[House Report 109-318]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    109-318

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



 
     UNITED STATES-BAHRAIN FREE TRADE AGREEMENT IMPLEMENTATION ACT

                                _______
                                

December 6, 2005.--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. 4340]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4340) to implement the United States-Bahrain 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.................................     8
 II. Section-by-Section Summary.......................................9
          A. Title I: Approval and General Provisions............     9
          B. Title II: Customs Provisions........................    11
          C. Title III: Relief from Imports......................    14
          D. Title IV: Government Procurement....................    16
III. Vote of the Committee...........................................17
 IV. Budget Effects of the Bill......................................17
          A. Committee Estimate of Budgetary Effects.............    17
          B. Budget Authority and Tax Expenditures...............    17
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    17
  V. Other Matters to be Discussed Under the Rules of the House......19
          A. Committee Oversight Findings and Recommendations....    19
          B. Statement of General Performance Goals and 
              Objectives.........................................    19
          C. Constitutional Authority Statement..................    19
          D. Information Relating to Unfunded Mandates...........    20
 VI. Changes in Existing Law Made by the Bill, as Reported...........20
VII. Executive Correspondence........................................23
VIII.Views...........................................................31


                            I. INTRODUCTION


                         A. Purpose and Summary

    H.R. 4340 would implement the September 14, 2004 Agreement 
establishing a free trade area between the United States and 
Bahrain.

                             B. Background


I. The United States-Bahrain Free Trade Agreement

    The Committee believes that the Agreement meets the 
objectives and priorities set forth in the Bipartisan Trade 
Promotion Authority Act of 2002 (TPA). The Agreement covers all 
agricultural and industrial sectors, provides for the greatest 
market access for U.S. services of any Free Trade Agreement 
(FTA), contains robust protections for U.S. intellectual 
property rights holders, and includes strong labor and 
environment provisions. In addition to the new commercial 
opportunities it provides, the Agreement will support many of 
the recent governance, legal, and economic reforms in Bahrain.
    Trade Impact.--All bilateral trade in consumer and 
industrial products will become duty-free immediately upon 
entry into force of the Agreement. Because most of the United 
States' tariffs are already low, the Office of the U.S. Trade 
Representative (USTR) estimates that the Agreement will have 
little impact on overall U.S. imports.
    Agriculture.--All agricultural products are covered by the 
Agreement, which will provide immediate duty-free access for 
U.S. agricultural exports in 98% of the agricultural tariff 
lines. Bahrain will phase out remaining tariffs, primarily on 
alcohol and tobacco products, within ten years. Bahrain has not 
traditionally been a large agricultural exporter to the U.S. 
market, and USTR reports that the United States imported no 
agricultural products from Bahrain in 2004. The United States 
exported $22 million in agricultural products to Bahrain in 
2004, including cotton, poultry meat, processed fruits and 
vegetables, and snack foods. Accordingly, the Agreement does 
not contain an agricultural safeguard.
    Textiles and Apparel.--The Agreement contains a yarn-
forward rule of origin for textiles. Like other FTAs (including 
Morocco, NAFTA, Singapore, and Chile), the Agreements contains 
limited, temporary allowances for the use of yarn and fabric 
from a non-party under a Tariff Preference Level (TPL). It is 
set at a level of 65 million square meters equivalent (SMEs) 
for the first ten years and is equal to 0.1% of total U.S. 
imports of textile and apparel. United States exporters are 
provided with the same TPL access to Bahrain's market. After 
this TPL expires, all trade under the United States-Bahrain FTA 
must adhere to the yarn-forward rule of origin. While the 
International Trade Commission estimates that the Agreement 
will result in an increase in Bahrain's textile exports to the 
United States, it also estimates that this will not have a 
significant impact on overall U.S. imports of textiles because 
increased levels of imports from Bahrain will be offset by 
reduced levels of imports from other nations.
    In addition, the Agreement contains a special textile 
safeguard which allows either party to re-impose Most Favored 
Nation (MFN) tariffs if imports from the other party cause or 
threaten to cause serious damage to the domestic industry. 
Furthermore, the FTA has special, state-of-the-art customs 
enforcement and cooperation provisions for textiles, allowing 
the customs authorities of the parties to verify production and 
ultimately to deny duty preferences or entry if production 
cannot be authenticated.
    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, with a limited 
exception for in the Dominican Republic-Central America FTA 
(DR-CAFTA). In other words, once an item is designated as being 
in short supply, the item is permanently designated as such 
unless otherwise provided for by the statute implementing the 
FTA or trade preference program. Indeed, the fact that Congress 
specifically designated procedures for removal of products from 
the list in DR-CAFTA signifies that the authority to do so does 
not exist in implementing legislation or trade preference 
programs where that authority is not explicitly provided.
    Furthermore, the Committee expects that all short supply 
parties will be able to participate in an open and transparent 
process. Specifically, the Committee for the Implementation of 
Textile Agreements (CITA) should publish procedures that 
clearly explain the criteria it uses to make its determinations 
on whether and why a good is or is not available in commercial 
quantities. At the very least, when CITA determines that a good 
is available in commercial quantities, a sample of the good 
should be readily available for physical inspection by all 
parties as well as by evidence of some effort to market the 
good in the United States. Moreover, all parties should have 
open access to the full evidence being considered by CITA as 
well as the opportunity to respond to the full evidence before 
a determination is made.
    Services.--Under the Agreement, Bahrain will accord broad 
market access across its services industries and, according to 
USTR, is making commitments that are among the highest ever 
included in a U.S. FTA. The Agreement will provide increased 
market access and regulatory transparency in most industries. 
The Agreement utilizes the negative list approach for coverage 
with very few reservations, which means that all services are 
covered except those few specifically excluded. USTR reports 
that all of the major areas where U.S. services firms expressed 
interest will be liberalized under the Agreement. The few 
exceptions taken by Bahrain include areas such as the ownership 
of local newspapers and periodicals, cargo handling at 
government-owned ports, certain government infrastructure 
services (including water and electricity distribution), 
certain requirements on real estate services, and Islamic 
pilgrimage services. The Agreement offers new access in key 
sectors such as audiovisual, express delivery, 
telecommunications, computer and related services, 
distribution, healthcare, services incidental to mining, 
construction, architecture, and engineering. Benefits are 
provided for businesses that wish to supply services cross-
border (for example, by electronic means over the Internet) as 
well as those that wish to establish a local presence in 
Bahrain. The International Trade Commission (ITC) report on the 
Agreement states that the Agreement will provide substantial 
market access to U.S. services firms, and their affiliates in 
Bahrain will likely benefit from the improved transparency and 
market access.
    Investment.--The Agreement does not contain an investment 
chapter because the United States and Bahrain have elected to 
use the existing Bilateral Investment Treaty (BIT), the first 
with a Gulf Cooperation Council (GCC) country, entered into in 
2001. The BIT includes an investor-state dispute settlement 
provision, which allows investors alleging a breach in 
investment obligations to seek binding arbitration with the 
country directly, giving U.S. foreign investors enhanced 
protections.
    Labor and Environment.--Labor and environmental obligations 
are part of the core text of the trade agreement, consistent 
with Trade Promotion Authority (TPA) requirements, and are 
similar to provisions in all prior FTAs covered by TPA. Like 
those FTAs, the Agreement states that both parties shall strive 
to ensure that their domestic labor laws provide for labor 
standards consistent with internationally recognized labor 
principles, and that environmental laws provide for high levels 
of environmental protection. The Agreement also provides that 
parties shall strive to continue to improve such laws. The 
Agreement states that it is inappropriate to weaken or reduce 
domestic labor or environmental protections to encourage trade 
or investment. The core commitment--that a party shall not fail 
to effectively enforce its labor or environmental laws, through 
a sustained or recurring course of action or inaction, in a 
manner affecting trade between the parties--is subject to 
dispute settlement under the Agreement. Bahrain and the United 
States will pursue a number of cooperative projects to promote 
environmental protection, and the Agreement contains a 
cooperative mechanism to promote respect for the principles 
embodied in the ILO Declaration on Fundamental Principles and 
Rights at Work and compliance with ILO Convention 182 on the 
Worst Forms of Child Labor. The labor provisions of the 
Agreement are similar to those in the DR-CAFTA and other recent 
FTAs.
    Bahrain has been a leader in the Persian Gulf region in 
labor and governance reforms. Bahrain enacted significant labor 
law reforms both in 1993 and in 2002, when a new Trade Union 
Law was promulgated allowing independent labor for the first 
time since the early 1970s. Both domestic and foreign workers 
are allowed to form trade unions under the new law. Bahrain's 
2002 Constitution recognizes the right of association, and 
there are now approximately forty private sector labor unions 
representing over 10,000 workers operating in Bahrain. The 
General-Secretary of the International Confederation of Free 
Trade Unions (ICFTU) praised Bahrain, stating that the ICFTU 
``will be encouraging other Gulf states to follow the example 
of Bahrain in working towards a truly independent labor 
movement in the region.'' Bahrain's Ministry of Labor has also 
increased the number of inspectors, upgraded training for 
inspectors and worker education, and established a more 
responsive system for complaints, including the establishment 
of a 24-hour hotline that workers can call for advice.
    During the Committee's September 29, 2005 hearing on the 
U.S.-Bahrain FTA, Members asked Bahrain to go on record 
committing to continue its reform efforts and further 
strengthening its labor laws. In two letters, on October 10th 
and November 10th, from Bahrain's Finance Minister to USTR 
Portman, Bahrain committed to seek to amend its laws and take 
other actions to:
           Accede to two additional International Labor 
        Organization (ILO) core labor conventions, 
        incorporating them into Bahrain's law under its 
        constitution;
           Provide the option of reinstatement to 
        workers dismissed due to union activities;
           Require employers that delay payment of 
        wages to pay statutory damages and ensure that workers 
        are paid wages due in a timely fashion;
           Abolish the requirement to have only a 
        single union per enterprise;
           Ensure that Bahrain's technical requirements 
        for strikes do not exceed ILO standards;
           Repeal the requirement that all unions join 
        a single federation; and
           Ensure that penalties for anti-union 
        discrimination meet ILO standards.
    The Committee applauds these commitments by Bahrain to 
strive to improve its labor standards in accordance with 
internationally recognized labor rights. The Committee believes 
that these commitments relate to the FTA Parties' obligation to 
``strive to improve'' their labor standards under Article 15.1 
of the Agreement, an obligation contained in all FTAs 
negotiated under Trade Promotion Authority (TPA). The Committee 
notes that Ambassador Portman's Letter of November 16, 2005 
underscores his understanding that the commitments set forth in 
the letter of Bahrain's Finance Minister of November 10, 2005 
constitute ``a matter arising under [the Chapter on Labor]'' 
pursuant to the labor consultation mechanism established in the 
Agreement. These labor consultation provisions, established in 
Article 15.6 of the Bahrain FTA, are also similar to those 
contained in all FTAs negotiated under TPA. The Committee notes 
with approval Ambassador Portman's commitment, also included in 
his letter of December 16, to update Congress periodically on 
the progress that Bahrain has achieved in realizing the 
commitments to its labor law reform.
    Dispute Settlement.--The Agreement sets out detailed 
procedures for the resolution of disputes over compliance, with 
high standards of openness and transparency, using the same 
basic procedures and obligations as prior free trade 
agreements. Dispute settlement procedures promote compliance 
through consultation and trade-enhancing remedies, rather than 
relying solely on trade sanctions. The Agreement's dispute 
settlement procedures also provide for ``equivalent'' remedies 
for commercial and labor or environmental disputes. In addition 
to the use of trade sanctions in commercial disputes, the 
Agreement provides the parties the option of using monetary 
assessments to enforce commercial, labor, and environmental 
obligations of the Agreement, with the possibility that 
assessments from labor or environmental cases may be used to 
fund labor or environmental initiatives. If a party does not 
pay its annual assessment in a labor or environmental dispute, 
the complaining party may suspend tariff benefits, while 
bearing in mind the objective of eliminating barriers to trade 
and while seeking not to unduly affect parties or interests not 
party to the dispute.
    Intellectual Property Rights.--Because the WTO agreement on 
intellectual property contains only rudimentary intellectual 
property protection requirements, bilateral free trade 
agreements are an important means of raising international 
practices to the higher U.S. standards. The U.S.-Bahrain FTA 
requires virtually no change to the already highly developed 
U.S. law and practice. U.S. authors, performers, inventors, and 
other producers of creative material will benefit from the 
higher and extended standards that the FTA requires of Bahrain 
for protecting intellectual property rights such as copyrights, 
patents, trademarks, and trade secrets and enhanced means for 
enforcing those rights. National treatment must be granted by 
each partner country to nationals of the other, and all laws, 
regulations, procedures, and final judicial decisions must be 
in writing and published or made publicly available. The 
Agreement lengthens terms for copyright protection, covering 
electronic and digital media, and increases enforcement to go 
beyond the WTO obligations. Each party is obliged to provide 
appropriate civil and criminal remedies for willful violators, 
and parties must provide legal incentives for service providers 
to cooperate with rights holders and limitations on liability.
    Government Procurement.--Bahrain is not a party to the WTO 
Agreement on Government Procurement, but the U.S.-Bahrain FTA 
provides comparable benefits to U.S. interests, putting them at 
an advantage over other U.S. trading partners. Specifically, 
the Agreement grants non-discriminatory rights to bid on most 
contracts offered by Bahrain's ministries, agencies, and 
departments. It calls for transparent and fair procurement 
procedures including clear advanced notice of purchases and 
effective review. The parties are obliged to make bribery a 
criminal offense in matters affecting international trade and 
investment.
    9/11 Commission Report Recommendations.--The 9/11 
Commission report specifically noted the importance of the FTA 
signed with Bahrain, stating that the FTA and the Morocco FTA 
are ``models [that] are drawing the interest of their 
neighbors.'' Citing the Administration's strategy for creating 
a Middle East Free Trade Area, the 9/11 Commission specifically 
recommended that a ``comprehensive U.S. strategy to counter 
terrorism should include economic policies that encourage 
development, more open societies, and opportunities for people 
to improve the lives of their families and to enhance prospects 
for their children's future.''
    U.S.-Bahrain Cooperation in the War on Terrorism and 
International Security.--The Committee notes that Bahrain has 
long been a committed ally of the United States, hosting a U.S. 
naval presence going back to World War II. Bahrain currently 
hosts the U.S. Fifth Fleet, which is the headquarters for U.S. 
naval operations in the Persian Gulf, with a constant presence 
of approximately 1,200 naval personnel over more than a 60 acre 
area. The United States and Bahrain signed an agreement in 1991 
granting U.S. access to Bahrain's facilities and ensuring the 
right to pre-position materials to respond to any crises in the 
region. In October 2001, Bahrain was designed a Major Non-NATO 
Ally (MNNA) of the United States.
    Political and Economic Reforms.--Bahrain has been a 
regional leader in promoting economic and governance reforms, 
with Bahrain's King al-Khalifa pushing reforms following his 
installation in 1999. Bahrain passed the centerpiece of its 
political reforms, the National Action Charter, in February 
2001. Parliamentary elections were held in October 2002, and 
the first Parliamentary session since 1975 was held in Bahrain 
in December 2002. Bahrain has also liberalized its financial 
markets, with no restrictions on capital flows, and has become 
a major financial center for the region. Financial institutions 
operate in Bahrain without major impediments, and the financial 
sector is currently the second largest contributor to Bahrain's 
GDP. More than 100 offshore banking units operate in Bahrain, 
as well as more than sixty U.S. firms. Bahrain has also taken 
steps to liberalize its foreign ownership rules and strengthen 
its anti-money laundering laws over the past two years.
    Arab League Boycott of Israel.--Bahrain has eliminated all 
aspects of the secondary and tertiary Arab League Boycott of 
Israel. The secondary boycott bans entities in the Arab League 
States where it is applied from doing business with firms that 
contribute to Israel's military or economic development, while 
the tertiary boycott prohibits business dealings with U.S. and 
other firms that do business with blacklisted companies. In a 
September 5th, 2005 letter to U.S. Trade Representative 
Portman, Bahrain's Finance Minister reiterated that Bahrain has 
eliminated the secondary and tertiary aspects of the boycott 
and stated that ``the Kingdom of Bahrain recognizes the need to 
dismantle the primary [b]oycott of Israel'' and is ``fully 
committed to complying with WTO requirements.'' USTR has 
informed the Committee that it is satisfied that Bahrain has 
ended the primary boycott of Israel. In addition, USTR has also 
committed, as part of its annual National Trade Estimates 
Report, to monitor and report on Bahrain's actions in this 
area.

II. TPA Procedures

    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 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 Congress a description 
of those changes to existing laws that the President considers 
would be required to bring the United States into compliance 
with the agreement. After entering into the agreement, the 
President must also submit to Congress the formal legal text of 
the agreement, draft implementing legislation, a statement of 
administrative action proposed to implement the agreement, and 
other related supporting information as required under section 
2105(a) of 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.

III. Status of implementation by Bahrain

    On July 6th, 2005, both the upper and lower houses of 
Bahrain's Parliament overwhelmingly approved the U.S.-Bahrain 
FTA.

                         C. Legislative History

    On August 4, 2003, the President first notified Congress of 
his intent to negotiate an FTA with Bahrain. FTA negotiations 
between the United States and Bahrain began in January 2004 and 
concluded in May 2004. During and after the negotiations, the 
President continued his consultations with Congress pursuant to 
the letter and spirit of the TPA requirements. On June 15, 
2004, the President notified the Congress of his intent to 
enter into an FTA with Bahrain. Under TPA procedures, the 
President is able to sign an FTA ninety calendar days after he 
has notified Congress. On September 14, 2004, then-U.S. Trade 
Representative Robert Zoellick signed the U.S.-Bahrain FTA.
    On September 29, 2005, the Committee on Ways and Means held 
a hearing on the United States-Bahrain FTA. The Committee 
received testimony supporting the Agreement from the 
Administration and U.S. private sector entities. On November 1, 
2005, the Committee on Ways and Means considered in an informal 
markup session draft legislation to implement the Bahrain FTA. 
The Committee approved the draft implementing legislation by a 
recorded vote of 23 yeas to 0 nays with 15 Members voting 
present, without amendment.
    In accordance with TPA requirements, President Bush 
submitted to Congress on October 29, 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 November 16, 2005, President Bush formally transmitted 
to Congress the formal legal text of the United States-Bahrain 
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 November 16, 2005, Majority 
Whip and Interim Majority Leader Roy Blunt introduced, by 
request, H.R. 4340 to implement the United States-Bahrain FTA. 
The bill was referred to the Committee on Ways and Means.
    On November 18, 2005, the Committee on Ways and Means 
formally met to consider H.R. 4340. The Committee ordered H.R. 
4340 favorably reported to the House of Representatives by 
voice vote; 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 
Bahrain 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 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 if the President implements by 
proclamation authority subject to consultation and layover, the 
President 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 Ways and Means and Finance Committees concerning 
the reasons for the action, and consulted with the Committees. 
The action takes effect 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 Committee believes 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 Department of Commerce responsible for providing 
administrative assistance to any panels that may be established 
under chapter 19 of 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 Department of Commerce is 
the appropriate agency to provide administrative assistance to 
panels.

Section 106: 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 
through 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 106 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 Bahrain'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 Bahrain 
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: Rules of origin

Current law

    No provision.

Explanation of provision

    Section 202 codifies the rules of origin set out in chapter 
4 of the Agreement. Under the general rules, there are four 
basic ways for a good of Bahrain 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 Bahrain into the territory of the United States 
and: (1) It is ``wholly the growth, product, or manufacture of 
Bahrain or the United States, or both''; (2) it is a new or 
different good that has been ``grown, produced, or manufactured 
in Bahrain or the United States, or both'' and the value of the 
materials produced and the direct cost of processing operations 
performed in Bahrain or the United States, or both is not less 
than 35% of the appraised value of the good; (3) it satisfies 
certain rules of origin for textile or apparel goods specified 
in Annex 3-A of the Agreement; or (4) it satisfies certain 
product-specific rules of origin specified in Annex 4-A of the 
Agreement.
    Under the rules in chapter 3.2 and Annex 3-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 Bahrain, an apparel product must 
have been cut (or knit to shape) and sewn or otherwise 
assembled in Bahrain from yarn, or fabric made from yarn, that 
originates in Bahrain or the United States, or both. However, 
Article 3.2.9 provides a limited exception to this general rule 
allowing access for 65 million SMEs of apparel that does not 
meet the yarn forward rule of origin for each of the first ten 
years of the Agreement. Section 202 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 202 addresses valuation of 
materials and special definitions.

Reason for change

    Rules of origin are needed to confine Agreement benefits, 
such as tariff cuts, to Bahraini goods and to prevent third-
country goods from being transshipped through Bahrain and 
claiming benefits under the Agreement. Section 202 puts the 
United States in compliance with the rules of origin provisions 
of the agreement. The Committee notes that the limited 
exception to the textile and apparel yarn forward rule of 
origin is phased down over ten years and covers approximately 
0.1 percent of U.S. textile and apparel imports by volume.

Section 203: Customs user fees

Current law

    Section 58c of the title 19 of the U.S. Code lays out 
various user fees applied by customs officials to imports, 
including the Merchandise Processing Fee (MPF), which is 
applied on an ad valorem basis subject to a cap.

Explanation of provision

    Section 203 of the bill implements U.S. commitments under 
Article 2.9 of the Agreement, regarding the exemption of the 
merchandise processing fee on originating goods. This provision 
is similar to those included in the implementing legislation 
for the North America Free Trade Agreement, the U.S.-Singapore 
Free Trade Agreement, the U.S.-Chile Free Trade Agreement, the 
U.S.-Australia Free Trade Agreement, and the U.S.-Dominican 
Republic-Central America Free Trade Agreement. The provision 
also prohibits use of funds in the Customs User Fee Account to 
provide services related to entry of originating goods, in 
accordance with U.S. obligations under the General Agreement on 
Tariffs and Trade 1994.

Reason for change

    As with other Free Trade Agreements, the Agreement 
eliminates the merchandise processing fee on qualifying goods 
from Bahrain. Other customs user fees remain in place. Section 
203 is necessary to put the United States in compliance with 
the user fee elimination provisions of the Agreement. The 
Committee expects that the President, in his yearly budget 
request, will take into account the need for funds to pay 
expenses for entries under the Agreement given that MPF funds 
will not be available.

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 3.3 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 goods 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 of the 
Treasury 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) or a determination that 
the President may consider to be affirmative under paragraph 
(1) of section 330(d) of the Tariff Act of 1930 (19 U.S.C. 
1330(d)), to impose specified import relief when, as a result 
of the reduction or elimination of a duty under the Agreement, 
a Bahraini 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 
202 of the Trade Act of 1974.
    Section 311(d) exempts from investigation under this 
section Bahraini 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)(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, in the aggregate, 
exceed three years.
    Section 314 provides that no relief may be provided under 
this subtitle after ten years from the date on which the 
Agreement enters into force, unless the President determines 
under section 314(b) that Bahrain has consented to such relief.
    Section 315 authorizes the President to provide 
compensation to Bahrain consistent with article 8.3 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 increased import competition 
from Bahrain 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 8 (Safeguards) 
of the Agreement.

Subtitle B: Textile and apparel safeguard (sections 321-328)

Current law

    No provision.

Explanation of provision

    Section 321 provides that a request for safeguard relief 
under this subtitle may be filed with the President by an 
interested party. The President is to review the request and 
determine whether to commence consideration of the request. If 
the President determines to commence consideration of the 
request, he is to publish a notice commencing consideration and 
seeking comments. The notice is to include a summary of the 
request.
    Section 322(a) of the Act provides for the President to 
determine, pursuant to a request by an interested party, 
whether, as a result of the elimination of a duty provided 
under the Agreement, a Bahraini textile or apparel article is 
being imported into the United States in such increased 
quantities, in absolute terms or relative to the domestic 
market for that article, and under such conditions as to cause 
serious damage, or actual threat thereof, to a domestic 
industry producing an article that is like, or directly 
competitive with, the imported article.
    Section 322(b) identifies the relief that the President may 
provide, which is the lesser of the existing NTR/MFN rate or 
the NTR/MFN rate imposed when the Agreement entered into force.
    Section 323 of the bill provides that the period of relief 
shall be no longer than three years. The President may extend 
the relief if the initial period for relief was less than three 
years, but the aggregate period of relief, including 
extensions, may not exceed three years.
    Section 324 provides that relief may not be granted to an 
article under this safeguard if relief has previously been 
granted under this safeguard, or the article is subject to 
import relief under chapter 1 of title II of the Trade Act of 
1974.
    Under section 325, after a safeguard expires, the rate of 
duty on the article that had been subject to the safeguard 
shall be the rate that would have been in effect but for the 
safeguard action.
    Section 326 states that the authority to provide safeguard 
relief under this subtitle expires ten years after the date on 
which duties on the article are eliminated pursuant to the 
Agreement. Section 327 of the Act gives authority to the 
President to provide compensation to Bahrain if he orders 
relief. Section 328 provides for the treatment of business 
confidential 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 3.1 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).

                    TITLE IV: GOVERNMENT PROCUREMENT


Section 401: Eligible products

Current law

    U.S. procurement law (the Buy American Act of 1933 and the 
Buy American Act of 1988) discriminates against foreign 
suppliers of goods and services in favor of U.S. providers of 
goods and services. Most discriminatory purchasing provisions 
are waived if the United States is party to a bilateral or 
multilateral procurement agreement, such as the WTO Agreement 
on Government Procurement and the North American Free Trade 
Agreement.

Explanation of provision

    Section 401 implements chapter 9 of the Agreement and 
amends the definition of ``eligible product'' in section 308 of 
the Trade Agreements Act of 1979. As amended, section 308(4)(A) 
will provide that, for a party to a free trade agreement that 
entered into force for the United States after December 31, 
2005 and prior to July 2, 2006, an ``eligible product'' means 
``a product or service of that country or instrumentality which 
is covered under the free trade agreement for procurement by 
the United States.'' This amended definition coupled with the 
President's exercise of his authority under section 301(a) of 
the Trade Agreement Act will allow procurement of products and 
services of Bahrain, assuming that the FTA enters into force 
during the specified time period.

Reason for change

    This provision implements U.S. obligations with respect to 
FTAs that enter into force for the United States after December 
31, 2005 and prior to July 2, 2006.

                       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. 4340.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 4340 was ordered favorably reported by voice 
vote (with a quorum being present).

                     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. 
4340, as reported: The Committee agrees with the estimate 
prepared by the Congressional Budget Office (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. 4340 would reduce customs duty receipts due 
to lower tariffs imposed on goods from Bahrain.

      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 CBO, the following report prepared by the CBO 
is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 22, 2005.
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. 4340, a bill to 
implement the United States-Bahrain Free Trade Agreement.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Emily 
Schlect.
            Sincerely,
                                           Donald B. Marron
                               (For Douglas Holtz-Eakin, Director).
    Enclosure.

H.R. 4340--United States-Bahrain Free Trade Agreement Implementation 
        Act

    Summary: H.R. 4340 would approve the free trade agreement 
between the government of the United States and the government 
of Bahrain that was entered into on September 14, 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 $20 million in 2006, by $143 
million over the 2006-2010 period, and by $341 million over the 
2006-2015 period, net of income and payroll tax offsets. CBO 
estimates that enacting H.R. 4340 also would increase direct 
spending by $1 million in 2006, $3 million over the 2006-2010 
period, and $6 million over the 2006-2015 period.
    CBO has determined that H.R. 4340 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would not directly 
affect the budgets of State, local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4340 over the 2006-2015 period is 
shown in the following table. The cost for spending under this 
legislation falls within budget function 750 (administration of 
justice).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        By fiscal year, in millions of dollars--
                                                               -----------------------------------------------------------------------------------------
                                                                  2006     2007     2008     2009     2010     2011     2012     2013     2014     2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues............................................      -20      -28      -30      -32      -34      -35      -37      -39      -42      -45

                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority....................................        1        1        1        1        1        1        1        1        1        0
Estimated Outlays.............................................        1        1        1        1        1        1        1        1        1        0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Negative changes in revenues and positive changes in direct spending correspond to increase in budget deficits.

Basis of Estimate

            Revenues
    Under the United States-Bahrain agreement, tariffs on U.S. 
imports from Bahrain 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 the date the agreement enters into 
force, to gradual elimination over 10 years. According to the 
U.S. International Trade Commission, the United States 
collected $29 million in customs duties in 2004 on $406 million 
of imports from Bahrain. Those imports consist largely of 
various types of apparel articles, oils, aluminum, and 
chemicals. Based on these data, CBO estimates that phasing out 
tariff rates as outlined in the U.S.-Bahrain agreement would 
reduce revenues by $20 million in 2006, by $143 million over 
the 2006-2010 period, and by $341 million over the 2006-2015 
period, net of income and payroll tax offsets.
    This estimate includes the effects of increased imports 
from Bahrain 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 Bahrain 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 Bahrain would 
displace imports from other countries.
            Direct spending
    This legislation would exempt certain goods imported from 
Bahrain from merchandise processing fees collected by the 
Department of Homeland Security. Such fees are recorded as 
offsetting receipts (a credit against direct spending). Based 
on the value of goods imported from those countries in 2004, 
CBO estimates that implementing this provision would reduce fee 
collections by under $1 million in fiscal year 2006 and in each 
year through 2014, for a total of $6 million over the 2006-2014 
period. There would be no effects in later years because the 
authority to collect merchandise processing fees expires at the 
end of 2014.
    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: Emily Schlect. 
Federal Spending: Mark Grabowicz. Impact on State, Local, and 
Tribal Governments: Melissa Merrill. Impact on the Private 
Sector: Craig Cammarata.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; and Peter H. Fontaine, Deputy 
Assistant Director for Budget 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 H.R. 3045 makes de minimis authorization of funding, and 
the Administration has in place program goals and objectives, 
which have been reviewed by the Committee.

                 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 13031 OF THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 
                                  1985


SEC. 13031. FEES FOR CERTAIN CUSTOMS SERVICES.

  (a) * * *
  (b) Limitations on Fees.--(1) * * *

           *       *       *       *       *       *       *

  (13) No fee may be charged under subsection (a) (9) or (10) 
with respect to goods that qualify as originating goods under 
section 202 of the United States-Singapore Free Trade Agreement 
Implementation Act. Any service for which an exemption from 
such fee is provided by reason of this paragraph may not be 
funded with money contained in the Customs User Fee Account.

           *       *       *       *       *       *       *

  (15) No fee may be charged under subsection (a) (9) or (10) 
with respect to goods that qualify as originating goods under 
section 203 of the Dominican Republic-Central America-United 
States Free Trade Agreement Implementation Act. Any service for 
which an exemption from such fee is provided by reason of this 
paragraph may not be funded with money contained in the Customs 
User Fee Account.
  (16) No fee may be charged under subsection (a) (9) or (10) 
with respect to goods that qualify as originating goods under 
section 202 of the United States-Bahrain Free Trade Agreement 
Implementation Act. Any service for which an exemption from 
such fee is provided by reason of this paragraph may not be 
funded with money contained in the Customs User Fee Account.

           *       *       *       *       *       *       *

                              ----------                              


                  SECTION 202 OF THE TRADE ACT OF 1974

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

  (a) * * *
          (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, title III of the United 
        States-Singapore Free Trade Agreement Implementation 
        Act, title III of the United States-Australia Free 
        Trade Agreement Implementation Act, [and] title III of 
        the United States-Morocco Free Trade Agreement 
        Implementation Act, and title III of the United States-
        Bahrain 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.

           *       *       *       *       *       *       *

                              ----------                              


            SECTION 308 OF THE TRADE AGREEMENTS ACT OF 1979

SEC. 308. DEFINITIONS.

  As used in this title--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Eligible products.--
                  (A) In general.--The term ``eligible 
                product'' means, with respect to any foreign 
                country or instrumentality that is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) a party to a free trade 
                        agreement that entered into force with 
                        respect to the United States after 
                        December 31, 2003, and before January 
                        2, 2005, a product or service of that 
                        country or instrumentality which is 
                        covered under the free trade agreement 
                        for procurement by the United States; 
                        [or]
                          (iv) a party to the Dominican 
                        Republic-Central America-United States 
                        Free Trade Agreement, a product or 
                        service of that country or 
                        instrumentality which is covered under 
                        that Agreement for procurement by the 
                        United States[.]; or
                          (v) a party to a free trade agreement 
                        that entered into force with respect to 
                        the United States after December 31, 
                        2005, and before July 2, 2006, a 
                        product or service of that country or 
                        instrumentality which is covered under 
                        the free trade agreement for 
                        procurement by the United States.

           *       *       *       *       *       *       *




                              VIII. VIEWS

    The U.S.-Bahrain Free Trade Agreement (FTA) is an important 
trade agreement for the United States and Bahrain, and will 
bring useful benefits to the people of both countries. Bahrain 
has been a steadfast friend and ally to the United States over 
many years, including hosting a U.S. military presence since 
1949. In recent years, Bahrain has undertaken major--and often 
difficult--economic, social and political reforms to improve 
its society and the life of its people.
    Most recently, Bahrain took the important step of 
renouncing and terminating its participation in the Arab League 
Boycott of Israel. Renouncing this boycott, which should never 
have been imposed in the first place, is a difficult and 
important step toward expanding the circle of economic 
opportunity in the Middle East and building a stable and 
lasting peace between Israel and its neighbors.
    Overall, this trade agreement contains numerous important 
benefits for the people of both countries, including: 
substantial market access to U.S. services providers, including 
in financial services; immediate duty-free access for consumer 
and industrial products; and duty-free access for 98 percent of 
tariff lines for U.S. agriculture exports.

                AGREEMENT PROMOTES BASIC LABOR STANDARDS

    As in all other U.S. Free Trade Agreements (FTAs) 
negotiated by the Bush Administration, the text of the U.S.-
Bahrain Free Trade Agreement (FTA) requires only that the two 
countries enforce their own labor laws.
    In 2002, Bahrain completed a major revision to its own 
labor law to comply with internationally-recognized standards 
and to ensure that working people in its country share fully in 
the benefits of globalization. However, six provisions of 
Bahrain's law, as currently written, raise concerns with regard 
to basic international labor standards. These six provisions 
have been identified by the U.S. Department of State and the 
International Labor Organization (ILO).
    As a result, the U.S. Government and the Government of 
Bahrain have agreed to additional commitments on labor in order 
to advance the adoption and application of internationally-
recognized labor standards in Bahrain.
    These commitments are contained in an exchange of letters 
between Bahrain's Finance Minister, the Honorable Ahmed bin 
Mohammed Al Khalifa, and U.S. Trade Representative Rob Portman, 
as well as in additional letters and directives issued by the 
Government of Bahrain. All letters and directives are attached.
    As detailed below, the agreement between the Governments of 
the United States and Bahrain addresses the concerns about 
these six deficiencies that Congressman Rangel and others have 
raised:
           First, Finance Minister Al Khalifa has 
        written a letter to U.S. Trade Representative Portman, 
        in which the Government of Bahrain commits to submit to 
        Parliament within a week proposed amendments in four of 
        the six areas where Bahrain's laws fall short of ILO 
        standards and commits to seek expedited enactment. In 
        the letter to USTR Portman and accompanying directives 
        and letters, the Government of Bahrain also states its 
        commitment to continue implementing these four 
        provisions in a manner consistent with ILO standards 
        pending formal changes to law.
           Second, in the letter to U.S. Trade 
        Representative Portman, Finance Minister AI Khalifa 
        commits Bahrain to submit to Parliament proposed 
        amendments for the two remaining areas within a week, 
        and commits to seek expedited enactment of those two 
        remaining changes to law. It is notable that, of the 
        two remaining provisions of law, one is an area in 
        which Bahrain is prepared to change its law 
        immediately; however, Bahrain must consult with its 
        unions first to address their concerns.
           Third, the exchange of letters between U.S. 
        Trade Representative Portman and Bahrain Finance 
        Minister Al Khalifa expressly links Bahrain's 
        commitments as to its existing law as well as its 
        forthcoming changes to law to Article 15.6 of the U.S.-
        Bahrain FTA. In particular, the exchange of letters 
        conveys the understanding of the two governments that 
        Bahrain's commitments to continue to apply its laws in 
        a WTO-compliant manner and to make all necessary 
        changes to its laws to bring them formally into 
        compliance with basic ILO standards constitute 
        ``matters arising under'' the labor chapter of the FTA.
          Article 15.6 allows a Party to initiate formal 
        consultations with the other Party with regard to a 
        labor issue. If consultations fail to resolve the 
        matter, either Party may request that a ``Subcommittee 
        on Labor Affairs,'' comprised of officials of the 
        Parties' labor ministries and other appropriate 
        agencies, be convened. The Subcommittee ``shall 
        endeavor to resolve the matter expeditiously,'' and may 
        consult with governmental and non-governmental experts 
        and have recourse to procedures such as conciliation or 
        mediation. Linking Bahrain's commitments with regard to 
        its labor laws to Article 15.6 is Bahrain's commitment 
        in the text of the FTA to comply with basic ILO 
        standards.
           Fourth, the U.S. Trade Representative has 
        committed to report periodically to Congress on the 
        progress--or lack thereof--of the Government of Bahrain 
        in continuing to implement its laws in an ILO-compliant 
        manner and make necessary changes to its laws. If there 
        are problems with the continued application of laws, or 
        the modifications to laws, USTR will invoke the 
        consultative procedures under Article 15.6 to raise 
        these matters with Bahrain, call attention to the 
        matters, and seek their immediate successful 
        resolution.

                               CONCLUSION

    Trade agreements entered into by the United States must be 
judged on their own merits and in the context of the economic 
realities that exist between countries and in the trading 
partner's country. We must seek to advance the interests of 
U.S. businesses, workers and farmers, and to ensure that the 
benefits of globalization are broadly shared, including with 
full and fair participation in the workplace.
    The U.S-Bahrain Free Trade Agreement constitutes, in the 
case of Bahrain, a step forward in the adoption and enforcement 
of internationally-recognized basic standards for working 
people. We hope that further steps can be taken in future FTAs 
so there may be the necessary restoration of a true and broadly 
bipartisan approach on trade.

                       LIST OF ATTACHED DOCUMENTS

    1. Letter from Bahrain Finance Minister to Portman. This 
letter contains (1) Bahrain's specific descriptions of how it 
is currently applying its labor laws in an ILO-consistent 
manner (including four of the six provisions of law as to which 
the U.S. State Department and ILO have identified ILO-related 
concerns), and (2) Bahrain's further commitment to change 
within a short period of time all six labor laws as to which 
concerns have been raised.
    2. Bahraini Letter to International Labor Organization. 
This letter fulfills one aspect of Bahrain's commitment to 
eliminate the requirement that unions belong to only one 
national confederation by requesting the ILO's help to work 
with Bahrain's unions on this point. (Unions in Bahrain like 
the existing requirement.)
    3. Ministry Directive on Reinstatement. This directive 
fulfills Bahrain's commitment to make clear that under current 
Bahrain law, the Government of Bahrain strongly prefers--and 
has used, is using and will continue to use its good offices to 
achieve--reinstatement as the appropriate remedy for workers 
dismissed for union-related activities, even though formal 
Bahrain law does not provide this right. The directive states 
that Bahrain will seek to continue the application of its law 
in this manner until the law is formally amended.
    4. Letter to Conciliation Panels regarding Penalties. This 
letter fulfills Bahrain's commitment to advise labor 
conciliation panels of the Government's view that adequate 
penalties--as reflected in a new draft labor law--should be 
observed as necessary to adequately enforce Bahrain's labor 
laws. The letter further states that the Government of Bahrain 
recommends using these penalties until the law is formally 
changed.
    5. Ministry Directive on Strike Requirements. This 
directive fulfills Bahrain's commitment to urge continuation of 
current practice in Bahrain not to dismiss a worker even though 
the worker may have participated in a strike that does not 
technically meet the requirements of Bahrain law. This is meant 
specifically to address the formal requirement in Bahrain's law 
that a strike be authorized by a three-fourths vote of workers 
in a union. The directive further states that the government 
believes that the practice of not dismissing a worker on the 
basis of technical strike requirements should continue until 
Bahrain's laws have been formally changed.
    6. Portman Letter to Bahrain Finance Minister. Finally, 
USTR Portman has sent Bahrain's Finance Minister a letter that 
expressly links Bahrain's commitments as to its existing law as 
well as its forthcoming changes to law to Article 15.6 of the 
U.S.-Bahrain FTA. In particular, the exchange of letters 
conveys the understanding of the two governments that Bahrain's 
commitments to continue to apply its laws in a WTO-compliant 
manner and to make all necessary changes to its laws to bring 
them fully and formally into compliance with basic ILO 
standards constitute ``matters arising under'' the labor 
chapter of the FTA.


                                   Charles B. Rangel.
                                   Xavier Becerra.
                                   John B. Larson.
                                   Stephanie Tubbs Jones.
                                   Sander Levin.
                                   Ben Cardin.
                                   John Lewis.

                                  
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