[House Report 108-627]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-627
======================================================================
 
     UNITED STATES-MOROCCO FREE TRADE AGREEMENT IMPLEMENTATION ACT

                                _______
                                

 July 21, 2004.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 4842]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4842) to implement the United States-Morocco Free 
Trade Agreement, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Introduction.....................................................2
          A. Purpose and Summary.................................     2
          B. Background..........................................     2
          C. Legislative History.................................     5
 II. Section-by-Section Summary.......................................5
          A. Title I: Approval and General Provisions............     5
          B. Title II: Customs Provisions........................     8
          C. Title III: Relief from Imports......................    11
III. Vote of the Committee...........................................13
 IV. Budget Effects of the Bill......................................14
          A. Committee Estimate of Budgetary Effects.............    14
          B. Budget Authority and Tax Expenditures...............    14
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    14
  V. Other Matters to be Discussed Under the Rules of the House......16
          A. Committee Oversight Findings and Recommendations....    16
          B. Statement of General Performance Goals and 
              Objectives.........................................    16
          C. Constitutional Authority Statement..................    16
          D. Information Relating to Unfunded Mandates...........    16
 VI. Changes in Existing Law Made by the Bill, as Reported...........17
VII. Views...........................................................18

                            I. INTRODUCTION


                         A. Purpose and Summary

    H.R. 4842 would implement the June 15, 2004 Agreement 
establishing a free trade area between the United States and 
Morocco.

                             B. Background

    The United States-Morocco Free Trade Agreement (FTA) is the 
fourth trade agreement considered by the Congress under the 
Trade Promotion Authority (TPA) procedures outlined in the 
Bipartisan Trade Promotion Authority Act of 2002 signed into 
law in August 2002 (P.L. 107-210). The United States and 
Morocco have a strong bilateral relationship. This free trade 
agreement forms part of the Administration's initiative to 
establish a Middle East Free Trade Area by 2013. Morocco is a 
progressive Arab state in terms of democracy and rule of law. 
The Moroccan government has also undertaken a strong economic 
and labor reform program.
    The United States-Morocco FTA is a 21st century agreement 
that reflects the modern globalized economy, opens markets, and 
provides mutual benefits in intellectual property, services, 
government procurement, and e-commerce.
    The Committee believes that the Agreement meets the 
objectives and priorities set forth in the Bipartisan Trade 
Promotion Authority Act of 2002. More than 95 percent of 
bilateral trade in consumer and industrial products will become 
duty-free immediately upon entry into force of the Agreement, 
with all remaining tariffs to be eliminated within nine years. 
According to the Office of the United States Trade 
Representative (USTR), this is the best market access package 
of any U.S. free trade agreement that has been signed to date 
with a developing country. Currently, U.S. exports to Morocco 
face an average tariff of 20 percent versus a 4 percent average 
tariff that Moroccan exports face in the U.S. market. U.S. 
export sectors such as information technology products, 
construction equipment, and chemicals stand to benefit from the 
Agreement.
    Notwithstanding the outstanding provisions on industrial 
market access noted above, one sector that warrants special 
discussion is textiles and apparel. Unlike the practice in most 
previous FTAs, duties on textile and apparel products 
satisfying the rule of origin in this FTA are not eliminated 
upon entry into force of the Agreement. Instead, duties on 
originating textile and apparel products are phased out over a 
ten-year period. Ambassador Peter Allgeier, Deputy United 
States Trade Representative, testified at the Committee's 
hearing on implementation of the FTA on July 7, 2004, that 
these provisions were included to respond to a unique situation 
in which Morocco raised concerns about increased imports from 
the European Union and that it is not USTR's intention to 
replicate these provisions in future agreements. The Committee 
expects that the immediate liberalization for qualifying goods 
included in these other agreements will be the model for future 
agreements.
    In addition, the Committee believes that maintaining a 
current short supply list under the FTA is integral to the 
effective functioning of the rule of origin for textiles and 
apparel. The Committee expects the President to seek to 
incorporate all existing and future affirmative short supply 
determinations from other trade agreements and trade preference 
programs into the textile and apparel rule of origin for this 
FTA. Moreover, given that prior short supply designations have 
already undergone public comment and consultation with domestic 
parties, the President should apply those designations to this 
FTA without further public investigation. Finally, the 
Committee clarifies that the short supply provision included in 
this FTA, as well as previous FTAs and trade preference 
programs enacted by Congress, contemplates items only being 
added to the list of short supply items. In other words, once 
an item is designated as being in short supply under this FTA, 
other FTAs, and trade preference programs, the item is 
permanently designated as such unless otherwise provided for by 
the statute implementing the FTA or trade preference program.
    On agriculture market access, tariffs on most U.S. 
agricultural exports to Morocco are phased out over the 
following periods: immediate, five years, eight years, ten 
years, 12 years, 15 years, and 18 years. Certain sensitive 
products will have phase out periods of as long as 25 years. 
U.S. tariffs will be phased out over the following periods: 
immediate, five years, eight years, ten years, 12 years, 15 
years, and 18 years. The Committee notes with particular 
approval that all agricultural products are included in the FTA 
and expects that this comprehensiveness will be reflected in 
future FTAs brought before the Committee. The American Farm 
Bureau Federation estimates that for every $1 in increased 
imports from Morocco, U.S. farmers can expect $10 in increased 
exports to Morocco, tripling our current exports. Because 
comprehensive liberalization of agricultural trade is included 
in this FTA and not in the European Union-Morocco Association 
Agreement, new commercial opportunities for U.S. exporters are 
very likely.
    In services, the Committee is pleased that the Agreement 
utilizes a trade-enhancing ``negative list'' approach to ensure 
maximum market access for services providers. Morocco will 
accord substantial market access across its entire services 
regime, offering access in sectors such as audiovisual, express 
delivery, telecommunications, computer and related services, 
distribution, and construction and engineering.
    The FTA calls for higher standards for protecting 
intellectual property rights such as copyrights, patents, 
trademarks, and trade secrets, as well as enhanced means for 
enforcing those rights. The FTA also requires both Parties to 
ratify or accede to the World Intellectual Property 
Organization (WIPO) Copyright Treaty and WIPO Performances and 
Phonograms Treaty. The Committee also notes that the 
intellectual property provisions will not affect Morocco's 
ability to take measures necessary to protect public health. In 
fact, a side letter to the agreement makes this assurance 
explicit.
    For covered procurements above certain contract values 
(i.e., thresholds), the FTA ensures that Moroccan government 
purchasers cannot discriminate against U.S. firms or in favor 
of Moroccan firms. Strong and transparent disciplines on 
procurement procedures, such as requiring advance public notice 
of purchases, as well as timely and effective bid review 
procedures, provide U.S. suppliers with not only greater market 
access opportunity but also increased certainty in the bidding 
and contracting process. The FTA provides access to 
procurements by thirty Moroccan central government entities, 
including the Ministries of Defense, Foreign Affairs, Interior, 
and the Prime Minister. The FTA also covers procurement by 
Morocco's provinces and prefectures.
    The Committee notes with particular approval that the FTA 
includes an investor-state dispute resolution mechanism, which 
has been included in every FTA signed by the United States in 
the last 15 years with the exception of the recently signed 
agreement with Australia. The investor-state dispute mechanism 
provides protection for investment agreements concluded after 
the FTA goes into effect, although it does not provide 
protection for existing investment agreements (defined as 
agreements relating to natural resources or other assets 
controlled by the foreign government).
    The Agreement also contains obligations under which each 
government commits to enforce its domestic labor and 
environmental laws, as required by TPA. The Committee 
understands that the prospect of an FTA with the United States 
spurred Morocco to update and upgrade its labor law. The 
Committee notes that Moroccan labor laws comply with core labor 
standards set forth by the International Labor Organization 
(ILO). Accordingly, requiring that each government enforce its 
labor laws is tantamount to an enforceable ILO standard. 
Similarly, Morocco's environmental laws set a high level of 
protection.
    The Committee notes that the FTA will cover trade with and 
investment in the territory of Morocco as recognized by the 
United States, which does not currently include the Western 
Sahara.
    As noted above, this legislation is being considered by 
Congress under TPA procedures. As such, the Agreement has been 
negotiated by the President in close consultation with 
Congress, and it can be approved and implemented through 
legislation using streamlined procedures. Pursuant to TPA 
requirements, the President is required to provide written 
notice to Congress of the President's intention to enter into 
the negotiations. Throughout the negotiating process and prior 
to entering into an agreement, the President is required to 
consult with Congress regarding the ongoing negotiations.
    The President must notify the Congress of his intent to 
enter into a trade agreement at least 90 calendar days before 
the agreement is signed. Within 60 days after entering into the 
Agreement, the President must submit to the Congress a 
description of those changes to existing laws that the 
President considers would be required in order to bring the 
United States into compliance with the Agreement. After 
entering into the Agreement, the President must also submit to 
the Congress the formal legal text of the agreement, draft 
implementing legislation, a statement of administrative action 
proposed to implement the Agreement, and other related 
supporting information as required under section 2105(a) of 
TPA. Following submission of these documents, the implementing 
bill is introduced, by request, by the Majority Leader in each 
chamber. The House then has up to 60 days to consider 
implementing legislation for the Agreement (the Senate has up 
to an additional 30 days). No amendments to the legislation are 
allowed under TPA requirements.

                         C. Legislative History

    On October 1, 2002, the President first notified Congress 
of his intent to negotiate an FTA with Morocco. FTA 
negotiations between the United States and Morocco began in 
January 2003 and concluded in March 2004. During and after the 
negotiations, the President continued his consultations with 
Congress pursuant to the letter and spirit of the TPA 
requirements. On March 8, 2004, the President notified Congress 
of his intent to enter into the United States-Morocco FTA. The 
text of the United States-Morocco FTA was released to the 
public on April 2, 2004. Under TPA procedures, the President is 
able to sign an FTA ninety calendar days after he has notified 
Congress. Accordingly, the FTA was signed on June 15, 2004, by 
U.S. Trade Representative Robert B. Zoellick and Moroccan 
Minister-Delegate of Foreign Affairs and Cooperation Taib 
Fassi-Fihri.
    On July 7, 2004, the Committee on Ways and Means held a 
hearing on the United States-Morocco FTA. The Committee 
received testimony supporting the Agreement from the 
Administration and numerous U.S. private sector companies and 
organizations. On July 14, 2004, the Committee on Ways and 
Means considered in an informal markup session draft 
implementing legislation for the Morocco FTA. The Committee 
approved the draft implementing legislation by a recorded vote 
of 23 yeas to 1 nay, with one Member voting present, without 
amendment.
    In accordance with TPA requirements, President Bush 
submitted to Congress on July 9, 2004 a description of the 
changes to existing U.S. laws that would be required to bring 
the United States into compliance with the Agreement.
    On July 15, 2004, President Bush formally transmitted to 
Congress the formal legal text of the United States-Morocco 
FTA, implementing legislation, a statement of administrative 
action proposed to implement the Agreement, and other related 
supporting information as required under section 2105(a) of 
TPA. Following this transmittal, on July 15, 2004, Majority 
Leader DeLay introduced, by request, H.R. 4842 to implement the 
United States-Morocco FTA. The bill was referred to the 
Committee on Ways and Means.
    On July 19, 2004, the Committee on Ways and Means formally 
met to consider H.R. 4842. The Committee ordered H.R. 4842 
favorably reported to the House of Representatives by a 
recorded vote of 26 yeas to 0 nays, without amendment; under 
the requirements of TPA, amendments were not permitted.

                     II. SECTION-BY-SECTION SUMMARY


                TITLE I: APPROVAL AND GENERAL PROVISIONS


               SECTION 101: APPROVAL AND ENTRY INTO FORCE

Current law

    No provision.

Explanation of provision

    Section 101 states that Congress approves the Agreement and 
the Statement of Administrative Action and provides that the 
Agreement enters into force when the President determines that 
Morocco is in compliance and has exchanged notes, on or after 
January 1, 2005.

Reason for change

    Approval of the Agreement and the Statement of 
Administrative Action is required under the procedures of 
section 2103(b)(3) of the Bipartisan Trade Promotion Authority 
Act of 2002. The remainder of section 101 provides for entry 
into force of the Agreement.

    SECTION 102: RELATIONSHIP OF THE AGREEMENT TO U.S. AND STATE LAW

Current law

    No provision.

Explanation of provision

    Section 102 provides that U.S. law is to prevail in a 
conflict and states that the Agreement does not preempt state 
rules that do not comply with the Agreement. Only the United 
States is entitled to bring a court action to resolve a 
conflict between a state law and the Agreement.

Reason for change

    Section 102 is necessary to make clear the relationship 
between the Agreement and federal and state law, respectively.

 SECTION 103: IMPLEMENTING ACTIONS IN ANTICIPATION OF ENTRY INTO FORCE 
                        AND INITIAL REGULATIONS

Current law

    No provision.

Explanation of provision

    Section 103(a) provides that after the date of enactment, 
the President may proclaim actions and issue regulations as 
necessary to ensure that any provision of this Act that takes 
effect on the date that the Agreement is entered into force is 
appropriately implemented, but not before the date the 
Agreement enters into force.
    Section 103(b) establishes that regulations necessary or 
appropriate to carrying out the actions proposed in the 
Statement of Administrative Action shall, to the maximum extent 
feasible, be issued within one year of entry into force or the 
effective date of the provision.

Reason for change

    Section 103 provides for the issuance of regulations. The 
Committee strongly believes that regulations should be issued 
in a timely manner in order to provide maximum clarity to 
parties claiming benefits under the Agreement. As noted in the 
Statement of Administrative Action, the regulation-issuing 
agency will provide a report to Congress not later than thirty 
days before one year elapses on any regulation that is going to 
be issued later than one year.

      SECTION 104: CONSULTATION AND LAYOVER FOR PROCLAIMED ACTIONS

Current law

    No provision.

Explanation of provision

    Section 104 provides that where the President is given 
proclamation authority subject to consultation and layover, he 
may proclaim action only after he has: obtained advice from the 
International Trade Commission and the appropriate private 
sector advisory committees; submitted a report to the House 
Ways and Means and Senate Finance Committees concerning the 
reasons for the action; and consulted with the Committees. The 
President may proclaim the proposed action after 60 days have 
elapsed.

Reason for change

    The bill gives the President certain proclamation authority 
but requires extensive consultation with Congress before such 
authority may be exercised. The Committeebelieves that such 
consultation is an essential component of the delegation of authority 
to the President and expects that such consultations will be conducted 
in a thorough manner.

     SECTION 105: ADMINISTRATION OF DISPUTE SETTLEMENT PROCEEDINGS

Current law

    No provision.

Explanation of provision

    Section 105 authorizes the President to establish an office 
within the Commerce Department responsible for providing 
administrative assistance to any panels that may be established 
under the Agreement and authorizes appropriations for the 
office and for payment of the U.S. share of expenses.

Reason for change

    The Committee believes that the Commerce Department is the 
appropriate agency to provide administrative assistance to 
panels.

                   SECTION 106: ARBITRATION OF CLAIMS

Current law

    No provision.

Explanation of provision

    Section 106 authorizes the United States to resolve certain 
claims covered by the Investor-State Dispute Settlement 
procedures set forth in the Agreement.

Reason for change

    This provision is necessary to meet U.S. obligations under 
Section B of Chapter 10 of the Agreement.

          SECTION 107: EFFECTIVE DATES; EFFECT OF TERMINATION

Current law

    No provision.

Explanation of provision

    The effective date of this Act is date the Agreement enters 
into force with respect to the United States except sections 1-
3 and Title I take effect upon the date of enactment. The 
provisions of the Act terminate on the date on which the 
Agreement terminates.

Reason for change

    Section 107 implements U.S. obligations under the 
Agreement.

                      TITLE II: CUSTOMS PROVISIONS


                   SECTION 201: TARIFF MODIFICATIONS

Current law

    No provision.

Explanation of provision

    Section 201(a) provides the President with the authority to 
proclaim tariff modifications to carry out the Agreement and 
requires the President to terminate Morocco's designation as a 
beneficiary developing country for the purposes of the 
Generalized System of Preferences program.
    Section 201(b) gives the President the authority to 
proclaim further tariff modifications, subject to consultation 
and layover, as the President determines to be necessary or 
appropriate to maintain the general level of reciprocal and 
mutually advantageous concessions with respect to Morocco 
provided for by the Agreement.
    Section 201(c) allows the President, for any goods for 
which the base rate is a specific or compound rate of duty, to 
substitute for the base rate an ad valorem rate to carry out 
the tariff modifications in subsections (a) and (b).

Reason for change

    Section 201(a) is necessary to put the United States in 
compliance with the market access provisions of the Agreement. 
Section 201(b) gives the President flexibility to maintain the 
trade liberalizing nature of the Agreement. The Committee 
expects the President to comply with the letter and spirit of 
the consultation and layover provisions of this Act in carrying 
out this subsection. Section 201(c) allows the President to 
convert tariffs to ad valorem rates to carry out the tariff 
modifications in the Agreement.

      SECTION 202: ADDITIONAL DUTIES ON CERTAIN AGRICULTURAL GOODS

Current law

    No provision.

Explanation of provision

    Section 202 of the bill implements the agricultural 
safeguard provisions of article 3.5 and Annex 3-A of the 
Agreement. Article 3.5 permits the United States to impose an 
agricultural safeguard measure, in the form of additional 
duties, on imports from Morocco of certain horticultural goods 
listed in the U.S. schedule to Annex 3-A of the Agreement.
    No additional duty may be applied under section 202 if, at 
the time of entry, the good is subject to import relief under 
subtitle A of title III of this bill (the general safeguard) or 
chapter 1 of title II of the Trade Act of 1974 (``section 201'' 
relief). The assessment of an additional duty shall cease to 
apply to a good on the date on which duty-free treatment must 
be provided to that good. If an agricultural good is subject to 
a tariff-rate quota under the Agreement, any additional duty 
assessed under this section shall be applied only to over-quota 
imports of the good. The sum of the duties assessed under an 
agricultural safeguard and the applicable rate of duty in the 
U.S. schedule may not exceed the lesser of the existing normal 
trade relation (NTR)/most favored nation (MFN) rate or the NTR/
MFN rate imposed when the Agreement entered into force.

Reason for change

    Section 202 implements the agriculture safeguard provisions 
of article 3.5 and Annex 3-A of the Agreement and provides 
important security to U.S. farmers.

                      SECTION 203: RULES OF ORIGIN

Current law

    No provision.

Explanation of provision

    Section 203 codifies the rules of origin set out in chapter 
5 of the Agreement. Under the general rules, there are four 
basic ways for a good of Morocco to qualify as an ``originating 
good'' and therefore be eligible for preferential tariff 
treatment when it is imported into the United States. A good is 
an originating good if it is imported directly from the 
territory of Morocco into the territory of the United States 
and: (1) it is ``wholly the growth, product, or manufacture of 
Morocco, the United States, or both''; (2) it is a new or 
different good that has been ``grown, produced, or manufactured 
in Morocco, the United States, or both'' and the value of the 
materials produced and the direct cost of processing operations 
performed in Morocco, the United States, or both is not less 
than 35 percent of the appraised value of the good; (3) it 
satisfies certain rules of origin for textile or apparel goods 
specified in Annex 4-A of the Agreement; or (4) it satisfies 
certain product-specific rules of origin specified in Annex 5-A 
of the Agreement.
    Under the rules in Article 4.3 and Annex 4-A of the 
Agreement, an apparel product must generally meet a tariff 
shift rule that implicitly imposes a ``yarn forward'' 
requirement. Thus, to qualify as an originating good imported 
into the United States from Morocco, an apparel product must 
have been cut (or knit to shape) and sewn or otherwise 
assembled in Morocco from yarn, or fabric made from yarn, that 
originates in Morocco or the United States, or both. However, 
Article 4.3.11 provides a limited exception to this general 
rule allowing access for 30 million square meter equivalents of 
apparel that does not meet the yarn forward rule of origin in 
the first year of the Agreement, phasing down over a ten-year 
period. Section 203 also includes a de minimis exemption 
providing that in most cases a textile or apparel good will be 
considered originating if the total weight of all 
nonoriginating fibers or yarns is not more than 7 percent of 
the total weight of the good.
    The remainder of section 203 addresses valuation of 
materials and special definitions.

Reason for change

    Rules of origin are needed in order to confine Agreement 
benefits, such as tariff cuts, to Moroccan goods and to prevent 
third-country goods from being transshipped through Morocco and 
claiming benefits under the Agreement. Section 203 puts the 
United States in compliance with the rules of origin provisions 
of the agreement. The Committee notes that the exception to the 
textile and apparel yarn forward rule of origin is phased down 
over ten years and covers approximately 0.08 percent of U.S. 
textile and apparel imports by volume.

SECTION 204: ENFORCEMENT RELATING TO TRADE IN TEXTILE AND APPAREL GOODS

Current law

    No provision.

Explanation of provision

    Section 204 implements the verification provisions of the 
Agreement at article 4.4 and authorizes the President to take 
appropriate action while the verification is being conducted. 
Such appropriate action includes suspending liquidation of the 
textile or apparel good for which a claim of origin has been 
made or, in a case where the request for verification was based 
on a reasonable suspicion of unlawful activity related to such 
goods, for textile or apparel goods exported or produced by the 
person subject to a verification. If the Secretary determines 
that the information obtained from verification is insufficient 
to make a determination, the President may take appropriate 
action described in section 204(d), including publishing the 
name and address of the person subject to the verification and 
denial of preferential treatment and denial of entry to certain 
textile and apparel goods produced or exported by the person 
subject to the verification.

Reason for change

    In order to ensure that only qualifying textile and apparel 
goods receive preferential treatment under the Agreement, 
special textile enforcement provisions are included in the 
Agreement. Section 204 is necessary to authorize these 
enforcement mechanisms for use by U.S. authorities.

                        SECTION 205: REGULATIONS

Current law

    No provision.

Explanation of provision

    Section 205 provides that the Secretary of the Treasury 
shall issue regulations to carry out provisions of this bill 
related to rules of origin and Customs user fees.

Reason for change

    Because the implementing bill involves lengthy and complex 
implementation procedures by customs officials, section 205 is 
necessary in order to authorize the Secretary of the Treasury 
to carry out provisions of the implementing bill through 
regulations.

                     TITLE III: RELIEF FROM IMPORTS


Subtitle A: Relief From Imports Benefiting From the Agreement (Sections 
                                311-316)


Current law

    No provision.

Explanation of provision

    Sections 311-316 authorize the President, after an 
investigation and affirmative determination by the U.S. 
International Trade Commission (ITC), to impose specified 
import relief when, as a result of the reduction or elimination 
of a duty under the Agreement, a Moroccan product is being 
imported into the United States in such increased quantities 
and under such conditions as to be a substantial cause of 
serious injury or threat of serious injury to the domestic 
industry.
    Section 311(c) defines ``substantial cause'' and applies 
factors in making determinations in the same manner as section 
201 of the Trade Act of 1974.
    Section 311(d) exempts from investigation under this 
section Moroccan articles for which import relief has been 
provided under this safeguard since the Agreement entered into 
force.
    Under sections 312(b) and (c), if the ITC makes an 
affirmative determination, it must find and recommend to the 
President the amount of import relief that is necessary to 
remedy or prevent serious injury and to facilitate the efforts 
of the domestic industry to make a positive adjustment to 
import competition.
    Under section 313(a), the President shall provide import 
relief to the extent that the President determines is necessary 
to remedy or prevent the injury found by the ITC and to 
facilitate the efforts of the domestic industry to make a 
positive adjustment to import competition.
    Under section 313(b), the President is not required to 
provide import relief if the President determines that the 
relief will not provide greater economic and social benefits 
than costs.
    Section 313(c) sets forth the nature of the relief that the 
President may provide as: a suspension of further reductions 
for the article; or an increase to a level that does not exceed 
the lesser of the existing NTR/MFN rate or the NTR/MFN rate 
imposed when the Agreement entered into force. Section 
313(c)(1)(C) specifies that if a duty is applied on a seasonal 
basis, then the NTR/MFN rate corresponds to the immediately 
preceding season. Section 313(c)(2) states that if the 
President provides relief for greater than one year, it must be 
subject to progressive liberalization at regular intervals over 
the course of its application.
    Section 313(d) states that the import relief that the 
President is authorized to provide may not exceed three years. 
If the President determines that import relief continues to be 
necessary and there is evidence that the industry is making 
positive adjustment to import competition, then he may extend 
the relief, but the aggregate period of relief, including 
extensions, may not exceed five years.
    Section 314 provides that no relief may be provided under 
this subtitle after five years from the date on which the 
United States must eliminate duties on the good at issue under 
the Agreement.
    Section 315 authorizes the President to provide 
compensation to Morocco consistent with article 8.5 of the 
Agreement.
    Section 316 provides for the treatment of confidential 
business information.

Reason for change

    The Committee believes that it is important to have in 
place a temporary, extraordinary mechanism if a U.S. industry 
experiences injury by reason of increasedimport competition 
from Morocco in the future, with the understanding that the President 
is not required to provide relief if the relief will not provide 
greater economic or social benefits than costs. The Committee intends 
that administration of this safeguard be consistent with U.S. 
obligations under Chapter Eight (Safeguards) of the Agreement.

      Subtitle B: Textile and Apparel Safeguard (Sections 321-328)


Current law

    No provision.

Explanation of provision

    Sections 311-316 authorize the President, after an 
investigation and affirmative determination by the U.S. 
International Trade Commission (ITC), to impose specified 
import relief when, as a result of the reduction or elimination 
of a duty under the Agreement, a Moroccan product is being 
imported into the United States in such increased quantities 
and under such conditions as to be a substantial cause of 
serious injury or threat of serious injury to the domestic 
industry.
    Section 311(c) defines ``substantial cause'' and applies 
factors in making determinations in the same manner as section 
201 of the Trade Act of 1974.
    Section 311(d) exempts from investigation under this 
section Moroccan articles for which import relief has been 
provided under this safeguard since the Agreement entered into 
force.
    Under sections 312(b) and (c), if the ITC makes an 
affirmative determination, it must find and recommend to the 
President the amount of import relief that is necessary to 
remedy or prevent serious injury and to facilitate the efforts 
of the domestic industry to make a positive adjustment to 
import competition.
    Under section 313(a), the President shall provide import 
relief to the extent that the President determines is necessary 
to remedy or prevent the injury found by the ITC and to 
facilitate the efforts of the domestic industry to make a 
positive adjustment to import competition.
    Under section 313(b), the President is not required to 
provide import relief if the President determines that the 
relief will not provide greater economic and social benefits 
than costs.
    Section 313(c) sets forth the nature of the relief that the 
President may provide as: a suspension of further reductions 
for the article; or an increase to a level that does not exceed 
the lesser of the existing NTR/MFN rate or the NTR/MFN rate 
imposed when the Agreement entered into force. Section 
313(c)(1)(C) specifies that if a duty is applied on a seasonal 
basis, then the NTR/MFN rate corresponds to the immediately 
preceding season. Section 313(c)(2) states that if the 
President provides relief for greater than one year, it must be 
subject to progressive liberalization at regular intervals over 
the course of its application.
    Section 313(d) states that the import relief that the 
President is authorized to provide may not exceed three years. 
If the President determines that import relief continues to be 
necessary and there is evidence that the industry is making 
positive adjustment to import competition, then he may extend 
the relief, but the aggregate period of relief, including 
extensions, may not exceed five years.
    Section 314 provides that no relief may be provided under 
this subtitle after five years from the date on which the 
United States must eliminate duties on the good at issue under 
the Agreement.
    Section 315 authorizes the President to provide 
compensation to Morocco consistent with article 8.5 of the 
Agreement.
    Section 316 provides for the treatment of confidential 
business information.

Reason for change

    The Committee intends that the provisions of subtitle B be 
administered in a manner that is in compliance with U.S. 
obligations under Article 4.2 of the Agreement. In particular, 
the Committee expects that the President will implement a 
transparent process that will serve as an example to our 
trading partners. For example, in addition to publishing a 
summary of the request for safeguard relief, the Committee 
notes that the President plans to make available the full text 
of the request, subject to the protection of business 
confidential data, on the Department of Commerce, International 
Trade Administration's website. In addition, the Committee 
encourages the President to issue regulations on procedures for 
requesting such safeguard measures, for making its 
determinations under section 322(a), and for providing relief 
under section 322(b).

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the vote of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4842.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 4842 was ordered favorably reported by a 
rollcall vote of 26 yeas to 0 nays (with a quorum being 
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................            ........  .........  Mr. Rangel.......            ........  .........
Mr. Crane......................            ........  .........  Mr. Stark........  ........  ........  .........
Mr. Shaw.......................            ........  .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................            ........  .........  Mr. Levin........            ........  .........
Mr. Houghton...................  ........  ........  .........  Mr. Cardin.......  ........  ........  .........
Mr. Herger.....................            ........  .........  Mr. McDermott....  ........  ........  .........
Mr. McCrery....................  ........  ........  .........  Mr. Kleczka......  ........  ........  .........
Mr. Camp.......................            ........  .........  Mr. Lewis (GA)...            ........  .........
Mr. Ramstad....................            ........  .........  Mr. Neal.........            ........  .........
Mr. Nussle.....................            ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................            ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................            ........  .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........  ........  .........  Mr. Becerra......            ........  .........
Mr. Portman....................            ........  .........  Mr. Doggett......  ........  ........  .........
Mr. English....................            ........  .........  Mr. Pomeroy......            ........  .........
Mr. Hayworth...................            ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................            ........  .........  Ms. Tubbs Jones..            ........  .........
Mr. Hulshof....................
Mr. McInnis....................  ........  ........  .........
Mr. Lewis (KY).................
Mr. Foley......................
Mr. Brady......................
Mr. Ryan.......................  ........  ........  .........
Mr. Cantor.....................
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of this bill, H.R. 
4842, as reported: The Committee agrees with the estimate 
prepared by CBO which is included below.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that 
enactment of H.R. 4842 would reduce customs duty receipts due 
to lower tariffs imposed on goods from Morocco.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office, the following 
report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 21, 2004.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4842, a bill to 
implement the United States-Morocco Free Trade Agreement.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Annabelle 
Bartsch.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 4842--A bill to implement the United States-Morocco Free Trade 
        Agreement

    Summary: H.R. 4842 would approve the free trade agreement 
between the government of the United States and the government 
of Morocco that was entered into on June 15, 2004. It would 
provide for tariff reductions and other changes in law related 
to implementation of the agreement.
    The Congressional Budget Office estimates that enacting the 
bill would reduce revenues by $5 million in 2005, by $52 
million over the 2005-2009 period, and by $144 million over the 
2005-2014 period, net of income and payroll tax offsets. The 
bill would not affect federal spending.
    CBO has determined that H.R. 4842 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would not affect the 
budgets of state, local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4842 over the 2005-2014 period is 
shown in the following table.

----------------------------------------------------------------------------------------------------------------
                                                      By fiscal year, in millions of dollars--
                                   -----------------------------------------------------------------------------
                                     2005   2006   2007    2008    2009    2010    2011    2012    2013    2014
----------------------------------------------------------------------------------------------------------------
Changes in receipts...............     -5     -9     -11     -13     -15     -16     -18     -19     -19     -20
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: Under the United States-Morocco 
agreements, tariffs on U.S. imports from Morocco would be 
phased out over time. The tariffs would be phased out for 
individual products at varying rates according to one of 
several different timetables ranging from immediate elimination 
on January 1, 2005, to gradual elimination over 18 years. 
According to the U.S. International Trade Commission, the 
United States collected $15 million in customs duties in 2003 
and $396 million of imports from Morocco. Those imports consist 
mostly of various types of apparel articles and produce. Based 
on these data, CBO estimates that phasing out tariff rates as 
outlined in the U.S.-Morocco agreement would reduce revenues by 
$5 million in 2005, by $52 million over the 2005-2009 period, 
and by $144 million over the 2005-2014 period, net of income 
and payroll tax offsets.
    This estimate includes the effects of increased imports 
from Morocco that would result from the reduced prices of 
imported products in the United States, reflecting the lower 
tariff rates. It is likely that some of the increase in U.S. 
imports from Morocco would displace imports from other 
countries. In the absence of specific data on the extent of 
this substitution effect, CBO assumes that an amount equal to 
one-half of the increase in U.S. imports from Morocco would 
displace imports from other countries.
    Intergovernmental and private-sector impact: The bill 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal Revenues: Annabelle Bartsch; 
Impact on State, Local, and Tribal Governments: Melissa 
Merrell; and Impact on the Private Sector: Crystal Taylor.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee, based on public hearing testimony and 
information from the Administration, concluded that it is 
appropriate and timely to consider the bill as reported. In 
addition, the legislation is governed by procedures of the 
Bipartisan Trade Promotion Authority Act of 2002.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article 1 of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States.'')

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                  SECTION 202 OF THE TRADE ACT OF 1974


SEC. 202. INVESTIGATIONS, DETERMINATIONS, AND RECOMMENDATIONS BY 
                    COMMISSION.

  (a) Petitions and Adjustment Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) The procedures concerning the release of 
        confidential business information set forth in section 
        332(g) of the Tariff Act of 1930 shall apply with 
        respect to information received by the Commission in 
        the course of investigations conducted under this 
        chapter, part 1 of title III of the North American Free 
        Trade Agreement Implementation Act, title II of the 
        United States-Jordan Free Trade Area Implementation 
        Act, title III of the United States-Chile Free Trade 
        Agreement Implementation Act, [and] title III of the 
        United States-Singapore Free Trade Agreement 
        Implementation Act, and title III of the United States-
        Morocco Free Trade Agreement Implementation Act. The 
        Commission may request that parties providing 
        confidential business information furnish 
        nonconfidential summaries thereof or, if such parties 
        indicate that the information in the submission cannot 
        be summarized, the reasons why a summary cannot be 
        provided. If the Commission finds that a request for 
        confidentiality is not warranted and if the party 
        concerned is either unwilling to make the information 
        public or to authorize its disclosure in generalized or 
        summarized form, the Commission may disregard the 
        submission.

           *       *       *       *       *       *       *


                               VII. VIEWS

                              ----------                              


                            ADDITIONAL VIEWS

                                I. LABOR

    Had this agreement contained a fully enforceable provision 
requiring both countries to implement and enforce the five 
basic International Labor Organization labor standards (rights 
to associate and bargain collectively, prohibitions on forced 
labor, discrimination, and child labor), then it would have 
sailed through both chambers of Congress easily and without 
delay. Instead, the agreement includes simply an obligation for 
each country to enforce its own domestic law, regardless of 
what that law happens to say.
    It is ironic that, as the U.S. aggressively pursues 
provisions on intellectual property rights and other areas 
reflecting U.S. law--which is among the most stringent in the 
world on those often contentious issues--that USTR will not 
seek provisions on labor reflecting even the basic norms that 
have been endorsed by virtually every country in the world.
    The ``enforce domestic law'' standard continues to be the 
wrong one. And, when a country's labor laws do not meet the 
basic international standards, then this approach will be 
unacceptable.
    Unfortunately, the Bush Administration continues to 
negotiate trade agreements including the ``enforce your own 
law'' standard, and we are forced to take an up-or-down vote on 
what the Bush Administration has negotiated.
    While the Bush Administration has shown an ideological 
rigidity, pursuing the same model regardless of the realities 
in each country with which it negotiates, it does not make 
sense for us to take the same cookie-cutter approach. We need 
to look at the facts on the ground in each country to examine 
how the provisions in each agreement will operate in practice 
and to ensure that the trade agreement will not force U.S. 
workers, farmers and businesses to compete with firms whose 
competitive advantage is the suppression of labor.
    As a result, we were left with the difficult task of 
closely scrutinizing Morocco's labor laws to see how they match 
up against the basic ILO standards, and of examining Morocco's 
commitment to respect the basic rights of its workers. This 
scrutiny was made more complex by the fact that Morocco just 
adopted major reforms in July 2003, which went into effect only 
in June of this year.
    We note the following facts:
     There is an active union movement in Morocco, with 
five major national union federations. Additionally, there is a 
tradition in Morocco of sector-level collective bargaining.
     These aspects of Morocco's labor situation are 
attributable in part to the fact thatMorocco inherited a 
socialist-leaning labor law and industrial structure from France. They 
are also attributable in part to the fact that Morocco's unions played 
an important role in Morocco's independence movement.
     Prior to July 2003, Moroccan law had notable 
deficiencies in its law relative to the five basic ILO 
standards.
     In 2003, Morocco undertook a major ``social 
dialogue'' involving the Government of Morocco, representatives 
from the business community, and representatives from the major 
Moroccan union federations.
     This ``social dialogue'' resulted in the adoption 
of major labor law reforms in July 2003, which reflected a 
common agreement of and were endorsed by all three groups--
government, business and labor. The law came into effect in 
June 2004.
     There was also a ``tripartite agreement'' in July 
2003, which included a commitment for additional reforms 
related to the right to strike (also following the government-
business labor structure of the ``social dialogue'').
     The July 2003 reforms constitute a major, not 
cosmetic, change in Morocco's laws. Many of the reforms were 
aimed specifically at correcting previously-existing 
inconsistencies between Morocco's labor laws and the basic ILO 
standards. Morocco received support from the ILO in crafting 
these reforms.
     Among numerous other reforms, Morocco made anti-
union and other forms of discrimination illegal; provided 
strong penalties against such conduct; created a legal 
obligation to engage in collective bargaining; prohibited 
interference in union activities; eliminated a rule requiring 
mandatory arbitration that had limited the ability to strike; 
disciplined the use of temporary contracts, which had 
previously been used to evade worker rights; and prohibited 
retaliation by employers against workers engaged in legitimate 
strikes.
     Morocco's labor ministry and judicial system have 
played a fairly active and generally constructive role in 
resolving labor disputes in Morocco.
     Morocco has worked with the ILO on various issues 
(particularly child labor) for several years now, and has 
expressed a willingness to work with the ILO on implementation 
and enforcement of its new labor laws.
     Morocco's independent union movement has come out 
in support of the FTA.
    In the past, Morocco has been criticized for using criminal 
sanctions (under Article 288 of its Penal Code) against 
legitimate strikers. We note that Morocco is still working on 
reforms to the right to strike. The Government of Morocco has 
committed to reforming Article 288 and to using the same 
``social dialogue'' model on the negotiations over new rules on 
the right to strike,meaning any changes will receive the 
endorsement of the labor unions in Morocco. In response to our 
inquiries, the Government of Morocco also committed in a letter dated 
July 14, 2004 as follows:

          The government of Morocco is committed to protecting 
        the right to strike in conformance with the 
        International Labor Organization's core principles. In 
        particular, the government will not use Article 288 of 
        our penal code against lawful strikers.

    The Government of Morocco, to its credit, has shown an up 
front openness and honesty about the situation in its country 
and a willingness to work with us to address our concerns. The 
letter provided by Morocco (which was made a part of the record 
of the Committee's mark-up proceedings and is attached to these 
Additional Views) committed to implement provisions of its law 
consistent with the ILO core labor standards and to seek the 
ILO's assistance in this regard:

          On the ILO involvement, Morocco has always worked 
        with the ILO. For instance, the ILO assisted Morocco to 
        write the Labor Code of 2003 and the new law on child 
        labor. Morocco, as in the past, will continue to ask 
        the support of ILO and work with this organization in 
        all labor issues such as new laws and will ask its help 
        in providing assistance for the implementation of the 
        current rules.

    In light of the major reforms of July 2003--which addressed 
flaws in Morocco's labor laws relative to the ILO standards, 
which were negotiated with the full participation and ultimate 
endorsement of Morocco's independent labor movement, and which 
were based in many cases on the advice of the ILO; in light of 
the history and situation in Morocco; in light of Morocco's 
commitment to implement its laws consistent with ILO core labor 
standards; we believe that the situation with respect to labor 
rights in Morocco appears strong enough to implement and assure 
the internationally-recognized labor standards, leading to fair 
competition and the steady development of a substantial middle 
class for the benefit of Morocco and as a market for U.S. goods 
and services.

                        II. ACCESS TO MEDICINES

    While we support this Agreement, we were concerned about 
sections of this Agreement (as well as other recently-
negotiated U.S. free trade agreements (FTAs)) that affect the 
availability of affordable drugs in developing countries. In 
particular, we were concerned about the impact of restrictions 
on parallel imports and about test data requirements for 
pharmaceuticals included in the Morocco FTA. At stake are the 
health needs of Morocco's citizens, and we were determined to 
explore and clarify whether some of the provisions could 
undermine, both explicitly and in spirit, commitments made by 
the United States in the World Trade Organization in both the 
November 2001 Declaration on the TRIPS Agreement and Public 
Health (the Doha Declaration) and the September 2003 
Implementation of Paragraph 6 of the Doha Declaration on the 
TRIPS Agreement and Public Health (the Paragraph 6 Decision). 
The Doha Declaration re-affirmed that the TRIPS Agreement does 
not prevent WTO Members from taking measures to protect public 
health, including measures aimed at promoting the availability 
of medicines, and identified specific provisions within the 
TRIPS Agreement that provideflexibility for that purpose. Among 
the flexibilities identified were the right of countries to issue 
compulsory licenses to increase access to medicines (and to decide for 
themselves the grounds on which such licenses could be issued), and the 
right of countries to decide whether to allow parallel importation of 
medicines. Section 2102(b)(4)(C) of the Trade Act of 2002 (Trade 
Promotion Authority or TPA) directs the Administration to ``respect 
[the Doha Declaration],'' necessarily including subsequent agreements 
related to that Declaration.
    We raised concerns in this area with USTR at both the 
Committee's mock mark-up and official mark-up, as well as in a 
July 15, 2004 letter to Ambassador Zoellick (the July 15 letter 
is attached to these Additional Views). USTR's verbal 
responses, and the July 19 written response to the July 15 
letter from four Members (the July 19 USTR letter is attached 
to these Additional Views), as well as clarifications from the 
Embassy of the Kingdom of Morocco (the letter from Morocco 
dated July 19 is attached to these Additional Views), provide 
helpful clarification on some of the issues raised. For 
example, in its July 19 response, USTR makes clear that Article 
15.9.6 (the ``Bolar exception'') does not preclude Morocco from 
exporting generic versions of patented drugs to least developed 
countries and certain other countries under the Paragraph 6 
Decision. USTR also makes clear in its July 19 response that 
the United States ``has no intention'' of bringing a dispute 
settlement case against countries that act in accordance with 
the Paragraph 6 Decision.
    That said, and as discussed in greater detail below, USTR 
needs to make explicit in future trade agreements with 
developing countries like Morocco that intellectual property 
protections for pharmaceutical products (including protections 
in the investment chapter of such FTAs) can be waived, so long 
as a country acts to effectuate its right to protect public 
health. USTR's July 19 letter and answers at both mark-ups seem 
to suggest that the Morocco Agreement's side letters on public 
health create such an exception. That clarification is helpful 
in considering whether to support the Morocco FTA; however, the 
exception needs to be explicit from the outset and in the basic 
content of future trade agreements with developing countries.

Remaining Concerns

            (1) Restrictions on Parallel Imports
    Article 15.9.4 of the U.S.-Morocco FTA requires both 
countries to recognize the exclusive right of a patent holder 
to import a patented product, at least where the patent holder 
has restricted the right to import by contractual means. In 
practical terms, this provision means that neither Morocco, nor 
for that matter, the United States, may allow parallel imports 
of patented pharmaceutical products from the other country, or 
where a national of the other country owns the patent. (We note 
that parallel imports are not imports of counterfeit products. 
These are products marketed by the patent owner or with the 
patent owner's permission in one country and imported into 
another country without the approval of the patent owner.)
    With respect to Morocco, the provision appears to limit one 
of the flexibilities identified in the Doha Declaration, which 
left it up to each country to determine for itself what policy 
on parallel imports to adopt. Accordingly, one could argue that 
this provision in an FTA with adeveloping country contradicts 
the direction in section 2102(b)(4)(c) of TPA to respect the Doha 
Declaration.
    We note that Morocco's domestic law already prohibited 
parallel imports prior to negotiation of the FTA (as does U.S. 
law). That fact, however, is not dispositive of whether it is 
appropriate to include an absolute restriction on parallel 
importation in an FTA with a developing country. Given that the 
Doha Declaration recognized parallel imports as potential way 
for a developing country to address a public health problem, 
USTR should have allowed Morocco to preserve its flexibility on 
this point.
    The Ambassador of Morocco, in the July 19 letter to 
Committee Members, indicates that the Government of Morocco 
believes that it retains sufficient flexibility to address 
public health issues, even absent recourse to parallel imports. 
In particular, the Ambassador notes that Morocco has a well 
developed pharmaceutical industry, and that domestic demand for 
medicines could be satisfied through compulsory licensing. With 
this explanation from the Embassy, we believe that the impact 
of the parallel import restriction, in the case of Morocco, is 
likely to be minimal. Moreover, we assume that the exception 
created by the side letters for ``necessary measures to protect 
public health'' apply to this restriction as well. (More on 
this point below.)
    That said, we remain concerned about inclusion of such 
provisions in future trade agreements. In this regard, it is 
important that in its July 19 letter, USTR indicates that it 
would not seek such provisions with developing countries that 
do not already prohibit parallel imports.
            (2) Test Data Provisions
    Articles 15.10.1, 15.10.2. and 15.10.03 of the FTA require 
the United States and Morocco to protect certain test data 
submitted to obtain regulatory marketing approval of a drug. 
The provisions operate as follows: if a government requires 
submission of test data in order to obtain marketing approval 
for a drug (e.g., FDA approval), the government may not allow 
any other company to use these test data as the basis of 
obtaining marketing approval for a similar drug for a period of 
5 years. The company first submitting the data has the right to 
prevent anyone else from using those data to enter the market 
for that period. Test data rights are separate and distinct 
from patent rights, and can exist for drugs not covered by a 
patent.
    The key issue raised by the test data requirements in the 
Agreement is whether they can be waived if Morocco wants to 
approve a producer other than the test data owner to produce 
and sell a drug in Morocco during the test data protection 
period. An example may be helpful to illustrate the issue.

          Assume Morocco decides that it needs to increase the 
        supply of HIV/AIDS Drug X in its market. Drug Company A 
        owns the patent on Drug X, and also is the only 
        producer to have obtained marketing approval for Drug X 
        in the Moroccan market. If Morocco is unable to 
        convince Drug Company A to produce more of Drug X at a 
        reasonable price, Morocco could issue a compulsory 
        license to another drug manufacturer, Drug Company B. 
        However, the compulsory license, which is allowed under 
        the FTA, is an exceptiononly for the patent rights 
related to Drug X. The compulsory license does not affect Drug Company 
A's right to prevent any other company from receiving marketing 
approval for Drug X based on the data it submitted.

          (The above analysis applies if Drug X is not covered 
        by a patent. The only difference is that Morocco would 
        not need to issue a compulsory license.)

    The Intellectual Property Chapter of the Agreement (Chapter 
15) does not include any specific exceptions that would allow 
Morocco to waive the test data requirements to address a public 
health need. As such, our concern was that the test data 
requirements could effectively undermine Morocco's ability to 
use compulsory licenses. (Morocco could license the drug for 
production, but not for sale.) As such, we believed that 
language in the FTA violated at least the spirit of the Doha 
Declaration, because the key flexibility identified in that 
Declaration was the ability of developing countries to use 
compulsory licensing to ``protect public health'' and ``promote 
access to medicines for all.''
    In its July 19 letter, USTR responded to our concerns in a 
way that provides some comfort. Specifically, in its July 19 
letter, USTR stated that ``if circumstances ever arise in which 
a drug is produced under a compulsory license, and it is 
necessary to approve that drug to protect public health or 
effectively utilize the TRIPS/health solution, the data 
protection provisions in the FTA would not stand in the way.'' 
USTR stated that it based this conclusion on side letters to 
the FTA. USTR does not explicitly say that the side letters 
should be read as a blanket exception to the obligations in the 
Intellectual Property Chapter. That said, their response--``the 
FTA would not stand in the way''--suggests that it is such an 
exception. (USTR provides a similar answer where the drug in 
question is not covered by a patent.) USTR confirmed the view 
that the side letters create an exception in an answer to a 
question at the official Committee mark-up. This means that 
Morocco can waive test data requirements in certain 
circumstances, based on the side letters.
    The portion of the side letters on which USTR relies for 
this interpretation state, in relevant part, that ``[t]he 
obligations of [the Intellectual Property Chapter] do not 
affect the ability of either Party to take necessary measures 
to protect public health by promoting access to medicines for 
all * * * .'' We appreciate USTR's clarification as to how this 
language in the side letters should be interpreted. That said, 
we continue to believe that the side letters are not 
sufficiently clear as to whether they provide an exception. To 
the contrary, absent USTR's July 19 clarification and USTR's 
answer at the mark-up, the language could have been 
misinterpreted as a description of the chapter, rather than an 
exception to the chapter.
    To eliminate any ambiguity in the future, USTR must make 
the exception explicit in the text itself of future agreements.
            (3) Test Data Provisions and Investment
    We also remain concerned that other provisions in the 
Agreement appear to make it more complicated and costly for 
Morocco to waive the test data requirements. In particular, 
theInvestment Chapter of the FTA (Chapter 10) treats intellectual 
property, including potentially test data, as an ``investment.'' This 
means that if Morocco were found to have ``expropriated'' the 
intellectual property of a U.S. company, including potentially by 
waiving test data protections, the U.S. company might be entitled to 
compensation for the ``expropriation.'' This would significantly 
increase the cost to Morocco of taking such actions.
    In its July 19 response, USTR states that the Investment 
Chapter has a broad exception for measures related to 
intellectual property rights that are consistent with the 
intellectual property provisions of the Agreement. USTR goes on 
to state that ``a determination concerning the consistency of 
an action with [the intellectual property provisions] would be 
informed by the side letter.'' This suggests that waiver of the 
test data requirements to meet a public health need would fall 
within that exception.
    We believe that the exception in the Investment Chapter 
should be more explicit for three reasons. First, the 
Government of Morocco likely faces more ``exposure'' to 
potential causes of action under the Investment Chapter than 
under the Intellectual Property Chapter. Unlike the 
Intellectual Property Chapter, the Investment Chapter gives 
private companies the ability to sue the Government of Morocco 
directly for compensation (i.e., investor-state arbitration). 
Private cases tend to be more easily brought than cases by a 
government. Second, investor-state arbitration decisions cannot 
be appealed (despite direction in TPA for an appellate 
mechanism). Therefore, if an arbitration panel decided that the 
side letters do not create a clear exception for measures to 
protect the public health, and the panel required Morocco to 
provide compensation for waiver of test data requirements 
related a drug, nothing could be done to appeal that decision. 
Third, this threat of liability for compensation could have a 
chilling impact on Morocco taking action to promote access to 
medicines.
    USTR's clarification that the side letter exception should 
apply to defend a claim of expropriation of test data 
consistent with the side letter exception, however, does 
provide sufficient clarity in the context of this Agreement. 
That said, the clarification should be explicit in future 
agreements.

                       III. WESTERN SAHARA ISSUE

    In 1975, Morocco annexed Western Sahara, which it now 
claims as its own territory. This claim is not considered 
legitimate by the United Nations or the United States, although 
the United States recognizes Morocco's administrative control 
over Western Sahara. The United States is supportive of a 2003 
United Nations plan to allow a referendum in Western Sahara, 
which would allow its inhabitants (the Saharawis) to vote on 
whether to become part of the sovereign Kingdom of Morocco or 
become an independent, sovereign state. The Saharawis have 
agreed to the United Nations proposal but the Moroccan 
government has not; as such progress on resolving the status of 
this disputed territory has halted. Although the U.S.-Moroccan 
Free Trade Agreement does not apply to trade and investment in 
Western Sahara, we encourage the President to use opportunities 
created by the Agreement to expeditiously pursue a settlement 
of the issue of sovereignty in Western Sahara. In no way should 
this agreement be used to advance Morocco's legal claim to 
Western Sahara or deepen its economic engagement in this 
disputed territory.
                                   Sander Levin.
                                   Xavier Becerra.
                                   Max Sandlin.
                                   Stephanie Tubbs Jones.
                                   John Lewis.
                                   Charles B. Rangel.
                                   Robert T. Matsui.
                                   Jim McDermott.
                                   Richard Neal.
                                   Earl Pomeroy.

                         Embassy of the Kingdom of Morocco,
                                     Washington, DC, July 14, 2004.
Hon. Sandy Levin,
Rayburn House Office Building,
Washington, DC.
    Dear Congressman Levin: I have deeply appreciated the 
continuing opportunity to work with you on the U.S. Morocco 
Free Trade Agreement. In particular, I welcome your interest in 
our nation's labor law, specifically the comprehensive reforms, 
passed last year.
    I want to address through this letter some of the issues 
that have been highlighted in conversations with you and your 
staff. Under Moroccan law, it is illegal to fire an individual 
because they are a member of a labor organization or have 
engaged in labor organizing. To fire someone on these grounds 
would be arbitrary under the 2003 law and would make available 
the full remedies provided under that law.
    Under Moroccan law, it is illegal to refuse to hire an 
individual because they are a member of a labor organization or 
have engaged in labor organizing It is also illegal to refuse 
to rehire or extend the contract of an individual for these 
reasons.
    Section 473 is a provision is the 2003 Labor Law and the 
provision's intent is to ensure that labor representatives do 
not undermine the traditional labor organizations. The 
government intends to implement this provision to achieve that 
goal consistent with the core provisions of the ILO.
    The right to strike is protected in the Moroccan 
constitution. Further clarification of these rights is 
underway. The government of Morocco is committed to protecting 
the right to strike in conformance with the International Labor 
Organization's core principles. In particular, the government 
of Morocco will not use Article 288 of our penal code against 
lawful strikers.
    Concerning the questions regarding Labor Representatives, 
employers have the obligation to organize the elections for the 
labor representatives. Employers cannot vote in these elections 
and are not able to choose labor representatives. Only 
employees can vote and elect freely the labor representatives.
    Employees can join freely the Union of their own choice. 
Unions designate their representatives within the companies.
    On the ILO involvement, Morocco has always worked with ILO. 
For instance, ILO assisted Morocco to write the Labor Code of 
2003 and the new law on child labor. Morocco, as in the past, 
will continue to ask the support of ILO and work with this 
organization in all labor issues such as new laws and will ask 
its help in providing assistance for the implementation of the 
current rules.
    I look forward to continuing to work with you on these 
issues and any others of potential concern. Nevertheless, I 
wanted to get back to you in a timely manner on the key issues 
addressed in this letter.
            Sincerely,
                                              Aziz Mekouar,
                                                        Ambassador.
                                ------                                

                     Congress of the United States,
                                  House of Representatives,
                                     Washington, DC, July 15, 2004.
Hon. Robert B. Zoellick,
U.S. Trade Representative,
Washington, DC.
    Dear Ambassador Zoellick: We are writing to express our 
ongoing concern about sections of recently negotiated U.S. free 
trade agreements (FTAs) that could affect the availability of 
affordable drugs in developing countries. In particular, we are 
concerned about the impact of restrictions on parallel imports 
and about marketing exclusivity requirements for 
pharmaceuticals included in the Morocco FTA. Our concern 
relates to two points.
    First, it appears that some of the provisions contradict, 
both explicitly and in spirit, commitments made by the United 
States in the World Trade Organization in both the November 
2001 Declaration on the TRIPS Agreement and Public Health (the 
Doha Declaration) and the September 2003 Implementation of 
Paragraph 6 of the Doha Declaration on the TRIPS Agreement and 
Public Health (the Paragraph 6 Decision). Section 2101(b)(4)(C) 
of the Trade Act of 2002 (Trade Promotion Authority or TPA) 
directs the Administration to respect the Doha Declaration, 
necessarily including subsequent agreements related to that 
Declaration.
    Second, we are concerned that the FTA's restrictions on 
obtaining regulatory approval for drugs, including drugs that 
are already off-patent, are likely to increase prices in the 
Moroccan market. These restrictions, described below, could 
undermine the availability of generic versions of drugs to 
treat serious health problems, including HIV/ADS, that are 
widespread in many, if not most, developing countries. 
Moreover, any increase in the price of drugs in a developing 
country like Morocco will be borne by consumers because most 
developing countries have large rural, uninsured, and poor 
populations who pay out-of-pocket for drugs.
    In discussions with your staff and in recent testimony 
before the Committee on Ways and Means, we understand that your 
office is of the view that the FTA does not interfere with a 
country's efforts to ensure broader access to medicines. We 
request that you explain that view to us in writing, and in 
particular, by responding to the questions outlined below. We 
have focused on Chapter 15 of the U.S.-Morocco FTA, because it 
may be considered by Congress in the coming weeks.

                  RESTRICTIONS ON PARALLEL IMPORTATION

    Article 15.9.4 of the U.S.-Morocco FTA requires both 
countries to recognize the exclusive right of a patent holder 
to import a patented product, at least where the patent holder 
has restricted the right to import by contractual means. In 
practical terms, this provision means that neither Morocco, nor 
for that matter, the United States, may allow parallel imports 
of patented pharmaceutical products from the other country, or 
where a national of the other country owns the patent.\1\
---------------------------------------------------------------------------
    \1\ Parallel imports are not imports of counterfeit products. These 
are products marketed by the patent owner or with the patent owner's 
permission in one country and imported into another country without the 
approval of the patent owner.
---------------------------------------------------------------------------
    With respect to Morocco, which is a developing country, 
this provision appears to limit one of the flexibilities 
identified in the Doha Declaration for increasing access to 
medicines, and accordingly, it appears to contradict the 
direction in section 2102(b)(4)(c) of TPA. Specifically, the 
Doha Declaration reaffirmed that the TRIPS Agreement provides 
flexibility for WTO Members to take measures to protect public 
health, including ``promot[ing] access to medicines for all.'' 
One of the key flexibilities identified in the Doha Declaration 
is the right of each country to determine for itself whether to 
allow parallel imports.
     Does Article 15.9.4 of the Morocco FTA prevent 
Morocco from allowing parallel imports of a patented 
pharmaceutical product?
     Given that the Doha Declaration explicitly 
confirms the right of each country to retain flexibility in 
allowing parallel imports of drugs as one way of meeting the 
public health needs of its citizens, please explain why the 
provision was included given that TPA directs the 
Administration to respect the Doha Declaration?
     Which country sought inclusion of this provision?
     If Morocco or the United States eliminated the 
exclusive right of a patent holder to import a patented 
product, would either be in violation of Article 15.9.4?

               MARKET EXCLUSIVITY AND RELATED PROVISIONS

    Article 15.10.1 of the U.S.-Morocco FTA requires that both 
countries prevent the use of data submitted to support an 
application for marketing approval (e.g., approval from the 
Food and Drug Administration (FDA)) for a new pharmaceutical 
chemical product without the consentof the person submitting 
such data, for a period of five years from the date of approval.\2\ 
layman's terms, this means that if a company submits data to meet FDA-
type safety and efficacy standards, and obtains marketing approval 
based on that data, other companies cannot obtain regulatory approval 
based on those data for five years. Given the cost of generating such 
data, this provision operates effectively as a grant of market 
exclusivity in virtually all cases, including in cases where the drug 
is off patent. Article 15.10.2 appears to allow an additional three 
years of marketing exclusivity for new uses of an already-approved 
pharmaceutical product. Article 15.10.3 requires both countries to 
extend patents where there is a delay in the marketing approval 
process.
---------------------------------------------------------------------------
    \2\ The FTA requires similar protection for agricultural chemical 
products (fertilizers).
---------------------------------------------------------------------------
    The provisions described above appear to be based on 1984 
amendments to U.S. law known as the Hatch-Waxman Act. The 
objectives of the Hatch-Waxman Act were to accelerate and 
increase the availability of generic drugs in the United States 
while balancing the need for continued investment in new drugs. 
As you are aware, the Hatch-Waxman Act was necessary because 
prior to 1984, U.S. law made it extremely difficult and 
expensive to bring a generic version of a pharmaceutical 
product to market, even after a patent expired. This was 
because prior to the 1984 changes, a company seeking marketing 
approval for a copy of an already approved drug had to generate 
its own data to support its FDA application. The cost of 
generating those data effectively precluded second entrants 
from entering the market. (First entrants were able to offset 
the cost for generation of the data because they enjoyed patent 
protection.) The Hatch-Waxman Act allowed second entrants to 
rely on data submitted by first entrants, thereby reducing 
costs and speeding introduction of generic versions of drugs to 
the U.S. market. In exchange for allowing second entrants to 
``piggy-back'' off first entrants, first entrants were given a 
period of market exclusivity, even for drugs that are off-
patent.
     The Hatch-Waxman Act's provisions on market 
exclusivity were part of a compromise necessary to ensure that 
the U.S. regulatory structure was updated to facilitate the 
entry of generic drugs into the U.S. market. Most developing 
countries already have robust generic markets, in large part 
because they already allow producers of generic versions of 
drugs to obtain regulatory approval based on data submitted by 
first applicants or based on prior approval. In light of that 
fact, and given that innovative drug companies largely develop 
drugs for developed country markets and conduct the necessary 
tests to get marketing approval in those markets regardless of 
whether they are given market exclusivity in low-income 
developing countries, what is the rationale for including these 
provisions?
     Please describe the circumstances under which the 
three additional years of marketing exclusivity described in 
Article 15.10.2 would apply.
     Neither Article 15.10.1 or 15.10.2 on marketing 
exclusivity appear to allow for reliance on previously 
submitted data or prior approval during the period of market 
exclusivity absent consent of the first applicant. The Doha 
Declaration reaffirmed the right of countries to use 
flexibilities under the TRIPS Agreement, such as compulsory 
licenses. A compulsory license allows someone other than the 
patent holder to produce and sell a drug under patent. It is 
not clear to us why the grant of a compulsory license would 
override a grant of market exclusivity, as provided in Articles 
15.10.1 and 15.10.02. (We note that there is no exception to 
protect the public.) Please describe how the market exclusivity 
provisions in Article 15.10.1 and Article 15.10.2 relate to 
Morocco's ability to issue a compulsory license.
     Where a compulsory license has been issued, may a 
Party automatically deem that the first applicant has consented 
to reliance on the data or prior approval for the drug produced 
under the compulsory license?
     If the patent and test-data were owned by 
different entities, does a compulsory license result in legal 
``consent'' by both the patent holder and the data owner for 
use of the patented material and the test data?
     When the drug is off patent, and a Party wishes to 
permit marketing for a second entrant, what mechanism exists in 
the FTA to allow for an exception to the provisions on market 
exclusivity?
     Is a grant of market exclusivity pursuant to 
Articles 15.10.1 and 15.10.2 considered an ``investment'' with 
respect to Chapter 10 of the agreement? If so, would an 
abridgement of the period of market exclusivity constitute a 
compensable expropriation under Chapter 10?
     Article 10. 6.5 of the FTA appears to clam that 
any act of patent infringement carried out by a Party in the 
issuance of a compulsory license in accordance with the TRIPS 
does not constitute a compensable expropriation. Issuance of a 
compulsory license, however, is only one aspect of the process 
of getting a drug to market. Does the clarification in Article 
10.6.5 also ensure that other measures taken by a government to 
ensure that a drug on which a compulsory license has been 
issued can be lawfully marketed (e.g., a grant of marketing 
approval to ageneric or second producer before the period of 
marketing exclusivity has expired) will not constitute compensable 
expropriations? If not, is there another provision in the agreement 
that would ensure that such measures do not constitute expropriations?
     Article 15.10.3 requires that a patent term be 
extended where there is a delay in the regulatory approval 
process. The provision does not state whether delays 
attributable to the applicant (e.g., failure to provide 
adequate data) mitigate against extension. Article 15.9.8, the 
comparable provision for extension of a patent term because of 
a delay in the patent approval process, makes clear that delays 
attributable to the patent applicant should not be considered 
in determining whether there is a delay that gives rise to the 
need for an extension. Why was similar language not included in 
Article 15.10.3?
     Is Morocco, or for that matter the United States, 
required by the FTA to extend a patent term where there is a 
delay in the regulatory approval that is attributable to the 
applicant?

              BOLAR-TYPE PROVISIONS THAT LIMIT EXPORT \3\
---------------------------------------------------------------------------

    \3\ The ability of a generic manufacturer to use a patented 
pharmaceutical product to obtain marketing approval is known in U.S. 
law as the Bolar provision, after the court case that gave rise to the 
need for the amendment.
---------------------------------------------------------------------------
    Article 15.9.6 of the U.S.-Morocco FTA appears to allow a 
person other than a patent holder to make use of a patent in 
order to generate data in support of an application for 
marketing approval of a pharmaceutical product (e.g., approval 
from the FDA). However, Article 15.9.6 also states that if 
exportation of the product using the patent is allowed, 
exportation must be limited to ``purposes of meeting marketing 
approval requirements.'' This provision appears to preclude 
Morocco from exporting generic versions of patented 
pharmaceutical products for any reason other than use in 
obtaining marketing approval because that is the only exception 
noted.
    If that is the case, the provision would seem to curtail 
Morocco's ability to act as an exporter of pharmaceutical 
products to least-developed and other countries under the 
Paragraph 6 Decision. Specifically, the Paragraph 6 Decision 
allows countries to export drugs produced under a compulsory 
license to least-developed countries or to countries that lack 
pharmaceutical manufacturing capabilities. Were the provisions 
to constrain Morocco's ability to export under the Paragraph 6 
Decision, the United States could be accused of backtracking on 
commitments that have been made.
     Please explain whether this Article prohibits 
Morocco from allowing the export of generic versions of 
patented pharmaceutical products for purposes other than 
``meeting market approval requirements.'' If it does not, 
please explain in detail how you came to that conclusion.
     If this provision does in fact limit Morocco's 
ability to allow the export of generic versions of patented 
pharmaceutical products, please explain how Morocco could serve 
as an exporting country to help least-developed and other 
countries address public health needs under the Paragraph 6 
Decision. (Exporters under the Paragraph 6 Decision are 
exporting to meet the health needs of an importing country, not 
merely to obtain marketing approval.)
     Does Article 15.9.6 allow export of a generic 
version of a patented drug to get marketing approval in a third 
country (i.e., other than the United States or Morocco)? 
(Article 15.9.6 states that ``the Party shall provide that the 
product shall only be exported outside its territory for 
purposes of meeting marketing approval requirements of that 
Party.'')

                      SIDE LETTER TO THE AGREEMENT

    The Morocco FTA includes an exchange of letters dated June 
15, 2004, between the Governments of Morocco and the United 
States. The letters appear intended to clarify the relationship 
between the intellectual property provisions of the FTA and the 
ability of Morocco and the United States to take measures to 
protect the public health.
    The letters address two issues. First, the letters state 
that the intellectual property provisions in the FTA ``do not 
prevent the effective utilization'' of the Paragraph 6 
Decision. Second, the letters state that if the TRIPS Agreement 
is amended on issues related to promotion of access to 
medicines, and that either the United States or Morocco takes 
action in conformity with such amendments, both countries will 
``immediately consult in order to adapt [the intellectual 
property provisions of the FTA] as appropriate in light of the 
amendment.''
     On the Paragraph 6 Decision, please explain how 
the statement that the FTA does not ``prevent the effective 
utilization'' is not merely rhetorical. Please be specific as 
to why you believe the provisions in the FTA do not preclude 
Morocco from acting as an importer or exporter of drugs under 
the Paragraph 6 Decision, including how the FTA's provisions 
related to market exclusivity can be waived if Morocco acts in 
either capacity.
     On the issue of consultation, do the letters mean 
that both Parties agree to amend the FTA as soon as possible to 
reflect access to medicines amendments to the TRIPS Agreement? 
Will the United States refrain from enforcing provisions of the 
FTA that contravene the TRIPS Agreement amendments while the 
FTA is being amended? Is USTR willing to engage in an exchange 
of letters with the Government of Morocco memorializing such an 
understanding?
    We appreciate your prompt response to these questions.
            Sincerely,
                                   Charles B. Rangel,
                                           Ranking Democrat, Committee 
                                               on Ways and Means.
                                   Jim McDermott,
                                           Member, Committee on Ways 
                                               and Means.
                                   Sander Levin
                                           Ranking Democrat, 
                                               Subcommittee on Trade, 
                                               Committee on Ways and 
                                               Means.
                                   Henry A. Waxman,
                                           Ranking Democrat, Committee 
                                               on Government Reform.
                                ------                                

                 Executive Office of the President,
          Office of the United States Trade Representative,
                                     Washington, DC, July 19, 2004.
Hon. Sander M. Levin,
House of Representatives,
Washington, DC.
    Dear Congressman Levin: Thank you for your letter of July 
15, 2004, regarding certain provisions of the intellectual 
property chapter of the U.S.-Morocco Free Trade Agreement 
(FTA).
    I have addressed each of your specific questions below. As 
a general matter, for the reasons also set forth below, the FTA 
does not conflict with the Doha Declaration on the TRIPS 
Agreement and Public Health or otherwise adversely, affect 
access to medicines in Morocco. The FTA does not require 
Morocco to change its policies with respect to any of the 
flexibilities noted in the Doha Declaration. Furthermore, we 
believe that this FTA can advance Morocco's ability to address 
public health problems, both by putting in place incentives to 
develop and bring new medicines to market quickly and by 
raising standards of living more broadly.
    The experience of Jordan under the U.S.-Jordan FTA is 
illuminating. The United States and Jordan signed the FTA in 
2000, during the prior Administration, and we worked with 
Congress to enact that agreement in 2001. The U.S.-Jordan FTA 
contains a strong intellectual property chapter that covers, 
for example, data protection, one of the issues highlighted in 
your letter. Jordan has witnessed a substantial increase in 
pharmaceutical investment, creating new jobs and opportunities. 
In addition, Jordan has approved 32 new innovative medicines 
since 2000--a substantial increase in the rate of approval of 
innovative drugs, helping facilitate Jordanian consumers' 
access to medicines. The Jordanian drug industry has even begun 
to develop its own innovative medicines. This is an example of 
how strong intellectual property protection can bring 
substantial benefits to developing and developed countries 
together.
    Your specific questions with respect to the U.S.-Morocco 
FTA are addressed below.

                          PARALLEL IMPORTATION

    1. Does Article 15.9.4 of the Morocco FTA prevent Morocco 
from allowing parallel imports of a patented pharmaceutical 
product?
    Article 15.9.4 of the FTA reflects current Moroccan law and 
therefore does not require Morocco to do anything it does not 
already do. The FTA also reflects existing U.S. law. Both 
Morocco and the United States already provide patent owners 
with an exclusive right to import patented products, including 
pharmaceuticals but also all other types of patented products. 
Many innovative industries and their employees in the United 
States--from the high tech and pharmaceuticals sectors to 
sectors covering chemicals and agricultural inputs, and on to 
engineering and manufacturing--benefit from this long-standing 
protection in U.S. patent law.
    2. Given that the Doha Declaration explicitly confirms the 
right of each country to retain flexibility in allowing 
parallel imports of drugs as one way of meeting the public 
health needs of its citizens, please explain why the provision 
was included given that TPA directs the Administration to 
respect the Doha Declaration?
    Providing patent owners with an exclusive import right is 
consistent with Article 28.1 of the TRIPS Agreement, which 
states that patent owners have the exclusive right to make, 
use, sell, offer for sale, and import products covered by their 
patents. U.S. law, developed through a long line of Supreme 
Court and lower court cases, has recognized this right for over 
a hundred years. The TRIPS Agreement more precisely articulated 
the exclusive import right, and, when implementing TRIPS in the 
Uruguay Round Agreements Act, Congress amended the patent law 
by providing for such a right expressly in the statute.
    At the same time, however, the TRIPS Agreement also allows 
countries to choose to permit ``international exhaustion'' 
without challenge under WTO dispute settlement. International 
exhaustion would allow parallel imports. The Doha Declaration 
affirms this approach, and states that ``[t]he effect of the 
provisions in the TRIPS Agreement that are relevant to the 
exhaustion of intellectual property rights is to leave each 
member free to establish its own regime for such exhaustion 
without challenge, subject to the MFN and national treatment 
provisions of Articles 3 and 4.''
    Importantly, neither the TRIPS Agreement nor the Doha 
Declaration require WTO members to adopt an international 
exhaustion rule; they merely recognize that countries may do so 
without challenge. WTO members are free to exercise their 
sovereign right to choose an alternative policy. As noted, the 
United States does not permit parallel imports. Morocco also 
decided in 2000, well before the FTA negotiations, not to 
permit parallel imports. The fact that the FTA reflects 
principles already present in both Parties' laws does not in 
any way lessen our commitment to the Doha Declaration. In fact, 
in previous FTA negotiations with developing countries that do 
not have parallel import restrictions in their domestic law 
(e.g., Central America, Chile, and Bahrain), the final 
negotiated texts do not contain provisions on parallel 
importation.
    3. Which country sought inclusion of this provision?
    This provision is a standard component of the U.S. draft 
text, which USTR staff has presented to Congress for review and 
comment on numerous occasions. Morocco readily accepted the 
proposal, without objection, and noted during the negotiations 
that Moroccan patent law, like U.S. law, already provided 
patentees with an exclusive importation right.
    4. If Morocco or the United States eliminated the exclusive 
right of a patent holder to import a patented product, would 
either be in violation of Article 15.9.4?
    It would depend on the details of the particular 
legislation. A change in U.S. law would, however, affect many 
other innovative sectors that rely on patents besides the 
pharmaceuticalsector. Many U.S. technology, manufacturing, and 
other innovative businesses--as well as Members of Congress--urge us 
regularly to vigorously safeguard U.S. patents and the jobs they help 
create.

                           MARKET EXCLUSIVITY

    5. The Hatch-Taxman Act's provisions on market exclusivity 
were part of a compromise necessary to ensure that the U.S. 
regulatory structure was updated to facilitate the entry of 
generic drugs into the U.S. market. Most developing countries 
already have robust generic markets, in large part because they 
already allow producers of generic versions of drugs to obtain 
regulatory approval based on data submitted by first applicants 
or based on prior approval. In light of that fact, and given 
that innovative drug companies largely develop drugs for 
developed country markets and conduct the necessary tests to 
get marketing approval in those markets regardless of whether 
they are given market exclusivity in low-income developing 
countries, what is the rationale for including these 
provisions?
    In negotiating the U.S.-Morocco FTA and other recent FTAs, 
USTR has been mindful of the guidance provioed in the Trade Act 
or 2002, which directs USTR to seek to ``ensur[e] that the 
provisions of any multilateral or bilateral trade agreement 
governing intellectual property rights that is entered into by 
the United States reflect[s] a standard of protection similar 
to that found in United States law.'' We understand the 
rationale of this guidance is to help protect and create high-
paying jobs in leading American businesses. As a developed 
economy, it is understandable that U.S. workers will be 
increasingly employed in higher value (and better paid) 
innovative and productive jobs. On the basis of Congress' 
direction, the United States sought to include provisions that 
reflect U.S. law, including with respect to the protection of 
data.
    The protection of clinical test data has long been a 
component of trade agreements negotiated by U.S. 
Administrations with both developed and developing countries. 
Data protection provisions were included, for example, in many 
past trade agreements, including the U.S.-Jordan FTA and the 
U.S.-Vietnam Bilateral Trade Agreement--both negotiated by the 
prior Administration after the passage of the law to which you 
refer. Such provisions were included in NAFTA, too. They are in 
all recent FTAs, including the U.S.-Singapore FTA and the U.S.-
Chile FTA. Data protection provisions have also been included 
in many bilateral intellectual property agreements.
    The TRIPS Agreement itself requires protection of clinical 
test data against unfair commercial use. While the United 
States protects data to obtain approval for new chemical 
entities for five years, other countries provide different 
terms. The EU, for example, protects such data for 6-10 years.
    Implicit in the question, however, appears to be an 
assumption that data protection is disadvantageous for 
developing countries like Morocco. Yet, protection of data 
actually has the potential of facilitating and accelerating 
access to medicines. As recognized in Chapter 15 of the FTA 
(footnotes 12 and 13), Morocco does not currently approve 
generic versions of medicines based on approvals granted in 
other countries. As a result, today a generic producer wishing 
to sell pharmaceuticals in Morocco may obtain approval only if 
an innovative producer first obtains approval in Morocco or if 
the generic producer invests the significant money and time 
necessary to recreate the data itself. After an innovative 
producer obtains approval in Morocco, a generic producer may 
rely on such data to obtain approval for its generic product.
    Therefore, under existing Moroccan law, generic 
manufacturers in Morocco cannot obtain marketing approval for a 
generic drug until an innovator has first obtained approval for 
the drug in Morocco. Without data protection, innovative 
producers will be less likely to enter the Moroccan market in 
the first place because, once they obtain approval, generic 
producers may capture most of the market. The data exclusivity 
provisions of the FTA can thus provide an important incentive 
for innovators to enter the market, which may in turn expand 
the potential universe of generic drugs in Morocco. As noted 
above, this is the development we are seeing in Jordan, to the 
benefit of Jordan consumers.
    6. Please describe the circumstances under which the three 
additional years of marketing exclusivity described in Article 
15.10.2 would apply.
    The question seems to imply that the basic five year term 
of protection for data submitted to obtain approval of new 
chemical entities may be extended to eight years. This is not 
correct. There is no circumstance in which the FTA requires 
that an innovator receive a data protection period longer than 
five years for new chemical entities.
    The three year period of protection reflects a provision in 
U.S. law, which relates to new information that is submitted 
after a product is already on the market (for example, because 
the innovator is seeking approval for a new use of an existing 
product). In that situation, at least in cases where the 
origination of this new data involves considerable effort, the 
FTA requires that the person providing the new data gets three 
years of protection for that new data relating to that new use. 
This three year period only applies to the new data for the new 
use; it is not added to the exclusivity period for any data 
previously submitted.
    For example, if a new chemical entity is given marketing 
approval, the data supporting that approval is protected for 
five years. After that time, generic producers may rely on the 
data to obtain approval for a generic version of the drug for 
the use supported by the original data. If a new use is 
subsequently discovered for the chemical entity, and the health 
authority approves the new use based on new data, then the 
originator of the new data is entitled to three years of 
protection for that data. During that time, however, generics 
can continue to produce and market the drug for the original 
use.
    7. Neither Article 15.10.1 or 15.10.2 on marketing 
exclusivity appear to allow for reliance on previously 
submitted data or prior approval during the period of market 
exclusivity absent consent of the first applicant. The Doha 
Declaration reaffirmed the right of countries to use 
flexibilities under the TRIPS agreement, such as compulsory 
licenses. A compulsory license allows someone other than the 
patent holder to produce and sell a drug under patent. It is 
not clear to us why the grant of a compulsory license would 
override a grant of market exclusivity, as provided in Articles 
15.10.1 and 15.10.2. (We note that there is no exception to 
protect the public.) Please describe how the market exclusivity 
provisions in Article 15.10.1 and Article 15.10.2 relate to 
Morocco's ability to issue a compulsory license.
    The Doha Declaration recognizes that the TRIPS Agreement 
allows countries to issue compulsory licenses to address public 
health problems. The U.S.-Morocco FTA is fully consistent with 
this principle. It contains no provisions with respect to 
compulsory licensing, leaving the flexibilities available under 
WTO rules unchanged.
    In the negotiation of the U.S.-Morocco FTA, both parties 
recognized the importance of protecting public health. Your 
questions pertain to whether provisions of Chapter 15 (which is 
the Intellectual Property Rights chapter) might affect this 
common interest. To address this type of concern, the United 
States and Morocco agreed to a side letter on public health in 
which both Parties stated their understanding that ``[t]he 
obligations of Chapter Fifteen of the Agreement do not affect 
the ability of either Party to take necessary measures to 
protect public health by promoting access to medicines for all, 
in particular concerning cases such as HIV/AIDS, tuberculosis, 
malaria, and other epidemics as well as circumstances of 
extreme urgency or national emergency.'' The Parties also 
stated that ``Chapter Fifteen does not prevent the effective 
utilization of the TRIPS/health solution'' reached in the WTO 
last year to ensure that developing countries that lack 
pharmaceutical manufacturing capacity may import drugs. 
Therefore, if circumstances ever arise in which a drug is 
produced under a compulsory license, and it is necessary to 
approve that drug to protect public health or effectively 
utilize the TRIPS/health solution, the data protection 
provisions in the FTA would not stand in the way.
    8. Where a compulsory license has been issued, may a Party 
automatically deem that the first applicant has consented to 
reliance on the data or prior approval for the drug produced 
under the compulsory license?
    As explained above, if the measure described in the 
question is necessary to protect public health, then, as 
explained in the side letter, the FTA would not stand in the 
way.
    9. If the patent and test-data were owned by different 
entities, does a compulsory license result in legal ``consent'' 
by both the patent holder and the data owner for use of the 
patented material and the test data?
    See previous response.
    10. When the drug is off patent, and a Party wishes to 
permit marketing for a second entrant, what mechanism exists in 
the FTA to allow for an exception to the provisions on market 
exclusivity?
    A patent is designed to protect one type of intellectual 
property work, i.e., an invention. Protection of data is 
intended to protect a different type of work, i.e., undisclosed 
test data that required significant time and effort to compile. 
The fact that one type of intellectual property protection for 
a product has expired, should not lead as a matter of course to 
the conclusion that all other intellectual property rights 
attached to the same product should also expire. The same is 
true in other areas of intellectual property. For example, a 
single CD may encompass several intellectual property rights 
related to the music, the performer and the record company. 
These rights may expire at different times. The fact that the 
copyright attached to the sound recording has expired, should 
not mean that the composer or performer loses the copyright it 
has. As you know, this principle is important to a broad range 
of U.S. creative and innovative industries, including the 
entertainment sector, America's second largest export business.
    However, as indicated in the side letter, if a circumstance 
arose, such as an epidemic or national emergency, that could 
only be addressed by granting a second entrant marketing 
approval notwithstanding the data protection rights of the 
originator of the data, the FTA would not stand in the way.
    11. Is a grant of market exclusivity pursuant to Articles 
15.10.1 and 15.10.2 considered an ``investment'' with respect 
to Chapter 10 of the Agreement? If so, would an abridgement of 
the period of market exclusivity constitute a compensable 
expropriation under Chapter 10?
    The definition of an ``investment'' in the FTA includes, 
inter alia, ``intellectual property rights.'' Whether an 
abridgement of the data protection obligation gives rise to a 
compensable expropriation of an ``investment'' under Chapter 
Ten is a fact-specific issue that would have to be resolved on 
the merits of a particular case. It is worth noting, however, 
that Article 10.6.5 provides that the expropriation provision 
of Chapter Ten does not apply to the issuance of compulsory 
licenses or to the limitation of intellectual property rights 
to the extent that such action is consistent with the 
intellectual property chapter (Chapter Fifteen). A 
determination concerning the consistency of an action with 
Chapter Fifteen would be informed by the side letter.
    12. Article 10.6.5 of the FTA appears to clarify that any 
act of patent infringement carried out by a Party in the 
issuance of a compulsory license in accordance with the TRIPS 
does not constitute a compensable expropriation. Issuance of a 
compulsory license, however, is only one aspect of the process 
of getting a drug to market. Does the clarification in Article 
10.6.5 also ensure that other measures taken by a government to 
ensure that a drug on which a compulsory license has been 
issued can be lawfully marketed (e.g., a grant of marketing 
approval to a generic or second producer before the period of 
marketing exclusivity has expired) will not constitute 
compensable expropriations? If not, is there another provision 
in the agreement that would ensure that such measures doe not 
constitute expropriations?
    See response to Question 11.
    13. Article 15.10.3 requires that a patent term be extended 
where there is a delay in the regulatory approval process. The 
provision does not state whether delays attributable to the 
applicant (e.g., failure to provide adequate data) mitigate 
against extension. Article 15.9., the comparable provision for 
extension of a patent term because of a delay in the patent 
approval process, makes clear that delays attributable to the 
patent applicant should not be considered in determining 
whether there is a delay that gives rise to the need for an 
extension. Why was similar language not included in Article 
15.10.3?
    The Parties did not find it necessary to specifically 
address the issue of how to handle delays attributable to an 
applicant for marketing approval in the context of data 
protection. As with numerous other provisions, the Parties 
retain the flexibility to address such details in their 
implementation of the FTA, provided that they comply with the 
basic obligation.
    14. Is Morocco, or for that matter the United States, 
required by the FTA to extend a patent term where there is a 
delay in the regulatory approval that is attributable to the 
applicant?
    The FTA preserves flexibility for the Parties to address 
the issue of delays attributable to an applicant for marketing 
approval through their domestic laws and regulations.

                            BOLAR PROVISIONS

    15. Please explain whether this Article prohibits Morocco 
from allowing the export of generic versions of patented 
pharmaceutical products for purposes other than ``meeting 
marketing approval requirements.'' If it does not, please 
explain in detail how you came to that conclusion.
    No, it does not. The Article dealing with the ``Bolar'' 
exception to patent rights only deals with one specific 
exception. It does not occupy the field of possible exceptions, 
and thus does not prevent Morocco from allowing the export of 
generic versions of patented pharmaceutical products for 
purposes other than ``meeting marketing approval requirements'' 
when permitted by other exceptions. For example, Morocco has 
the right to allow exports where consistent with TRIPS Article 
30 and WTO rules on compulsory licensing. Morocco may, for 
example, allow export of generic versions of patented drugs by 
issuing a compulsory license in accordance with the TRIPS/
health solution agreed last August in the WTO.
    16. If this provision does in fact limit Morocco's ability 
to allow the export of generic versions of patented 
pharmaceutical products, please explain how Morocco could serve 
as an exporting country to help least-developed and other 
countries address public health needs under the Paragraph 6 
Decision. (Exporters under the Paragraph 6 Decision are 
exporting to meet the health needs of an importing country, not 
merely to obtain marketing approval).
    As noted in the response to Question 15, the FTA does not 
limit Morocco's ability to make use of the TRIPS/health 
solution agreed last August to export drugs under a compulsory 
license to developing countries that cannot produce drugs for 
themselves.
    17. Does Article 15.9.6 allow export of a generic version 
of a patented drug to get marketing approval in a third country 
(i.e., other than the United States or Morocco)? (Article 
15.9.6 states that ``the Party shall provide that the product 
shall only be exported outside its territory for purposes of 
meeting marketing approval requirements of that Party.'')
    Morocco can get marketing approval in a third country to 
allow export of a generic version through the issuance of a 
compulsory license for export, consistent with WTO rules. 
Article 15.9.6 does not interfere with that result.

                              SIDE LETTER

    18. On the Paragraph 6 Decision, please explain how the 
statement that the FTA does not ``prevent the effective 
utilization'' is not merely rhetorical. Please be specific as 
to why you believe the provisions in the FTA do not preclude 
Morocco from acting as an importer or exporter of drugs under 
the Paragraph 6 Decision, including how the FTA 's provisions 
related to market exclusivity can be waived if Morocco acts in 
either capacity.
    There are no provisions in the FTA related to compulsory 
licensing, which means that it does not limit in any way 
Morocco's ability to issue compulsory licenses in accordance 
with WTO rules, including TRIPS Article 31 and the TRIPS/health 
solution. With respect to other rules included in Chapter 15, 
including data protection, the side letter states that the FTA 
does not ``prevent the effective utilization of the TRIPS/
health solution.'' As stated in the side letter, the letter 
constitutes a formal agreement between the Parties. It is, 
thus, a significant part of the interpretive context for this 
agreement and not merely rhetorical. According to Article 31 of 
the Vienna Convention on the Law of Treaties, which reflects 
customary rules of treaty interpretation in international law, 
the terms of a treaty must be interpreted ``in their context,'' 
and that ``context'' includes ``any agreement relating to the 
treaty which was made between all the parties in connection 
with the conclusion of the treaty.''
    19. On the issue of consultation, do the letters mean that 
both Parties agree to amend the FTA as soon as possible to 
reflect access to medicines amendments to the TRIPS Agreement? 
Will the United States refrain from enforcing provisions of the 
FTA that contravene the TRIPS Agreement amendments while the 
FTA is being amended? Is USTR willing to engage in an exchange 
of letter with the Government of Morocco memorializing such an 
understanding?
    The United States would, of course, work with Morocco to 
ensure that the FTA is adapted as appropriate if an amendment 
to the TRIPS Agreement were adopted to ensure access to 
medicines. The only amendment currently being contemplated with 
respect to TRIPS involves translating the TRIPS/health solution 
from last August into a formal amendment. The United States has 
no intention of using dispute settlement to challenge any 
country's actions that are in accordance with that solution. In 
fact, Canada passed legislation recently that would allow it to 
export drugs in accordance with the TRIPS/health solution. The 
United States reached an agreement with Canada just last 
Friday, July 16, to suspend parts of NAFTA to ensure that 
Canada could implement the solution without running afoul of 
NAFTA rules.
    In closing, let me emphasize that we appreciate the 
importance of the U.S. commitment to the Doha Declaration on 
the TRIPS Agreement and Public Health and the global effort to 
ensure access to medicines in developing countries to address 
acute public health problems, such as AIDS, malaria and 
tuberculosis. The United States played a leading role in 
developing these provisions, including enabling poor countries 
without domestic production capacity to import drugs under 
compulsory licenses. We also successfully called for giving 
Least Developed Countries an additional ten years, from 2006 
until 2016, to implement TRIPS rules related to 
pharmaceuticals. These accomplishments offer a significant 
solution to the conflicts we encountered on taking office in 
2001.
    At the same time, as Congress has directed us, the 
Administration has worked on multiple fronts to strengthen the 
value internationally of America's innovation economy. These 
efforts have included stronger intellectual property protection 
rules and enforcement so as to assist U.S. businesses and 
workers, and encourage ongoing innovation that benefits U.S. 
consumers.
    Our FTAs are but one component of the Administration's 
broader efforts to achieve these objectives, and complement 
efforts undertaken in other fora. Our FTAs not only do not 
conflict with the objectives expressed in the Doha Declaration 
but reinforce those objectives and facilitate efforts to 
address public health problems.
            Sincerely,
                                          John K. Veroneau,
                                                   General Counsel.
                                ------                                

                         Embassy of the Kingdom of Morocco,
                                     Washington, DC, July 19, 2004.
Hon. Sandy Levin,
Rayburn House Office Building,
House of Representatives.
    Dear Representative Levin: I deeply appreciate the 
opportunity to work with you on the U.S. Morocco Free Trade 
Agreement. In particular, I appreciate the opportunity to talk 
to you about the pharmaceutical provisions in the Free Trade 
Agreement, and about how the Government of Morocco is meeting 
the health needs of its citizens.
    The Government of Morocco has a well-developed health 
system, including a comprehensive public health program. For 
example, free medical care, including medicines, is available 
through our hospitals. Morocco's health care policy includes a 
strong emphasis on generic drugs.
    Morocco has not needed to engage in emergency measures such 
as compulsory licensing or parallel imports. In fact, there is 
a well-developed domestic pharmaceutical industry in Morocco, 
producing also generics, and in 2000, well in advance of the 
Free Trade Agreement and completely independent of it, Morocco 
decided to bar parallel imports.
    In addition, as a separate, but quite important matter, the 
Government of Morocco is strongly committed to and has agreed 
to the highest-standard intellectual property rights provisions 
in the Free Trade Agreement. The Government of Morocco believes 
that effective intellectual property right protection will play 
a vital role in the continued economic development of our 
country.
    The pharmaceutical provisions in the Free Trade Agreement 
were carefully considered in Morocco. They were discussed in 
detail with all parties. All sectors of our health system were 
involved, including the pharmaceutical industry. The 
discussions also included the members of the civil society in 
Morocco.
    The Government of Morocco achieved in this agreement full 
flexibility to meet our nation's health concerns. In 
particular, the Government of Morocco believes the agreement 
fully preserves its right to issue a compulsory license in the 
event that this should prove necessary.
    The Agreement does bar ``parallel imports'' in 1.5.9.4. 
However, as described above, the Government of Morocco already 
bans ``parallel imports.'' In addition, the Government of 
Morocco believes that in the event that it faced a situation 
where extraordinary action was required, it could meet the 
needs of its people through a compulsory license.
    The Government of Morocco considered carefully the data 
exclusivity provisions in the agreement. We do not believe that 
they present any risk to our ability to meet the health needs 
of our citizens.
    Under the Agreement, a compulsory license does not override 
obligations to provide data exclusivity under 15.10.1 and 2. 
The Government of Morocco believes it is unlikely that a 
situation would ever arise where data exclusivity would be a 
barrier to the issuance of a compulsory license. If such an 
event did occur, the Government of Morocco believes that an 
accommodation could be reached with the owner of the data.
    The Government of Morocco supports the Paragraph 6 solution 
of the Doha Declaration. The Free Trade Agreement does not 
restrict our ability to export under the Paragraph 6 solution 
of the Doha Declaration. To the specific, 15.9.6 does not 
create a barrier to exports under the Paragraph 6 solution of 
the Doha Declaration.
    The June 15, 2004 side letter between our two countries 
addresses the ability to amend the Free Trade Agreement, 
responsive to amendments to the WTO Agreement on Trade-Related 
Aspects of Intellectual Property Rights. Under the Agreement, 
the Government of Morocco believes it can consult immediately 
to amend the Agreement responsive to any WTO amendments. Under 
the Agreement, it is not required to wait for there to be an 
application in dispute of the Agreement.
    I look forward to keep working with you.
            Sincerely,
                                              Aziz Mekouar,
                                                        Ambassador.

                                  
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