintain and implement laws, regulations and other 
measures to fulfill its obligations under CITES, but only insofar as it 
affects trade or investment between the Parties. Given that legal trade 
in CITES Appendix 1 listed products among TPP Parties is very limited, 
the requirement that a violation affect ``trade or investment between 
the Parties'' may be a difficult threshold to meet. This possible 
loophole makes countries' having strong prohibitions and measures 
against illegal trade critically important. No country is currently 
doing enough.

    The TPP also includes a Lacey-type provision in the environment 
chapter to facilitate a basic legal and enforcement framework to ensure 
that trade liberalization does not encourage increased demand for, or 
ease in trading of, illegally taken plants and wildlife. This provision 
was critical because prior to TPP passage, if a wild animal was 
captured illegally in one country and imported to another where that 
species was not protected, the crime would remain unpunished (except in 
a few TPP countries where a Lacey Act-type law existed). Now all TPP 
parties are required to ``combat, and cooperate to prevent'' that type 
of crime. Furthermore, this is an important provision because it 
extends protections beyond CITES-listed species to all wildlife 
captured in violation of a Party's law and regardless of level of 
endangerment. These provisions establish an important new trade 
precedent, but will require capacity building and vigilant 
implementation and enforcement to be effective.

    The task is enormous. Only 13% of natural production tropical 
forests in Asia overall (not restricted to TPP countries) are 
considered to be under sustainable management. An estimated 30 to 40% 
of the total quantity and export value of wood-based products exported 
from Asia-Pacific is derived from illegal sources, generating the 
second largest volume of financial flows for transnational criminal 
groups in the region. Forest conversions for oil palm and wood fiber 
plantations continue at a rapid rate.

    The foundation for responsible forestry and trade in the Asia-
Pacific region is legality. Beyond the benefits of increased compliance 
with the wide range of laws that intersect with forestry operations 
(annual allowable cut, allocation of management rights, taxation, 
workplace safety, environmental protections, etc.) investing in the 
standards and systems that allow for legality to be credibly, 
independently verified along a complete supply chain represents an 
enormous leap toward the ability to access high value markets demanding 
full, independently certified sustainability for many companies. 
Requirements for legal timber can also trigger dialogues and processes 
aimed at strengthening governance in places where a lack of 
transparency and stakeholder involvement in decisions about how land is 
allocated and managed present an obstacle to credible legality 
verification.

    Part of what makes the continued trade in illegal timber possible 
is a widespread lack of robust and transparent legality verification 
schemes in exporting countries that can be used by buyers to verify 
that the timber being consumed domestically or imported comes from 
legal sources. There are also key consumer countries that lack 
regulations to prohibit the trade in illegally sourced products. The 
development of these schemes and regulations must be done on a case-by-
case basis to suit the conditions of each country and can take several 
years. Once established, there are significant challenges to build the 
capacity to operate the legality verification schemes, encourage all 
participants to pay the transaction costs and comply with the 
requirements, and to enforce the laws.

    To date, the establishment of such systems has largely been driven 
by timber import laws in markets outside of the Asia-Pacific region. 
International demand for verified legal timber remains an important 
incentive for continued development and implementation of credible 
timber legality verification systems. As consumption of forest products 
within regional and domestic markets continues to grow, there is also a 
need to better understand the different roles these markets play in 
driving deforestation and forest degradation and exploring additional 
measures to target them.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell

    Question. Mr. Prickett, when it comes to trade enforcement, our 
agencies are woefully underfunded and constrained on resources.

    A 2014 GAO audit on the enforcement of labor provisions of our Free 
Trade Agreements found that since 2008, the Department of Labor had 
resolved only a single complaint out of five that had been filed, and 
that the relevant agencies responsible for enforcing these provisions 
suffered from consistent staffing and resource constraints.

    And while the administration has vigorously sought to hold China to 
its World Trade Organization commitments, China has still yet to meet 
many of them, like requiring mandatory intellectual property transfers, 
nearly 15 years after it first joined the organization.

    And, Mr. Prickett, as you state in your testimony, the enforcement 
of the environmental commitments in our Free Trade Agreements leads 
much to be desired.

    Specifically, you cite enforcement of the forestry provisions of 
the U.S.-Peru Free Trade Agreement remains a challenge, due to, as you 
put it, ``lack of resources,'' and needed ``robust training on 
enforcement for local officials, coupled with continued monitoring and 
oversight by U.S. officials.''

    I firmly believe that our trade agreements aren't worth the paper 
they are printed on--no pun intended--unless we adequately enforce 
them.

    To help address this problem, I was proud to work with both 
Chairman Hatch and Ranking Member Wyden to include a provision in the 
customs bill creating a brand new, dedicated $15 million fund for trade 
enforcement and capacity building, and I look forward to continuing to 
work with them to ensure we have adequate appropriations.

    Mr. Prickett, can you cite some specific examples from your work 
where lack of resources has hampered enforcement of the environmental 
provisions of our Free Trade Agreements?

    Answer. I suspect that we often don't even learn the full extent of 
environmental transgressions when countries lack the resources to 
implement their environmental obligations. As described in my 
testimony, it is possible that Peru's recent forestry violations would 
not have even come to light had we not invested in the systems to 
uncover them. Perhaps the most significant outcome adequate resources 
can promote is transparency and public engagement, because without 
these, neither our trading partners nor the U.S. can hope to enforce 
wildlife legality provisions. The Peruvian government's efforts to 
enforce their forestry regulations will require ongoing political and 
technical support from the U.S. given the challenges they are facing 
from criminal elements in the forestry sector.

    Since we have relatively few trade agreements with strictly 
enforceable environmental provisions, it is challenging to cite 
specific instances of lack of enforcement, but there have been several 
averted problems addressed by timely intervention. Under the Dominican 
Republic-CAFTA, USAID funds helped streamline the process for 
permitting for Environmental Impact Statements, which had developed a 
1.5 year backlog. Economic development can't proceed if environmental 
permitting does not function, and long backlogs had created 
opportunities for corruption. USAID funding to support DR-CAFTA 
implementation revised the approval process and trained regulators in 
the details of compliance, greatly reducing the time necessary to 
obtain permits legally.

    Similarly, USAID funding established in INTEC, a Dominican 
technical university, allowed for independent training courses for 
government regulators to obtain certification in their responsibilities 
of ensuring environmental compliance. Enforcement would not be in place 
had we not assisted in the development of the necessary staff capacity.

    One example from the experience of Human Society International 
(HSI)-Latin America relates to wildlife rescue center work in CAFTA 
countries. The projects were implemented with funding provided from the 
State Department, to improve standards for rescue centers working with 
confiscated wild animals. Rescue centers are pivotal partners to CITES 
implementation as they are focused on the rehabilitation and release of 
illegally captured and/or traded animals. Unfortunately there has been 
no funding to continue this work, although the rescue centers are 
underfunded and collaborate strongly with national governments. In many 
countries there is only one national or official rescue center, and 
increased funding could help grow the number and capacity of rescue 
center so that confiscated animals don't have to be euthanized or 
placed with zoos, and may even have the potential to be released back 
into the wild.

    In another example, HSI Latin America was able to develop, with 
funding from the State Department, training materials for customs 
officials and police to help them identify and provide immediate care 
to confiscated animals. The customs officials and police force 
experiences a high rate of turnover and, although a sustainable method 
of training was used, this training must be ongoing. Unfortunately, 
continued trainings for new officials and staff were discontinued due 
to lack of funding.

    Question. In your testimony, you note that enforcing the new 
environmental obligations in the Trans-Pacific Partnership will require 
``significant capacity building and technical support among the 
partners.'' Can you give some examples what that kind of effort that 
entails? Would this new trust fund help ensure our trading partners 
meet these obligations, and what specific steps are necessary to ensure 
they are properly enforced?

    Answer. Capacity building can take many forms, and should be 
tailored to an assessment of the gaps and needs in each TPP country. In 
some cases, the solutions are technical or technological--computerized 
timber tracking systems or fisheries data assessments--but often it is 
about getting systems and standards in place for everything from public 
engagement to clarity of legal requirements. Training trainers in the 
management of these systems is vital to ensure sustainability of our 
efforts.

    The TPP region includes some of the world's largest forest product 
exporters, some of the largest wildlife trade markets (legal and 
illegal), and major exporters and consumers of wild-caught fish. These 
wildlife markets have long been plagued by corruption and other 
failures of governance, as easily stolen natural resources often are. 
We believe our capacity-building efforts should address both the 
supply- and the demand-side of the trade in illegal and unsustainable 
products to be fully effective, and that a regional approach can attend 
to both sides of the problem most effectively. If there are many 
suppliers and buyers who wish to trade in verifiably legal forest 
products this will send powerful market signals for improvements in 
forest governance across the region.

    This is the logic behind TNC's Responsible Asian Forestry and Trade 
Program (RAFT), which we are implementing with a wide range of partners 
and support from the government of Australia. RAFT seeks to address 
forest legality and sustainability issues across Asia and the Pacific. 
Although on-the-ground forest management improvements are the focus of 
much of RAFT's efforts in producer countries, we emphasize chain of 
custody and traceability to country of origin systems in the countries 
that manufacture and import wood products from the region as well. 
Creating a market-driven approach for sustainable and legal timber 
creates its own incentives and thereby eases the burden of police-type 
enforcement. We are encouraged by the potential of TPP to accelerate 
the move toward fully legal--and ultimately sustainable--timber 
throughout the region.

                                 ______
                                 
                 Question Submitted by Hon. Bill Nelson
    Question. According to your testimony, Peru has had some problems 
in meeting the environmental obligations under the U.S.-Peru agreement. 
Could you explain if you think an enforceable action plan to help 
countries meet their environmental obligations--like TPP's labor action 
plans for Vietnam, Malaysia, and Brunei--would help ensure a greater 
level of compliance on the front-end? If so, please provide examples of 
what could be included in such an action plan?

    Answer. The Nature Conservancy would agree that both action plans 
with clearly defined obligations, as well as strong environmental 
cooperation work programs, as we have with Peru under the current TPA, 
would be extremely useful for achieving TPP environmental 
implementation and assisting with compliance. It is critical to have 
clear goals, timelines, indicators and benchmarks defined in these 
action plans to help us measure progress. As I expressed in my 
testimony, clear obligations and the support to meet them are the key 
ingredients for success. The action plans should also be completed 
prior to the TPP's entry into force to maximize leverage, and should be 
made public to enhance transparency and participation.

    In the most recent U.S. free trade agreements, trade partner 
technical agencies have met to develop an environmental cooperation 
work program focusing on priority areas to aid in chapter 
implementation. Once a work program has been developed, the trade 
partners begin to implement concrete projects to support the objectives 
in the program. These work programs are updated regularly to 
incorporate new priorities or progress. In the case of the environment, 
cooperative approaches are often the most effective way to achieve 
results, so a cooperative work program coupled with clear goals, 
timelines and indicators as you would have in an action plan, may be 
the best overall approach.

    Each TPP country will have unique needs, so work programs/action 
plans should be tailored to national conditions as determined by a gap 
analysis and an inventory of current capacity building on environment 
obligations that is already happening in TPP countries related to 
existing FTAs. This assessment should be public. Once the needs are 
determined, gaps in the law analyzed, and enforcement weaknesses are 
assessed, a plan should be developed to address what may be the most 
critical impediments for that country.

    In additional to the national level work programs, there may also 
be opportunities to establish regional systems for wildlife, fish and 
timber trade verification and monitoring that can be highly effective 
in addressing issues in both importing and exporting countries for 
these products. We would encourage the U.S. Government to explore 
efforts to find regional approaches to build coherency and capacity 
across the Pacific.

                                 ______
                                 
       Prepared Statement of Steven Tepp, President and Founder, 
                           Sentinel Worldwide
    Mr. Chairman, Ranking Member Wyden, and members of the committee, 
thank you for the opportunity to appear before you today to discuss the 
implementation and enforcement of free trade agreements.

    My name is Steven Tepp, and I am President and CEO and founder of 
Sentinel Worldwide. Previously, I enjoyed a career of 15 years of 
government service, beginning with you, Mr. Chairman, on your Judiciary 
Committee staff, and then at the U.S. Copyright Office. I now provide 
intellectual property counsel to companies and associations with 
interests in protecting and enforcing intellectual property rights, 
including the Global Intellectual Property Center of the U.S. Chamber 
of Commerce. I am also a Professorial Lecturer in Law, teaching 
international copyright law at the George Washington University Law 
School. I have previously taught at the George Mason School of Law and 
the Georgetown University Law Center.

    During the nearly dozen years I spent with the Copyright Office I 
had the opportunity to negotiate the text and/or implementation of 
seven different free trade agreements (``FTA'') with countries around 
the world. I was co-counsel for the U.S. litigation team in the 
intellectual property (``IP'') dispute the United States brought 
against China before the World Trade Organization (``WTO''). I also 
participated in numerous bilateral trade talks, including sub-FTA 
arrangements, such as Trade and Investment Framework Agreements 
(``TIFA'') and Bilateral Investment Treaties (``BIT''). Additionally, I 
participated in multilateral fora including the World Intellectual 
Property Organization (``WIPO''), the Asia-Pacific Economic Cooperation 
(``APEC''), and the Security and Prosperity Partnership of North 
America (``SPP''). As will be discussed below, these experiences taught 
me the incredible opportunity and power of FTAs and it is an honor and 
privilege to have the opportunity to share those experiences with you 
today.

    I am here before you in my personal capacity as an expert in 
intellectual property and a former trade negotiator. The views 
expressed are my own and do not necessarily reflect the views of any 
client or employer.
             i. the importance of intellectual property to 
                  the united states and every country
    Intellectual property is a tremendous source of value for the 
United States and a dominant part of our foreign trade. According to a 
report of the U.S. Commerce Department, IP-intensive industries 
directly account for over 27 million American jobs. IP-intensive 
industries also indirectly support approximately 13 million additional 
jobs, bringing the total to 40 million American jobs--over one quarter 
of the U.S. workforce.\1\ IP-intensive industries account for over $5 
trillion of value; over one-third of the U.S. gross domestic 
product.\2\ And, perhaps most directly relevant to this hearing, almost 
two-thirds of U.S. merchandise exports are from IP-intensive 
industries.\3\
---------------------------------------------------------------------------
    \1\ ``Intellectual Property and the U.S. Economy: Industries in 
Focus,'' Prepared by the Economics and Statistics Administration and 
the U.S. Patent and Trademark Office (2012) (available at: http://
www.uspto.gov/sites/default/files/news/publications/
IP_Report_March_2012.pdf).
    \2\ Id.
    \3\ Id.

    American intellectual property is the envy of the world. In 
entertainment, computer hardware, life-saving medicines, literature, 
software and videogames, again and again American industries lead the 
world. The Internet grew up speaking English; not because we have the 
most powerful military or the biggest economy, but because we invented 
the computers and software on which it operates and we create the 
content that people want to use and enjoy. All of these are undergirded 
by intellectual property: patents, copyrights, trade secrets, and 
trademarks. Thus, it should be no surprise that the United States seeks 
to ensure fair and modern international standards for the protection of 
intellectual property. Nor is it a surprise that there are those in the 
world who seek to free ride on, or outright steal American intellectual 
---------------------------------------------------------------------------
property.

    Here at home, the members of this committee and your colleagues 
throughout the Senate and the House of Representatives make your best 
efforts to keep our intellectual property system up to date and 
functioning efficiently. In this regard, you join a legacy stretching 
all the way back to the First Congress, which enacted a Patent Act and 
a Copyright Act in 1790. And your efforts are rewarded with the 
continuing bounty of economic growth, innovation and creativity, and 
job creation.

    Policy makers abroad are not always so diligent or dedicated. For 
over a quarter century the U.S. Trade Representative's Office 
(``USTR'') has annually issued the Special 301 Report, detailing the 
shortcomings of foreign intellectual property systems. In last year's 
report, over a dozen countries were assigned to the ``Priority Watch 
List,'' the worst possible designation short of threatening trade 
sanctions, and another two dozen were on the ``Watch List.''

    Similarly, the Global IP Center of the U.S. Chamber of Commerce 
recently published the fourth edition of the world's only cross-
sectoral index of countries' IP systems.\4\ As the index demonstrates, 
many countries have a long way to go to reach a modern, effective IP 
system, including some countries we usually think of as advanced. On 
the other hand, those who choose to take a positive outlook can find in 
both the Special 301 Report and the GIPC Index a roadmap to a more 
prosperous future. Indeed, for the last 2 years, the GIPC Index has 
included an annex identifying correlations between high IP standards 
and the level of innovation, creative output and growth in high-value 
jobs.
---------------------------------------------------------------------------
    \4\ ``Infinite Possibilities, U.S. Chamber International IP 
Index,'' 4th Ed. (February 2016) (available at: http://
www.theglobalipcenter.com/gipcindex/).

    Those who do not take a positive approach impose grave costs on 
their citizens. The failure to provide adequate legal protection and 
effective enforcement for IP has serious, negative consequences at many 
levels. Domestically, a country that fails to act against IP theft 
suppresses its own creative and innovative industries and endangers its 
---------------------------------------------------------------------------
own populace.

    On my very first trade mission, we made a stop in Kuala Lumpur, 
Malaysia to discuss their implementation of a new law designed to crack 
down on music and movie piracy. While there, I read an article in the 
local newspaper about a woman of indigenous Malay ancestry, who had 
become a highly popular singer. A few years earlier, the article 
reported, she had cut an album that sold about a quarter million 
copies. Since then, the organized crime syndicates engaged in music 
piracy had moved into the Malaysian market and the same singer's 
current album had sold only 15,000 copies. It wasn't a flop; those were 
sales lost to piracy. As a result, she had to take a job as a waitress. 
This made a striking impact on me as a living example of how IP theft 
can have devastating economic effect, fund criminal networks, and 
perhaps most sadly, eat away at local culture. I am happy to report 
that while Malaysia still has challenges ahead, it has worked hard to 
address IP theft (in part through a motivation to work towards a U.S. 
FTA) and is no longer on any Special 301 list.

    In my travels I have also been to places where counterfeiting rates 
were so high, that in some cities it was hard to find a legitimate 
product. There is a degree of cynicism that creeps into one's mind when 
you visit such a place and then listen to the government officials deny 
they have an IP enforcement problem. And there is outrage as you walk 
by shop after shop after shop offering a broad range of knock-offs of 
American brands. But there is also empathy when one sees the local 
citizens shopping at some of these places and realizes they aren't all 
just looking for the cheapest deal, they are buying necessities for 
their families and have nowhere to go to get legitimate, reputable 
products. A report from the World Health Organization estimated that in 
India, one in five drugs is counterfeit.\5\ In China, dozens of infants 
starved to death on counterfeit baby formula that offered little or no 
real nutritional value.\6\ And in Panama, at least 100 people were 
poisoned and killed by counterfeit cough medicine that had been 
unwittingly purchased by the government and distributed to indigent 
people.\7\ These are just a few examples of the very real and severe 
consequences of lax IP enforcement.
---------------------------------------------------------------------------
    \5\ http://mobile.nytimes.com/2014/02/15/world/asia/medicines-made-
in-india-set-off-safety-worries.html?hpw&rref=world&_r=1&referrer=.
    \6\ http://www.cbsnews.com/news/arrests-in-fake-baby-formula-case/.
    \7\ http://www.nytimes.com/2007/05/06/world/americas/06poison.html.

    Poor protection and enforcement of IP also has consequences beyond 
the borders of any single country. We have watched over and over as 
criminal networks engaged in organized IP theft move into a market and 
rapidly devastate legitimate business. Then, in response to domestic 
and external pressures, the government eventually takes action that 
cuts into the illicit profits of the thieves, who then move over to a 
neighboring market and begin the process all over again. Over time, an 
entire region can fall ill to this disease. Countries with major ports 
or other trading hubs must also be vigilant lest they become de facto 
distribution points for dangerous fakes. FTAs, if properly constructed 
---------------------------------------------------------------------------
and fully implemented, can inoculate a country and even a region.

    But no market is completely immune from the effects of global IP 
theft, not even the United States. While there is comparatively very 
limited production of counterfeit products here, every day untold 
numbers of foreign-made infringing products reach our shores. It is the 
responsibility of the good people at Customs and Border Protection 
(``CBP'') to try to protect American consumers by intercepting as many 
of these as possible. In fiscal year 2014, CBP seized infringing 
products with an aggregate value of over $1.2 billion.\8\ While that is 
a large number, it is actually 30% less than the $1.7 billion worth of 
infringing products seized in 2013.\9\ This drop coincides with a 
marked decline in the previously successful Operation In Our Sites 
campaign. Like many, I hope that the Customs Reauthorization 
legislation this Committee worked so hard on enacting will help re-
energize our efforts to stop IP infringing products from entering our 
country. I thank you for your work on that legislation and congratulate 
you on it recently becoming law.
---------------------------------------------------------------------------
    \8\ http://www.cbp.gov/sites/default/files/documents/
IPR%20FY14%20Seizure%20Statistics%
20Booklet_100515_spread_web.pdf.
    \9\ http://www.cbp.gov/sites/default/files/documents/
ipr_annual_report_2013_072414%20
Final.pdf.

    The threat from infringing products coming into our country goes 
even beyond consumer health and safety. The Government Accountability 
Office (``GAO'') made test purchases of microchips advertised as 
military grade as part of a report prepared for the Senate Armed 
Services Committee. The GAO report found that every single microchip it 
purchased was bogus and substandard.\10\ These types of chips are used 
in military equipment including B-2B stealth bombers, Los Angeles Class 
nuclear-powered attack submarines, and even Peacekeeper inter-
continental ballistic nuclear missiles.\11\ We all cringe when we hear 
a story on the news about a military aircraft that crashed in a 
training exercise, seemingly not in harms way. But I always wonder if 
the servicemen and women injured or killed in these accidents are 
actually victims of substandard counterfeits.
---------------------------------------------------------------------------
    \10\ ``DOD Supply Chain: Suspect Counterfeit Electronic Parts Can 
Be Found on Internet Purchasing Platforms,'' GAO-12-375 (February 2012) 
(available at: http://www.gao.gov/assets/590/588736.pdf).
    \11\ Id.

    As the GAO report shows, foreign-based IP thieves have taken to the 
Internet to promote and conduct their illicit business. They design 
websites to look authentic and deceive American consumers into thinking 
the products are legitimate and safe. Through these portals, criminals 
generate massive profits at the expense of American consumers and IP 
owners. And they do this all beyond the reach of U.S. law, in countries 
---------------------------------------------------------------------------
with low standards of IP protection and/or ineffective enforcement.

    There are many facets needed to address this global problem, 
including consumer education and voluntary industry arrangements. FTAs 
are a critical element as well, as they help bring more countries' IP 
systems up to par, thereby scratching those countries off the 
criminals' list of fertile fora for infringement.

    Many of the countries on the Special 301 lists have been there for 
years or even decades; some make incremental progress in one direction 
only to allow new problems to arise, and the most intransigent seem to 
respond only to the threat of trade sanctions. But there are also 
success stories, and many of those are tied to the progress made 
through FTAs.
        ii. ip theft distorts the marketplace and ftas can help
    As discussed above, IP theft imposes a range of harm from economic 
to cultural to health and safety. Focusing in on the trade-related 
aspects of this harm, it is readily apparent that IP theft distorts 
marketplaces, which in turn distorts cross-border trade in some of our 
most import export sectors.

    When countries provide inadequate legal protection or ineffective 
enforcement of IP, it allows free riders and thieves to enter the 
market at artificially low costs, as they bear none of the burden or 
risk of research, development, or creation. They also bear little or no 
costs associated with commercially unsuccessful products. Legitimate 
creators and innovators may and sometimes do find that a product is not 
well received in the marketplace. This is simply part of the risk of 
operating in an innovative sector. The infringers bear no such risks. 
They target only those goods that already have a proven demand in the 
marketplace--a demand that was created by marketing investments by the 
legitimate company. Infringers never have a flop.

    As a result, IP thieves and free riders have little or no cost 
beyond their marginal costs of production and distribution. They turn a 
handsome profit while easily undercutting the price of the legitimate 
market. The legitimate creators and innovators are thereby forced into 
competing with versions of their own products sold at a lower price, or 
even given away for free. It is no wonder then, that international 
trade in counterfeit and pirated products has been estimated to exceed 
$250 billion.\12\ If anything, this estimate is likely low, as it does 
not include infringing products produced and consumed entirely within a 
market, nor does it cover digital piracy.\13\
---------------------------------------------------------------------------
    \12\ ``Magnitude of Counterfeiting and Piracy of Tangible Products: 
An Update,'' Organisation for Economic Co-operation and Development 
(2009) (available at: http://www.oecd.org/industry/ind/44088872.pdf).
    \13\ A study of just the top thirty infringing storage sites found 
they generate upwards of $100 million a year. ``Taking Credit: 
Cyberlockers Make Millions on Others' Creations,'' NetNames and Digital 
Citizens Alliance (available at: https://media.gractions.com/
314A5A5A9ABBBBC5
E3BD824CF47C46EF4B9D3A76/8854660c-1bbb-4166-aa20-2dd98289e80c.pdf).

    The distortion effect of online piracy goes beyond displaced sales. 
Online piracy minimizes royalties paid to creators, because licensed 
services cannot compete on cost with the illegally free platforms. And 
by the same token, right holders become resigned to accepting such 
small royalties, because the other option is to receive nothing from 
the pirates.\14\
---------------------------------------------------------------------------
    \14\ See ``Copyright Extremophiles: Do Creative Industries Thrive 
or Just Survive in China's High-Piracy Environment,'' Eric Priest, 27 
Harvard Journal of Law and Technology 467 (Spring 2014) (available at: 
http://jolt.law.harvard.edu/articles/pdf/v27/27HarvJLTech467.pdf); see 
also, ``Netflix Says Piracy is Still its Biggest Competitor,'' Lily Hay 
Newman, Slate, (Jan. 23, 2015) (available at: http://www.slate.com/
blogs/future_tense/2015/01/23/piracy_is_biggest_
netflix_competitor_says_shareholder_letter.html).

    Anti-IP policies can also be a front for industrial policy and 
protectionism. Examples of trading partners' noncompliance with IP 
provisions of the TRIPS Agreement \15\ of the WTO and our FTAs can be 
found across the major IP disciplines.
---------------------------------------------------------------------------
    \15\ Agreement on Trade-Related Aspects of Intellectual Property 
Rights (1994).

A. Patent
    The global standard for patentability is well established. Article 
27.1 of TRIPS sets forth the rule that patents must be available for 
any inventions that are ``new, involve an inventive step, and are 
capable of industrial application.'' This standard is dutifully 
replicated in our FTAs. However, we have seen in a number of foreign 
markets, including at least one FTA partner, the imposition of 
additional criteria or conditions for patentability. These take 
different forms; some involve requirements for ``enhanced efficacy,'' 
others interfere with the ability to demonstrate usefulness in 
industrial application by myopically refusing to consider evidence 
gleaned after the filing of the patent application, while still others 
simply ban patents on an entire field of technology, such as software.

    The use of these impermissible tools to deny patents is insidious. 
The denial of such patents (which in many cases are recognized and 
respected in TRIPS-compliant countries around the world), necessarily 
denies the inventor the opportunity to utilize the domestic legal 
system to prevent free riders. And the country can justify that lack of 
remedies because of course there is no treaty obligation to provide 
remedies where there is no patent. But the violation of international 
obligations occurred up front, with the improper denial or revocation 
of the patent.

    Another way in which some countries have inappropriately undermined 
patent rights is with the issuance of compulsory licenses, particularly 
in the area of pharmaceutical patents. Compulsory licenses allow 
domestic competitors of the innovator company to make and sell the 
patented medicine without the permission of the patent owner and 
usually for compensation well below market value. Article 31 of the 
TRIPS Agreement does allow for the possibility of compulsory licenses, 
but generally applies in dire cases such as national emergency or other 
extreme urgency. Our FTA's contain similar provisions that reflect an 
attitude at least as skeptical of this abrogation of property rights. 
Nonetheless, some compulsory licenses imposed by our trading partners 
do not appear to be justified by the requisite conditions, including 
one that appears to have been granted at least in part because the 
innovator company was not manufacturing the drug in that country. Such 
a condition is clearly beyond what is permissible under international 
standards and smacks of bald-faced protectionism.

    Market distortion also occurs in the related area of disclosure of 
proprietary marketing data. As this committee is well aware, in 
addition to the process of applying for and obtaining a patent, 
pharmaceutical and biologic companies must apply for marketing approval 
in each country in which they seek to sell their products. During the 
time it takes for regulatory approval, the patent term is running, with 
the result that the innovator loses significant amounts of time of 
market exclusivity to which they would other be entitled and which is 
needed to offset the costs of research and development. As a way to 
rebalance the scales, Article 39.3 of the TRIPS Agreement requires that 
proprietary data submitted to obtain marketing approval for 
pharmaceutical products be protected against unfair commercial use, 
preventing would-be competitors from free-riding on that data and 
entering the market with artificial speed. Our FTAs contain even more 
explicit provisions, requiring at least 5 years protection for such 
data in the case of pharmaceutical products. However, several of our 
trading partners, including FTA partners, fail to comply with these 
standards.

    Moreover, the burgeoning field of biologics, which involve even 
greater investments in research and development than chemical 
compounds, call out for longer terms of regulatory data protection. You 
and your colleagues in Congress have provided for 12 years of 
regulatory data protection for biologics under U.S. law. But our 
trading partners frequently provide significantly less, and in some 
cases, no such protection.
B. Copyright
    As in the field of patents, well-established international 
standards exist related to copyright. For example, Article 11 the WIPO 
Copyright Treaty (``WCT'') and Article 18 of the WIPO Performances and 
Phonograms Treaty (``WPPT'') obligate member states to prohibit ``the 
circumvention of effective technological measures'' that are used to 
protect copyrighted works \16\ and that restrict unauthorized use of 
those works. These protections have proven to be critical to fostering 
a bevy of new, licensed, online offerings of copyrighted works. Our 
FTAs include detailed provisions on the subject, which dutifully 
replicate the manner in which Congress implemented the obligations of 
the WCT and WPPT. However, many countries fall short of full 
implementation, including at least one FTA partner that has provided no 
such protection.
---------------------------------------------------------------------------
    \16\ Here and throughout my testimony, unless otherwise noted, I 
use the term ``works'' to include phonorecords and all copyrightable 
subject matter under the U.S. Copyright Act.

    As discussed above, inadequate enforcement efforts are a 
longstanding problem for copyright owners doing business overseas. 
Article 41 of TRIPS requires enforcement procedures to be available 
against any act of infringement, and Article 61 requires criminal 
procedures and penalties to be available against willful trademark 
counterfeiting and copyright piracy on a commercial scale. Our FTAs 
build on those to elaborate on the standard for criminal infringement 
and to provide greater specificity on the remedies and penalties that 
---------------------------------------------------------------------------
must be available.

    But nothing can remedy a lack of political will of a local 
government to enforce IP rights. In some of the most egregious cases, 
we have seen a trading partner defund the entire department of the lone 
effective enforcement official in that country, we have seen the 
infringing commercial sale of copyrighted works by an arm of a national 
government, and we have seen the chief law enforcement official of an 
FTA partner publicly declare that no copyright infringement prosecution 
would ever be brought. Even when the right holder prevails in court, in 
some foreign countries damages and fines are commonly minor, in some 
cases not even covering the costs of the litigation, much less 
compensating for and deterring future infringement.

    Our trade agreements have always given latitude for countries to 
adopt reasonable copyright exceptions. The TRIPS Agreement, the WCT, 
the WPPT, and all of our FTAs all provide a wide degree of discretion 
to countries to adopt exceptions to copyright, subject to the 
discipline of the globally accepted three-step test.\17\ Unfortunately, 
experience has shown that some of our trading partners, including FTA 
partners, abuse this discretion by enacting overbroad exceptions that 
do not comply with the three-step test and leave American right holders 
without recourse against market-damaging uses. In one country, courts 
have applied the law to allow commercial copy shops to make unlicensed 
copies of academic materials, the exact opposite result of how U.S. 
courts have addressed the issue. Another country enacted an exception 
that would permit almost any use of a copyrighted work that claimed to 
be for scientific research, education, or several other purposes but 
which omits the nuances and safeguards found in U.S. law. And one 
trading partner went so far as to exempt reproduction and distribution 
online that purported to be for noncommercial purposes, but which could 
easily cause commercial scale harm to the market.
---------------------------------------------------------------------------
    \17\ Exceptions are permitted for certain special cases that do not 
conflict with a normal exploitation of the work and do not unreasonably 
prejudice the legitimate interests of the right holder.

    A further problem arises from the fact that the United States does 
not provide a full public performance right for sound recordings. As a 
direct result, many of our trading partners that provide fuller rights 
in this area and collect royalties to be distributed to performing 
artists refuse to pay American performers on the grounds of 
reciprocity. They are wrong to do so and it is worth noting that the 
United States Copyright Act provides full national treatment, never 
imposing reciprocity.
C. Trademark
    While the basic structure and operation of trademark systems is 
often more harmonized and subject to fewer policy disputes than other 
areas of IP, it is far from immune to problems. Perhaps more than other 
forms of IP, trademark is subject to violation in markets in which the 
legitimate owner does not even do business. Many brand owners are thus 
unprepared to try to enforce their rights in far-flung reaches of the 
globe. A related and particularly persistent problem is the bad faith 
registration of marks, which some trading partner's legal systems make 
very difficult to reverse. But most of all, trademark owners are 
subject to the same type of enforcement difficulties described above in 
the copyright context, both in terms of criminals' abuse of online 
platforms and with regard to the lack of political will to enforce the 
law. All of these combine to pose a form of harm unique to brand 
owners; counterfeits undermine the hard-earned reputation of American 
companies.
D. Market Access
    While conceptually tangential to IP protection, countries have 
learned that market access affords them substantial opportunity to 
compel the disclosure or transfer of valuable IP. We have seen trading 
partners require the disclosure of trade secrets as a condition of 
entering their market, and similarly we have seen requirements to 
license IP to domestic entities as a precondition of market access. 
Some countries place quotas on the import of IP-intensive products, 
such as limits to the number of American movies that can be shown in 
their theaters or quotas on U.S. television shows. In other cases, we 
have seen countries deny rights to IP owners who do not manufacture 
their products in that market, and there is an ongoing concern with 
countries that may seek to require online services to locate servers in 
that market.

    By providing baseline IP protection and enforcement, as well as 
fair rules of market access, our FTAs seek to create and preserve a 
level playing field for the international trade in IP-intensive 
products and services. The past 15 years of U.S. FTAs with modern IP 
chapters have proven very successful at achieving those goals. To be 
sure, a variety of implementation shortcomings in various countries 
remain, and I will discuss ways to try to address that further down in 
my testimony. Notwithstanding those, there ought be no mistaking the 
fact that the IP provisions of our FTAs deliver extraordinary benefits.
            iii. the benefits of the ip chapter of u.s. ftas
    The IP chapter of our FTAs can be a tremendous force for good. 
Perhaps some people imagine that all our FTA partners are modern, free 
democracies. The reality is that our FTA partners include countries 
with a range of approaches to government and society, countries that 
still bear deep scars of the Cold War, and countries beset by crime and 
violence. To these lands the IP provisions of our FTAs bring some of 
the basic building blocks of liberty and freedom: rule of law, respect 
for property rights, and transparency and accountability in 
government.\18\ And IP enforcement removes a funding source from 
criminal and terrorist networks. I am fiercely proud of the 
contributions I have made in this regard.
---------------------------------------------------------------------------
    \18\ Although one FTA partner has failed to implement its 
obligations to provide transparency to its drug reimbursement decision 
making process.

    The IP chapter of our FTAs is also a tool for the advancement of 
global policy and norm setting. Marketplace and technological 
advancements generate new policy imperatives and global norms need to 
keep pace. FTAs have proven the most effective (if not only) way to do 
---------------------------------------------------------------------------
that over the past 15 years.

    FTAs also provide an opportunity to address bilateral issues that 
have been met with intransigence for years. The prospect of enhanced 
access to the U.S. market provides an incentive to our trading 
partners, which facilitates resolution of longstanding problems in our 
trading partners' IP systems. The largely successful line of FTA 
negotiations over the past 15 years is proof of it. This is also a 
reason to be steadfast in our negotiations; we can only sell this 
enhanced access once, and we would be wise to make the most of it.
               iv. negotiation and implementation of ftas
    Bismarck famously quipped, ``the two things you never want to see 
being made are sausages and legislation.'' Bismarck never saw an FTA.

    In fact, an FTA is not just one negotiation; it's four. First there 
is the domestic stakeholder consultation process and interagency 
clearance as the U.S. proposal is assembled. Second, there is the 
negotiation with our trading partners of the text of the agreement. 
Third is the negotiation of the implementation of the text in the 
partner countries. Fourth is ongoing consultation over continued 
compliance.
A. Assembling the U.S. Text
    The IP chapter of our modern FTAs took shape with the Singapore and 
Chile FTA negotiations, respectively. Since then, the DNA of the IP 
chapter remains the same, and a perusal of the existing agreements on 
the website of the U.S. Trade Representative gives anyone a clear 
picture of what the United States seeks from this chapter.

    That is not to say that the text is written in stone. On the 
contrary, with each FTA there is broad opportunity for stakeholder 
comment as the text is reviewed, policies reconfirmed (or not), and 
updates made to reflect recent developments. The text is reviewed by 
the government's subject matter experts and cleared through the inter-
agency process before it is presented as the U.S. proposal.
B. Negotiating the Text of the Agreement
    Our trading partners know what we want in the IP chapter very early 
on in the process. The negotiations are frequently intense and 
grueling. Ultimately, the hard issues are decided by two factors: 
political salability and leverage.

    While the negotiation of the text is neither the beginning nor the 
end of the process, it is the most important stage. The text defines 
the obligations for the participating countries. Once this phase is 
over, any issues not resolved will meet with a predictable return to 
intransigence. Getting it done right means specific obligations that 
cannot easily be avoided. Beyond the direct effect of the text on the 
participating countries, each FTA text has the potential to set a 
precedent for future FTA negotiations. A strong final text can make 
everything that comes after it that much easier.
C. Implementation
    After the negotiations on the text of the agreement are concluded 
and the respective national governments have signed the deal, 
implementation becomes critical. The FTA does not enter into force 
unless and until USTR certifies that the participating countries have 
implemented the obligations they undertook in the agreement. The 
implementation of the agreement is where the rubber meets the road--do 
our trading partners change their laws and regulations to meet the 
negotiated standards? Do U.S. companies actually obtain the fair 
treatment demanded by the text?

    I can tell you from personal experience that the negotiation over 
implementation can be every bit as intense as the negotiation over the 
text itself. The good news is that the leverage of the FTA continues 
through this implementation process. Until USTR certifies compliance, 
our trading partners are not enjoying the improved access to the U.S. 
market promised by the FTA. So, there are strong incentives to 
implement the agreement fully.

    After certification and entry into force, the final word on 
compliance evaluation and remedial action for noncompliance is in the 
hands of third-party dispute panels. But transition periods are a 
distorting force in the implementation process.
D. Continued Compliance
    In their ideal form, transition periods allow less developed 
countries with less sophisticated governing authorities to gain the 
capacity and expertise to appreciate and properly implement modern 
trade rules. This committee and the Congress anticipated that and 
provided ways to help meet legitimate needs by authorizing capacity 
building and technical assistance to our trading partners in the 
Bipartisan Congressional Trade Priorities and Accountability Act of 
2015.\19\
---------------------------------------------------------------------------
    \19\  Public Law 114-26, 129 Stat. 320 (June 29, 2015), 
Sec. 102(c)(1).

    Transition periods are also a valuable negotiating tool that, if 
properly employed, can help our trading partners agree to a better 
level of protection than they otherwise might. I believe that our 
trading partners enter into negotiations and treaties with us in good 
faith; the large majority of obligations are implemented reasonably, 
---------------------------------------------------------------------------
including those subject to transition periods.

    Unfortunately, a trading partner can also misuse transition periods 
as a delay tactic. And there should be no mistake--in the IP sector, 
free trade rules mean reducing unfair competition, free riders, and 
outright theft of our most innovative and creative products.

    Our trading partners are shrewd negotiators. They have figured out 
that when it comes time for USTR to certify compliance, it will do so 
when obligations subject to transition periods have not been 
implemented. While this is technically appropriate--the trading partner 
is in compliance with the terms of the FTA if it has not implemented 
items still within their agreed transition period--it also means that 
we have given away our critical negotiating leverage. Once the FTA is 
certified by USTR and thus enters into force, the trading partner is 
enjoying the full benefits of the improved access to the U.S. market 
and has a significantly reduced incentive to implement fully the 
remaining terms of the agreement. After that, our leverage to compel 
action is ultimately dependent on initiating and prevailing in a 
dispute process.

    One approach to this problem could be requesting or requiring our 
FTA partners to provide an action plan for the timely implementation of 
the obligations subject to transition periods. A similar tool is to 
write into the agreement a requirement for our partners to provide 
periodic updates on their progress towards timely implementation. The 
primary benefit of these would be to highlight instances in which a 
trading partner is falling behind a reasonable schedule geared towards 
timely implementation. In that regard, they have a role to play. 
However, neither of these addresses the loss of negotiating leverage. 
Rather than forsaking key negotiating leverage, I believe it is worth 
considering a mechanism to suspend the benefits of the FTA in a field 
of particular importance to that country if its transition periods 
expire without compliance.
              v. dispute resolution--a political decision
    The final and ongoing phase of FTA compliance is the availability 
of a dispute resolution process. Even in cases of clear-cut 
noncompliance, the decision to initiate a dispute is at least as much 
political as it is substantive.

    To be sure, it is not necessary to initiate a formal dispute 
process every time there is a disagreement over implementation. The 
clearer the textual obligation, the more likely it is that direct 
negotiation will lead to an acceptable outcome. And even the threat of 
a dispute can have substantial persuasive power. It is to our credit 
that we do not initiate disputes lightly or frivolously. But there is a 
line between compassion and complacency.

    Since 2000, Congress has held 30 hearings addressing the 
shortcomings of foreign IP protection.\20\ But over that same time 
span, the United States has not initiated a single dispute under the IP 
chapter of any FTA. And we have not initiated an IP dispute under the 
TRIPS Agreement in 9 years. It certainly is not for lack of candidates.
---------------------------------------------------------------------------
    \20\ Senate Appropriations Committee
    April 29, 2004: Subcommittee Hearing on ``International and 
Domestic Intellectual Property Enforcement''
    Senate Banking, House, and Urban Affairs Committee
    April 12, 2007: Subcommittee on Security and International Trade 
and Finance hearing on ``Pirating the American Dream: Intellectual 
Property Theft's Impact on America's Place in the Global Economy and 
Strategies for Improving Enforcement''
    Senate Commerce, Science, and Transportation Committee
    March 8, 2006: Subcommittee on Trade, Tourism, and Economic 
Development Hearing on ``Impacts of Piracy and Counterfeiting of 
American Goods and Intellectual Property in China''
    Senate Foreign Relations Committee
    February 2, 2002: Full Committee Hearing on ``Examining the Theft 
of American Intellectual Property at Home and Abroad''
    June 9, 2004: Full Committee Hearing on ``Evaluating International 
Intellectual Property Piracy''
    Senate Governmental Affairs Committee
    April 20, 2004: Full Committee Hearing on ``Pirates of the 21st 
Century: The Curse of the Black Market''
    Senate Homeland Security Commitee
    July 26, 2006: Stop!: Oversight of Government Management, The 
Federal Workforce, and the District of Columbia Subcommittee Hearing on 
``A Progress Report on Protecting and Enforcing Intellectual Property 
Rights Here and Abroad''
    June 14, 2005: Financial Management, Government Information, and 
the District of Columbia Subcommittee Hearing on ``Finding and Fighting 
Fakes: Reviewing the Strategy of Targetting Organized Piracy''
    November 21, 2005: Financial Management, Government Information, 
and the District of Columbia Subcommittee Hearing on ``Ensuring 
Protection of American Intellectual Property Rights for American 
Industries in China''
    Senate Judiciary Committee
    March 23, 2004: Full Committee Hearing on ``Counterfeiting and 
Theft of Tangible Intellectual Property: Challenges and Solutions''
    May 25, 2005: Subcommittee on Intellectual Property Hearing on 
``Piracy of Intellectual Property''
    November 7, 2007: Full Committee Hearing on ``Examining U.S. 
Government Enforcement of Intellectual Property Rights''
    June 17, 2008: Full Committee Hearing on ``Protecting Consumers by 
Protecting Intellectual Property''
    June 22, 2011: Full Committee Hearing on ``Oversight of 
Intellectual Property Law Enforcement Efforts''
    House Energy and Commerce Committee
    June 25, 2005: Subcommittee Hearing on ``Product Counterfeiting: 
How fakes are undermining U.S. jobs, innovation, and consumer safety''
    July 9, 2013: Subcommittee Hearing on ``Cyber Espionage and the 
Theft of U.S. Intellectual Property and Technology''
    House Foreign Affairs Committee
    April 6, 2009: Full Committee Hearing on ``Sinking the Copyright 
Pirates: Global Protection of Intellectual Property''
    July 21, 2010: Full Committee Hearing on ``Protecting U.S. 
Intellectual Property Overseas: the Joint Strategic Plan and Beyond''
    July 19, 2012: Full Committee Hearing on ``Unfair Trading Practices 
Against the U.S.: Intellectual Property Rights Infringement, Property 
Expropriation, and Other Barriers''
    House Government Reform Committee
    September 23, 2004: Full Committee Hearing on ``Intellectual 
Property Piracy: Are We Doing Enough to Protect U.S. Innovation 
Abroad?''
    December 9, 2009: Subcommittee Hearing on ``Protecting Intellectual 
Property Rights in a Global Economy: Current Trends and Future 
Challenges''
    House Judiciary Committee
    March 17, 2005: Subcommittee Hearing on ``Responding to Organized 
Crimes against Manufacturers and Retailers''
    May 17, 2005: Subcommittee Hearing on ``Intellectual Property Theft 
in China and Russia''
    December 7, 2005: Subcommittee Hearing on ``International IPR 
Report Card--Assessing U.S. Government and Industry Efforts to Enhance 
Chinese and Russian Enforcement of IP rights''
    April 26, 2012: Subcommittee Hearing on ``International Patent 
Issues: Promoting a Level Playing Field for American Industry Abroad''
    June 27, 2012: Subcommittee Hearing on ``International IP 
Enforcement: Protecting Patents, Trade Secrets, and Market Access''
    September 20, 2012: Subcommittee Hearing on ``International IP 
Enforcement: Opening Markets Abroad and Protecting Innovation''
    June 4, 2014: Subcommittee Hearing on ``Trade Secrets: Promoting 
and Protecting American Innovation, Competitiveness, and Market Access 
in Foreign Markets''
    Congressional-Executive Commission on China
    April 2, 2004: ``Influencing China's WTO compliance and commercial 
legal reform: Beyond Monitoring''
    September 22, 2010: ``Will China Protect Intellectual Property? New 
Developments in Counterfeiting, Piracy, and Forced Tech. Transfer''

    American innovators and creators face continuing challenges in the 
markets of our trading partners who have not properly implemented their 
IP obligations, but those trading partners are enjoying the benefits of 
improved access to the U.S. market. This is not the equity we achieved 
in the negotiations and we should not settle for it now. Moreover, the 
apparent hesitancy to initiate IP disputes does not go unnoticed by our 
trading partners and invites them to test our resolve further. Simply 
put: we need to do a better job of holding our trading partners to the 
obligations they agreed to.
                             vi. conclusion
    Intellectual property is a major element of the U.S. economy and 
balance of trade. Even more, it is at the heart of our culture and the 
spirit of American innovation. When foreign countries fail to provide 
adequate legal protection and effective remedies against IP violations, 
they undermine their own economy, endanger their citizens, harm U.S. 
businesses and consumers, and distort the flow of legitimate 
international trade. Modern intellectual property provisions are a 
critical element of our FTAs. In addition to the benefits associated 
with improved IP protection, these provisions help spread the 
fundamental elements of liberty.

    FTA negotiations are hard-fought and like the IP rights they 
purport to secure, they are without meaning if they are never enforced. 
By the time we get to the final stage of compliance monitoring, we have 
already negotiated against ourselves once and with our trading partners 
twice. Along the way, we are making concessions away from our ideal 
outcome. If we will not hold our trading partners to their obligations, 
we must eventually ask what is the value of running around the world 
getting people to sign pieces of paper? But we are not there yet. Even 
for all the trials and tribulations of the process, the IP provisions 
of U.S. FTAs are the top standard in the world. With an energetic 
effort to hold our trading partners to their commitments, we can all 
enjoy the benefits of progressively improved IP protection around the 
world.

    I again thank the committee for this opportunity to present my 
views, and I stand ready to provide any assistance I can.

                                 ______
                                 
           Questions Submitted for the Record to Steven Tepp
                 Questions Submitted by Hon. Ron Wyden
    Question. Congress just passed a trade enforcement bill, which I 
hope will significantly up the game for U.S. trade enforcement, 
including by helping ensure that trade enforcers have the resources 
they need to get the job done. Each of you has identified some areas 
where trade agreement implementation has fallen short, yet you all seem 
to agree on the importance of the implementation process and having the 
right resources to get it done right. If more resources are dedicated 
to trade capacity and enforcement in coming months and years, what 
areas related to implementation are in your view in greatest need of 
additional resources?

    You highlighted many of the challenges that the United States faces 
in realizing the benefits of the intellectual property (``IP'') 
provisions in its free trade agreements. As you have pointed out, 
certain of these provisions are important for consumer health and 
safety, because they help prevent the importation into the U.S. of fake 
drugs and other deceptive products.

    Answer. In the field of intellectual property, the Office of the 
U.S. Trade Representative, the U.S. Copyright Office, and the U.S. 
Patent and Trademark Office, including its IP Attaches, are the central 
and critical agencies involved in training, capacity building, and 
implementation and enforcement of free trade agreements. I also 
highlight the role of the Department of Justice and its regional IP 
Enforcement Coordinators (IPLECs). Increasing the resources available 
to these agencies to assist our trading partners and work towards full 
implementation of free trade agreement commitments will provide the 
best and most efficient results for the United States and the $5 
trillion its IP industries generate.

    Full implementation of IP provisions by our trading partners will 
also improve the safety of products available to American consumers, as 
you note.

    Question. Given the radical changes in technology over the past 20 
years, many think that aspects of the U.S. copyright system should be 
reformed--and I am one of them. However, to the extent that one 
believes the U.S. copyright system has worked to date, it is due in 
large part to its flexibility and balance. Specifically, the doctrine 
of fair use is critical to maintaining a free and open press and to 
promoting education and research. In your written testimony, you 
describe problems when countries maintain overly broad exceptions. Do 
you agree that there is also a danger of overly narrow exceptions? In 
other words, when the United States works with other countries on the 
implementation of the copyright provisions in our FTAs, should we 
ensure that such implementation promotes free and open societies as it 
does in the United States and does not create tools that could be used 
to suppress free speech?

    Answer. Anything is possible, but history demonstrates that the 
danger of overly narrow exceptions is extremely low. Trade agreements 
address practical realities and my experience is consistent with what 
is demonstrated in USTR's Special 301 Report year after year. That is, 
a lack of adequate legal protection and effective enforcement of 
copyright continues to be a major problem that distorts markets, 
undermines American prosperity, and harms American consumers. As we 
evaluate the copyright systems in foreign markets going forward, we 
should continue to consider international obligations and global 
standards, the adequacy of legal protection (including appropriate 
exceptions within the framework of the globally accepted three-step 
test), the effectiveness of enforcement, and all the other factors that 
make up a complete copyright system.

    I agree that copyright promotes free and open societies. As the 
Supreme Court held in the Eldred case, Copyright is an ``engine of free 
speech.'' Indeed, creators make their living exercising free 
expression.

    As I noted in my written testimony, I had the opportunity to serve 
as co-counsel on the U.S. litigation team when the United States took 
China to the WTO over noncompliance with its TRIPS obligations. The 
first complaint in that case was that China improperly denied copyright 
to works it censored. In its decision, the WTO Panel recited, ``China 
argues that such copyright protection is a `legal and material 
nullity,' as economic rights pre-empted by public prohibition. It also 
argues that copyright enforcement is meaningless in this context.'' WT/
DS362/R, p. 32, para. 7.134 (2009). The Panel went on to find China in 
violation of its TRIPS obligations on this point, and China has since 
deleted the offending provision from its law. I am proud to have been 
part of this effort to strike a blow for creators and against 
censorship.

    That case illustrates the diametrically opposed purposes of each 
law: copyright is designed to promote the creation and distribution of 
expression; censorship is designed to suppress it.

                                 ______
                                 
                Questions Submitted by Hon. Bill Nelson
    Question. Given the past difficulty we've seen in getting countries 
to comply with our trade agreements, is it still worth pursuing these 
agreements?

    Answer. Absolutely. As I wrote in my prepared testimony:

    ``The IP chapter of our FTAs can be a tremendous force for good. 
Perhaps some people imagine that all our FTA partners are modern, free 
democracies. The reality is that our FTA partners include countries 
with a range of approaches to government and society, countries that 
still bear deep scars of the Cold War, and countries beset by crime and 
violence. To these lands the IP provisions of our FTAs bring some of 
the basic building blocks of liberty and freedom: rule of law, respect 
for property rights, and transparency and accountability in government. 
And IP enforcement removes a funding source from criminal and terrorist 
networks. I am fiercely proud of the contributions I have made in this 
regard.

    The IP chapter of our FTAs is also a tool for the advancement of 
global policy and norm setting. Marketplace and technological 
advancements generate new policy imperatives and global norms need to 
keep pace. FTAs have proven the most effective (if not only) way to do 
that over the past 15 years.

    FTAs also provide an opportunity to address bilateral issues that 
have been met with intransigence for years. The prospect of enhanced 
access to the U.S. market provides an incentive to our trading 
partners, which facilitates resolution of longstanding problems in our 
trading partners' IP systems. The largely successful line of FTA 
negotiations over the past 15 years is proof of it.''

    Question. Once a free trade agreement has entered into force, what 
is the best strategy for the U.S. to pursue to get our trade partners 
to comply with their obligations? Is it trade sanctions, consultation, 
in-kind retaliation, or some other mechanism? Please also provide an 
example of how the U.S. previously used the strategy to achieve a 
successful result.

    Answer. I believe in using all available tools to achieve full 
compliance and fair treatment for American's doing business overseas. 
In the field of IP, these may include the Special 301 Report, bilateral 
negotiations/consultation, senior political-level pressure, 
coordinating with other governments aggrieved by the lack of proper 
protection, TRIPS Council (including the periodic review of countries' 
laws), marshaling aggrieved industries in the trading partner's 
domestic market, dispute resolution, and, if needed, trade sanctions 
and/or revocation of benefits under the Generalized System of 
Preferences. As I noted in my testimony, I also support suspension of 
benefits in the case of unimplemented obligations previously subject to 
a transition period. In my experience, I have seen various combinations 
of these tools utilized to resolve a variety of IP issues in Oman, 
Peru, Singapore, and South Korea just to name a few.

    The case of Oman may be particularly instructive. In October 2008, 
I participated in a delegation to Muscat led by then-U.S. Trade 
Representative Susan Schwab for the purpose of securing full Omani 
implementation of the U.S.-Oman free trade agreement. We began with a 
list of 75 shortcomings in Omani legislation and regulations on IP. 
Ambassador Schwab engaged directly and successfully with Sultan Qaboos, 
who in turn instructed his bureaucracy to engage constructively with us 
at the expert level. Over the following 72 hours of intense and nearly 
round-the-clock negotiations, we were able to use the combination of 
the political direction Ambassador Schwab secured and the clear 
obligations of the IP Chapter of the free trade agreement to sustain 
and reinforce our positions on full implementation and reach agreement 
on all of the outstanding issues. After a few more weeks of follow-up 
exchanges on IP and other areas, Ambassador Schwab was able to certify 
Omani compliance and the agreement entered into force on January 1, 
2009.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    I believe deeply in the benefits of trade. In America, trade-
related jobs often pay better than non-trade jobs. And there are going 
to be a billion middle-class consumers in the developing world in 2025 
with money to spend on American-made goods. So it's my view that we 
have to make things here, add value to them here, and ship them around 
the world.

    Now, my heart breaks when I hear news like what's going on in 
Indiana, where Carrier Corporation and a United Technologies Electronic 
Controls have announced they're shuttering plants and heading to 
Mexico. I talked with my friend Senator Donnelly about this just 
yesterday. These are factories that have been around for decades, 
supporting the livelihoods of a lot of working families. When you're a 
worker caught up in an awful situation like this, it's got to curdle 
your blood when you hear some callous line from an executive about how 
it's only business, and the company's going to ``synergize its inputs 
and maximize efficiencies.'' It must feel like you and your family were 
just a little cog in a big machine.

    My number one goal, when it comes to the cutthroat global economy, 
is to fight for American workers. I believe our trade policies must 
spur the creation of red-white-and-blue jobs that can support a middle-
class family in Oregon and around the country. I want to make sure 
American workers and American businesses are in the economic winner's 
circle when they compete with foreign firms.

    You do that by enforcing the rules here at home, stopping unfair 
trade before it hurts American workers and families. And you do it by 
writing new rules overseas. That means engaging with other countries, 
hammering out commitments in trade agreements that countries will drop 
unfair barriers to products made in the United States. You get 
commitments to raise the bar on issues such as labor rights, so that 
companies aren't lured away from the U.S. by opportunities to kick 
around cheap foreign workers. You get commitments on environmental 
protections, so that countries don't turn a blind eye to practices like 
illegal fishing or the sale of stolen timber that often undercut 
American producers and do harm to the environment. You prevent a race 
to the bottom, you close loopholes and end outdated policies, and you 
bring the world up to our standards.

    Then you have to enforce those agreements. The landmark package of 
enforcement measures put together by this committee--and very recently 
signed into law--is a major step forward. In the past, trade policies 
were often too old, too slow, or too weak to fight back when bad actors 
overseas found ways to rip off American jobs. Our tough, new game plan 
on enforcement will help change that.

    You're already seeing this new approach to trade policy pay off. 
Last year, Senator Brown and I worked together to close an egregious, 
old loophole in our trade laws that allowed for certain products made 
by slave or child labor to be imported to this country if there was no 
producer here at home. Under the loophole, economics trumped human 
rights, and Senator Brown and I said that was absolutely, 100 percent 
wrong. So we wrote a provision that closed it. And yesterday, the 
Portland Business Journal ran a story about how our crackdown on 
imports made with slave labor has the potential to make big 
improvements in the chocolate industry.

    One company featured in the story, Tony's Chocolonely, just set up 
its U.S. headquarters in Portland, and it's leading the way when it 
comes to sourcing cocoa without exploiting slave labor or child 
workers. One of the company's leaders said in the story, ``The impact 
of this law will depend greatly on how it will be executed and 
enforced.''

    Not only is that true when it comes to ending slave labor--it's 
true in all our trade laws and agreements. Enforcement is absolutely 
vital. And the first step in the enforcement of a trade agreement is 
getting implementation done right. The U.S. cannot allow countries to 
backslide on their promises before a trade agreement even goes into 
effect. Our trading partners have to take the commitments they've made 
at the negotiating table and turn them into action before they see 
benefits. That means writing or updating laws and regulations, and 
dropping unfair barriers so that American workers get the fair shake 
they've been promised.

    Now that the President has signed the Trans-Pacific Partnership 
agreement, I expect consultations on its implementation to pick up 
steam. Confidence that TPP is going to be implemented the right way is 
a prerequisite for the agreement to win the support it would need to 
pass the Congress.

    I see this hearing as an opportunity to identify many of the 
pitfalls and opportunities in the implementation process. And it will 
be extremely helpful down the road when it comes time to implement the 
TPP or any other trade deal. So I want to thank our witnesses for being 
here today. And I look forward to working on a bipartisan basis with 
this committee, the current administration and the next one to see that 
implementation is done right.

                                 ______
                                 

                             Communication

                              ----------                              


              National Association of Manufacturers (NAM)

                     733 10th Street, NW, Suite 700

                          Washington, DC 20001

                        Statement for the Record

                      Senate Committee on Finance

       Free Trade Agreement Implementation: Lessons From the Past

                             March 23, 2016

    The National Association of Manufacturers (NAM) is pleased to 
provide the following statement to the Senate Committee on Finance on 
``Free Trade Agreement Implementation: Lessons from the Past.''

    The NAM is the nation's largest industrial association and voice 
for more than 12 million women and men who make things in America. 
Manufacturing in the U.S. supports more than 17 million jobs, and in 
2015, U.S. manufacturing output reached a record of $2.17 trillion. It 
is the engine that drives the U.S. economy by creating jobs, 
opportunity and prosperity. The NAM is committed to achieving a policy 
agenda that helps manufacturers grow and create jobs. Manufacturing has 
the biggest multiplier effect of any industry and manufacturers in the 
United States perform more than three-quarters of all private-sector 
R&D in the nation--driving more innovation than any other sector.

    The interconnected global economy presents both substantial 
opportunities and challenges for manufacturers whether they sell their 
products across town, throughout the country or around the world. 
Advances in technology and transportation over the past few decades, as 
well as economic growth and rising incomes globally, have accelerated 
the growing interconnection and expanded the U.S. trading relationship 
with the rest of the world. Goods and services are exchanged around the 
world with an ever-increasing frequency, and manufacturing supply 
chains have become more complex. As shown in Figure 1, the most recent 
data from the World Trade Organization shows the massive growth in 
world trade in manufactured products, reaching a high of over $12 
trillion in 2014.

    The manufacturing sector in the United States has benefitted in 
many ways from the growth of the global economy. Manufacturers in the 
United States have been able to expand their customer base in growing 
overseas markets, obtain inputs from around the world to become more 
competitive, and have been able to develop new and better products 
through innovation and ingenuity. In doing so, manufacturers are 
supporting millions of high-paying jobs domestically. At the same time, 
the growing global economy has posed major challenges to manufacturers. 
Tariff and non-tariff barriers to accessing overseas markets are on the 
rise in many countries and unfair foreign government policies and 
actions have grown as well.

    As discussed in depth below, U.S. trade agreements have had a 
substantially positive impact on manufacturers in the United States, 
particularly when the agreements are high-quality, enforceable and 
enforced, result in a level playing field and contain high-standard 
protections for innovation and property. These agreements have been 
successful in reducing and in some case eliminating foreign barriers 
and opening up new markets, which has spurred new manufacturing exports 
for U.S. industries and workers. At the same time, manufacturers 
recognize that trade agreements alone cannot address all of the issues 
that manufacturers face globally, and the NAM continues to work on 
ensuring that manufacturers in the United States have the tools they 
need to be as competitive as possible and that all countries abide by 
the rules of the global trading system.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




I. The Impact of Trade Agreements on Manufacturing in the United States

    As the United States has opened foreign markets through enactment 
of new trade agreements, manufacturing output in the United States has 
grown and manufacturers in the United States have experienced 
particularly high levels of success in markets that have been opened by 
these agreements.

    As shown in Figure 2, overall U.S. manufacturing output has 
quadrupled since 1980, reaching a record high of $2.17 trillion in 
2015. America's manufacturing growth has been fueled in significant 
part by the quadrupling of U.S. manufactured goods exports since 1980 
to $1.32 trillion in 2015 that has been supported by 
market-opening trade agreements. Manufacturing output and exports have 
continued to increase after major trade agreements, such as the North 
American Free Trade Agreement (NAFTA), China's accession to the World 
Trade Organization (WTO) and the most-recent U.S. trade agreement with 
Korea.

    a. Impact of WTO Agreements on Manufacturing in the United States

    The negotiation of the post-World War II General Agreement on 
Tariffs and Trade (GATT) in 1947 and the Uruguay Round Agreements 
creating the WTO in 1995 set the baseline rules for most global trade, 
now covering 161 members. The Uruguay Round Agreements, implemented by 
the United States under Trade Promotion Authority in 1994, expanded the 
basic rules of the global trading system and increased the coverage of 
those rules.

    The core rules of the WTO have been ones that are critical to 
manufacturers in the United States seeking a more level playing field 
overseas and include commitments by WTO members:

      To limit import tariffs to negotiated levels;
      Not to discriminate against foreign goods or impose technical 
barriers to trade;
      Not to provide unfair subsidies and advantages to their local 
producers;
      To respect and enforce basic intellectual property rights; and
      To pay penalties or be subjected to trade sanctions if they 
refuse to keep their promises.

    Efforts to expand these rules for all WTO members and eliminate 
tariffs and other barriers in the ``Doha'' negotiations initiated in 
2001 have unfortunately stalled.

    The binding WTO rules lowered tariffs for manufacturers in the U.S. 
substantially, helping to fuel huge growth in U.S. manufactured exports 
from 1995 onward. In addition, these rules have eliminated many unfair 
foreign barriers to trade. Additionally, when countries have failed to 
live up to their commitments, the WTO has provided strong dispute 
settlement procedures. As discussed in more depth below, the United 
States has brought more than 100 WTO dispute settlement cases and has 
won or successfully negotiated many of them. Notably, the WTO has 
continued to bring new countries into the rules-based trading system, 
with the accession of China in 2001, Saudi Arabia in 2005 and Vietnam 
in 2007.



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    b. Impact of FTAs on Manufacturing in the United States

    While global agreements with WTO partners set baseline rules that 
limit some barriers, the United States' 14 Free Trade Agreements (FTAs) 
\1\ with a total of 20 countries require our partner countries to meet 
higher standards, including to:
---------------------------------------------------------------------------
    \1\ The United States has two multi-country FTAs: the North 
American Free Trade Agreement (NAFTA) with Canada and Mexico, and the 
Central American-Dominican Republic-U.S. Free Trade Agreement with 
Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and 
Nicaragua. The United States also has 12 FTAs with: Australia, Bahrain, 
Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore 
and South Korea.

      Eliminate all manufactured good import tariffs within a certain 
time period (with most such tariffs are eliminated immediately);
      Open up markets to all services such as distribution and express 
shipments that are critical for manufacturers to get products to 
foreign consumers;
      Provide stronger protections for intellectual property to ensure 
that innovative manufacturers in the U.S. are able to combat piracy, 
intellectual property theft and other unfair actions;
      Maintain more transparent regulatory systems that allow 
manufacturers in the U.S. to provide input into the development of new 
standards and regulations; and
      Protect foreign investors' property that is a critical part of 
many companies' ability to export to foreign markets.

    Like the basic WTO rules, FTAs also include binding enforcement 
rules to guarantee that each country's promises are kept or that 
penalties or trade sanctions are imposed.

    By eliminating barriers overseas and ensuring our manufacturers and 
their products are treated fairly, FTAs have propelled substantial 
quantities of manufacturing exports because manufacturers in the United 
States succeed when markets are open. As shown in Figure 3, the United 
States has a cumulative manufacturing trade surplus of $12.7 billion 
with its FTA partners, and a nearly $640 billion deficit with those 
countries with which the United States doesn't have such agreements.



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    For example:

      U.S. manufactured goods exports to Canada and Mexico have more 
than doubled since the North American Free Trade Agreement (NAFTA) 
entered into force in 1994, from $200 billion in 1993 to $460 billion 
in 2015;
      U.S. manufactured goods exports to Chile have grown nearly six-
fold since the U.S.-Chile Free Trade Agreement entered into force in 
2004, from $2.5 billion in 2003 to $14.6 billion in 2015;
      U.S. manufactured goods exports to Australia increased nearly 80 
percent since the U.S.-Australia Free Trade Agreement entered into 
force in 2005, from $13 billion in 2004 to $23.3 billion in 2015;
      U.S. manufactured goods exports to Central America and the 
Dominican Republic grew from $14.6 billion in 2005 to $21 billion in 
three years, reaching $24 billion in 2015; and
      U.S. manufactured exports to Peru increased 58 percent since the 
U.S.-Peru Trade Promotion Agreement entered into force in 2009, from 
$5.6 billion in 2008 to nearly $8 billion in 2015.

    Taken together, America's 20 existing trade agreement partners buy 
nearly half (48 percent) of all manufactured goods from the United 
States, while they only account for 6 percent of the world's consumers 
and less than 10 percent of the global economy. Overall, manufacturing 
in the United States has grown as new trade agreements have been 
implemented and opened markets and set in place high-standard rules 
that improve the competitiveness of the U.S. manufacturing sector.

II. New Market-Opening and High-Standard Trade Agreements Are Needed to 
Combat Unfair Barriers Overseas

    Despite the growth in trade and U.S. manufactured goods exports, 
there remain severe challenges in overseas markets, particularly in 
those countries where the United States has not negotiated FTAs. Trade 
barriers are on the rise around the world, costing jobs, growth and 
economic opportunity for manufacturers and other U.S. industries. 
Manufacturers in the United States face not only traditional tariff and 
non-tariff barriers, but also face serious and growing challenges of 
forced localization, intellectual property theft, and export bans by 
other countries. They also face higher effective barriers as other 
countries negotiate trade agreements from which manufacturers in the 
U.S. are excluded.

    On tariffs, the U.S. market is very open to international trade 
with an average applied tariff on manufactured goods imports into the 
United States of 3.2 percent in 2014. Moreover, approximately two-
thirds of all imports into the United States enter tariff-free already 
as a result of preference programs and trade agreements already 
negotiated. Indeed, according to the WTO, the United States has the 
lowest applied tariff of any other G20 country.

    U.S. exporters, however, face much higher tariffs overseas. Tariffs 
remain a substantial barrier to U.S. manufactured exports. Major 
emerging economies such as Brazil and India maintain overall tariffs 
three or four times higher than U.S. tariffs and have the ability to 
raise tariffs even higher whenever they choose. These and many other 
economies have prohibitively high tariffs on many top U.S. manufactured 
goods exports, from up to 100 percent tariffs in India on transport 
equipment to 47 percent Chinese tariffs on some chemicals to 35 percent 
Brazilian tariffs on some manufactured goods.

    As other countries negotiate trade agreements that exclude the 
United States, manufacturers in the United States are also losing 
ground in foreign markets as competitors overseas benefit from lower 
tariffs and the elimination of barriers that our manufacturers still 
must face. There are over 270 free trade and similar agreements 
negotiated worldwide, of which the United States is only party to 14. 
On tariffs, U.S. exporters now face higher tariffs than our competitors 
in most major trading countries as they have been able to negotiate 
trade agreements that have eliminated tariffs for their producers, 
creating an even greater disadvantage to our own exporters, as shown in 
Figure 4.


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    Similarly, as China, the European Union, Canada and Mexico and 
others negotiate new agreements without the United States, their 
producers will face substantially greater access and lower barriers, 
while U.S. manufacturers will be increasingly shut out.

    Beyond tariffs, of course, there are a wide range of 
discriminatory, unfair and distortive barriers that foreign governments 
put in place to limit access to their markets. The Office of the United 
States Trade Representative (USTR) releases annual reports on the wide 
variety of barriers and foreign distortions, including its National 
Trade Estimate Report on trade barriers generally, its Special 301 
Report on intellectual property rights protection and enforcement 
overseas, as well reports on technical barriers to trade. The NAM 
annually provides overviews of the major barriers our companies face 
overseas and identified most recently a wide range of unfair import 
policies, investment barriers, forced localization barriers, export 
restrictions and other challenges in the global economy, as well as the 
foreign countries that deny adequate and effective protection of 
intellectual property rights and emerging cross-cutting intellectual 
property rights concerns that impact manufacturers in a number of 
markets.\2\, \3\
---------------------------------------------------------------------------
    \2\ NAM, Comments on 2016 National Trade Estimate Report on Foreign 
Trade Barriers (Oct. 28, 2015), accessed at http://documents.nam.org/
IEA/Final_NAM_NTE_Comments_2015.pdf.
    \3\ NAM, Comments on 2016 Special 301 Review (February 5, 2016), 
accessed at http://documents.nam.org/IEA/
NAM_2016_Special_301_Comments.pdf.

    Yet, the baseline rules of the WTO do not address the wide variety 
and growing trade barriers and unfair trade practices that 
manufacturers face in overseas markets. For example, while China 
entered the WTO in 2001 agreeing to much lower tariffs than countries 
like Brazil and India, the WTO rules have not addressed a wide variety 
of other barriers that have grown in the Chinese market, from 
indigenous innovation rules to discriminatory procurement barriers. 
Manufacturers are pleased to see that China has grown from the sixth 
largest U.S. manufactured goods export market in 2002 to the third 
largest in 2015, but further work and more rigorous market-opening and 
other disciplines are needed. Countries like India, Brazil, South 
Africa and others continue to impose barriers or are adopting forced 
localization policies that negatively impact manufacturers in the 
---------------------------------------------------------------------------
United States.

    As other countries negotiate trade agreements that exclude the 
United States, manufacturers in the United States are also losing 
ground in foreign markets as overseas competitors benefit from lower 
tariffs and the elimination of barriers that our manufacturers still 
must face. There are over 270 \4\ free trade and similar agreements 
negotiated worldwide, of which the United States is only party to 14. 
On tariffs, U.S. exporters now face higher tariffs than our competitors 
in most major trading countries as they have been able to negotiate 
trade agreements that have eliminated tariffs for their producers, 
creating an even greater disadvantage to our own exporters. Similarly, 
as China, the European Union, Canada and Mexico and others negotiate 
new agreements without the United States, their producers will face 
substantially greater access and lower barriers, while U.S. 
manufacturers will be increasingly shut out.
---------------------------------------------------------------------------
    \4\ WTO, Regional Trade Agreements, accessed at http://wto.org/
english/tratop_e/region_e/region_e.htm.

    Given these continued barriers and despite the trade agreements 
already negotiated, manufacturers in the United States are looking for 
new and stronger FTAs that create a more level playing field overseas 
---------------------------------------------------------------------------
and for that reason strongly supported the passage of TPA in 2015.

    The NAM supports the Trans-Pacific Partnership (TPP) as an 
agreement which will open markets and put manufacturers in the United 
States in a much stronger position to compete in an important and 
growing region of the world. TPP will substantially improve 
opportunities for the export and sale of U.S. manufactured goods, which 
means more economic opportunities for manufacturers and their 12 
million workers here in the United States. The NAM also urges the 
Administration and Congress to work together to address key issues, 
including on stronger intellectual property protection and 
comprehensive enforcement rules, to ensure that this agreement 
addresses industry concerns and can set an appropriate template going 
forward.

    The NAM is also strongly supportive of ongoing FTA negotiations 
with the European Union as part of the Transatlantic Trade and 
Investment Partnership (TTIP) talks, as well as WTO sectoral 
negotiations to eliminate tariffs on environmental goods as part of the 
Environmental Goods Agreement (EGA) talks. The NAM is also reviewing 
other potential trade agreements that would open markets and create 
greater opportunities for growing manufacturing in the United States, 
including other WTO sectoral negotiations.

III. Enforcement of Trade Agreements and Trade Rules Is Also Critical

    Enforcement of trade rules, both domestic and those contained in 
international agreements, is also critical.

    a. Trade Agreements Require Stronger U.S. Enforcement

    For U.S. trade agreements to be successful, it is vital to ensure 
effective enforcement of the commitments contained in those agreements 
by our trading partners and the United States to create a more level 
playing field.

    The United States has worked actively through successive 
administrations to address market access barriers and other unfair 
treatment of U.S. exports and products. Before agreements first enter 
into force, the Office of the United States Trade Representative (USTR) 
works vigorously to ensure the full implementation of commitments. In 
most cases, commitments are implemented fully. In cases where they are 
not, USTR works through the consultation and ultimately the dispute 
settlement provisions provided in trade agreements to ensure full 
implementation. Indeed, since the WTO was established nearly two 
decades ago in 1995, the United States has brought over 100 claims and 
successfully resolved 70 of the 74 cases that have been concluded.\5\ 
Notably, the United States has brought about 20 percent of the 
approximately 500 requests for consultation made overall in the WTO.\6\ 
These cases have an important impact on growing manufacturing in the 
United States. For example, the United States has used the WTO dispute 
settlement mechanism to make sure that:
---------------------------------------------------------------------------
    \5\ Office of the United States Trade Representative, Snapshot of 
WTO Cases Involving the United States (May 22, 2014), accessed at 
http://www.ustr.gov/sites/default/files/Snapshot
%20May.pdf.
    \6\ Id.; World Trade Organization, Chronological List of Dispute 
Cases, accessed at http://www.wto.org/english/tratop_e/dispu_e/
dispu_status_e.htm. As USTR's snapshot explains, the United States has 
filed 103 requests for consultation.

      China stopped discriminating against U.S. automobile parts, 
eliminated additional tariffs on U.S. steel exports and eliminated 
export bans on raw materials and rare earths;
      Argentina's onerous and discriminatory import licensing is 
addressed;
      South Korea stopped imposing non-scientific barriers to certain 
food products; and
      A wide number of countries, from Portugal, Pakistan and Sweden 
to Brazil, Greece and Denmark, provide better protection for U.S. 
intellectual property.
      India's national solar energy policy violated WTO international 
trade rules in discriminating against importers' solar cells and 
modules.

    The United States has pursued cases with regard to actions by many 
of our major trading partners, from the European Union, Canada and 
Mexico to Brazil and India. Without the underlying agreements, such 
strong dispute settlement outcomes that open markets and ensure fair 
treatment would not be possible.

    Sustained attention is needed to address other governments' failure 
to implement their trade and investment commitments fully, including 
where appropriate through the use of WTO and FTA dispute settlement 
mechanisms. Whether it is a newer agreement, such as the Korea-U.S. 
(KORUS) FTA or one that has been in force for decades, the United 
States should not hesitate to ensure that all trade agreement 
obligations are enforced. With respect to Korea, implementation of the 
KORUS FTA has been slow in several areas since it entered into force in 
2012:

      While manufacturers are pleased that many of the border problems 
that impeded many U.S. manufactured goods exports were resolved in 
2014, it took far too long to address these excessive tariff 
certification and verification demands that Korean customs was placing 
on U.S. exporters and Korea's failure to implement quickly and fully de 
minimis rules to eliminate red-tape for small-value shipments.
      Manufacturers' access to Korea has continued to be impeded 
substantially by a range of proposed, new and modified non-tariff 
barriers to imports of automobiles and motorcycles made in the United 
States. These include discriminatory emissions regulations that 
improperly penalize U.S. auto exports to Korea and new noise standards 
for motorcycles that limit the use of large motorcycles on Korean 
highways.

    These and other barriers must be addressed urgently to ensure the 
KORUS FTA delivers fully on its promise for manufacturers in the United 
States and it will be important to monitor Korea's full implementation 
of the KORUS FTA.

    Similarly with Colombia, despite growing manufactured goods 
exports, manufacturers across several industries in the United States 
are facing major market access and regulatory barriers in the Colombian 
market that appear inconsistent with Colombia's existing international 
commitments, including the U.S.-Colombia Trade Promotion Agreement. 
Substantial concerns have been raised in three sectors in particular:

      U.S. distilled spirits producers face a discriminatory tax and 
Colombia imposes spirit monopoly restrictions on the ability of 
imported spirits companies to do business in the country.
      Colombia's scrappage program has long been a barrier to full 
access to trucks manufactured in the United States, requiring that an 
old truck be scrapped before the purchase of a new truck (a unique 
``one for one'' rule) or, formerly, a hefty fee be paid, and in April 
2013, the Colombian government eliminated the fee option, creating a 
situation where new trucks could not typically be purchased.
      Pharmaceutical manufacturers in the United States face a myriad 
of growing barriers in Colombia's market, including insufficient and 
unreasonable timeframes for comment, modifications to approval 
processes for innovative pharmaceutical products to look beyond 
efficacy and scientific data to require a consideration of price, and 
an unprecedented ``abbreviated'' regulatory review to allow the sale of 
biosimilar products.

    The NAM looks forward to working closely with the U.S. government 
to ensure the full enforcement of U.S. trade agreements in ways that 
enhance manufacturers' competitiveness.

    b. Upholding the United States' International Obligations at Home

    Similarly, the United States should uphold its obligations under 
international agreements and honor remedies imposed when U.S. actions 
are found to be out of compliance with those obligations. Just as we 
expect our trading partners to meet the letter of their international 
obligations, so should the United States.

    c. Enforcement Through Investor-State Dispute Settlement (ISDS)

    With regard to the enforcement of trade and investment agreements, 
the NAM also strongly supports the continued inclusion and use as 
appropriate of ISDS contained in U.S. FTAs and investment treaties. 
ISDS is a vital enforcement tool that allows individual investors 
(whether business or non-profit) to seek enforcement of basic 
principles--such as non-discrimination, compensation for expropriatory 
action (i.e., takings) and fair treatment--before a neutral arbitration 
panel. ISDS is in essence an enforcement mechanism and those seeking a 
more level playing field for manufacturers in the global economy should 
support the inclusion of this mechanism in existing and future 
agreements, including the TPP and TTIP agreements, as well as bilateral 
investment treaties (BITs), such as currently being negotiated with 
China.

    Such provisions should be broadly available for all industries with 
respect to breaches of the core investment rules of the underlying 
agreements, but also with respect to contracts and other investment 
agreements signed by investors with the foreign government. Proposals 
to eliminate or modify these core enforcement rules should be rejected 
as such outcomes undermine rather than strengthen a strong enforcement 
agenda.

    d. Full and Timely Enforcement of Domestic Trade Rules Is Essential

    Domestically, the NAM continues to be a strong supporter of the 
full and fair enforcement of our trade remedy laws that help 
manufacturers address government-subsidized and other unfair 
competition. These rules too are an essential part of a robust pro-
growth and pro-manufacturing trade policy. U.S. trade remedy laws have 
long been part of the U.S. legal system and are internationally 
respected mechanisms, authorized by the WTO.

    It is vital that both the Department of Commerce and U.S. 
International Trade Commission exercise their authority to counteract 
unfair practices overseas. Full, effective, timely and consistent 
enforcement by the U.S. government of these globally recognized rules 
is essential to ensure manufacturers get a fair shake in the global 
economy.

    Enforcement of U.S. trade rules must occur during the investigatory 
and review stages, but these trade rules must also be enforced fully at 
our border. Too often, we hear stories of manufacturers that have spent 
significant time and money to utilize the trade remedy rules only to 
find importers that are evading these orders. Manufacturers strongly 
supported the Enforcing Orders and Reducing Customs Evasion (ENFORCE) 
Act that was spearheaded by members of this Committee to address 
longstanding failures of Customs and Border Protection (CBP) to enforce 
fully and adequately trade remedy orders at the order in cases of 
evasion. This legislation was recently enacted as part of the Trade 
Facilitation and Trade Enforcement Act, which the NAM strongly 
supported. The NAM will be working with the Committee, Congress and CBP 
to ensure that these provisions are fully implemented on a timely 
basis.

Conclusion

    For manufacturers in the United States, trade agreements, 
particularly those that comprehensively open markets and set in place 
high standards, have boosted manufacturing output and the 
competitiveness of manufacturing in the United States. Future growth 
opportunities for the U.S. manufacturing sector will hinge 
disproportionately on the ability to increase overseas sales and the 
NAM supports the continued negotiation of comprehensive, high-standard 
and market-opening new trade agreements, and the vigorous enforcement 
of these agreements to ensure that countries are upholding their 
commitments.


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