Trade Promotion Authority Legislation Could Have Significant Impact on U.S. Trade Agenda

Introduction
On January 9, 2014, congressional leaders for the key committees responsible for trade legislation introduced a bill to renew expedited procedures for obtaining passage of trade agreement implementing legislation. The United States is in the midst of an exceptionally ambitious and active trade agenda that includes negotiations with regions with about $44 trillion in annual economic output. These negotiations could produce the largest, most consequential, and highest standard trade agreements in history. The “Bipartisan Congressional Trade Priorities Act of 2014,” introduced by Senate Finance Committee Chairman Max Baucus (D-MT), Senate Finance Committee Ranking Member Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Dave Camp (R-MI), will be intensely debated by those representing the myriad interests of business, labor, consumers, and environmental organizations, among many others.

Ambitious U.S. Trade Agenda
The United States and eleven other Pacific Rim countries that together account for about 40 percent of global gross domestic product and include key Asia-Pacific markets are negotiating a Trans-Pacific Partnership (TPP) agreement. Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam are seeking to conclude an agreement in 2014. According to the Office of the U.S. Trade Representative (USTR), the TPP negotiations are now “in the end game,” following nearly twenty rounds of technical negotiations and several ministerial-level meetings since 2009.

In addition, last year the United States and the 28 member states of the European Union (EU) launched negotiations for a Transatlantic Trade and Investment Partnership (TTIP). A principal goal of the TTIP negotiations is to secure greater regulatory cooperation in order to enhance trade and investment between the world’s largest and most developed economies that represent about half of the world’s economic output and nearly a third of global trade.

Separately, last year the United States, together with economies representing nearly two-thirds of total global trade in services, commenced negotiations on a Trade in Services Agreement (TISA) aimed at liberalization beyond the General Agreement on Trade in Services, the principal multilateral treaty governing trade in services.

Framework for the Formulation and Execution of U.S. International Trade and Investment Policy
Both the legislative and executive branches of the U.S. government play a role in the formulation and execution of U.S. trade policy and in concluding U.S. international trade agreements. The U.S. Constitution provides Congress with express authority over foreign trade pursuant to Article I, section 8, which gives Congress the power “to lay and collect taxes, duties, imposts, and excises” and “to regulate commerce with foreign nations.” At the same time, the Constitution vests the president with exclusive authority to negotiate treaties, and the president enjoys broad authority over the conduct of foreign affairs pursuant to his powers under Article II.

Given the constitutional framework and the pragmatic recognition of the negotiating dynamic for the United States to credibly reach agreements with foreign nations, the Congress since 1974 has, during certain periods, enacted special expedited procedures to consider trade agreements negotiated by the U.S. government. Such legislation, often referred to as “fast track” or “trade promotion authority,” commits Congress to vote on bills implementing trade agreements within a fixed period, with limited debate, without amendment, and subject to an up-or-down vote, once the president submits an implementing bill—provided that the president has adhered to other obligations contained in the statute, including specific negotiating objectives, as well as congressional notification and consultation requirements. Congress first enacted this authority in 1974. The most recent legislation was enacted in 2002 and expired in 2007.

USTR, an agency within the Executive Office of the President, is the president’s principal adviser on trade and on the impact of international trade matters on U.S. government policies. USTR has primary responsibility for the coordination and implementation of U.S. trade policy, including the negotiation, monitoring, and enforcement of U.S. international trade agreements.

Summary of the Bipartisan Congressional Trade Priorities Act of 2014
The bill includes statutorily-mandated negotiating objectives; sets out requirements related to notification, consultations, and access to information; and also lays out the procedures for the implementation of trade agreements.

The legislation includes many of the largely familiar overall objectives from previous versions of trade promotion authority, including obtaining better market access, reducing trade and investment barriers, fostering economic growth, raising living standards, increasing U.S. competitiveness, and enhancing the global economy. The new bill recognizes the increasingly “multi-sectoral nature of trade and investment activity” and also calls for “strengthening the effective operation of legal regimes and the rule of law.” 

Principal Trade Negotiating Objectives. Apart from laying out “overall trade negotiating objectives,” the Bipartisan Congressional Trade Priorities Act also establishes 18 detailed “principal negotiating objectives,” several of which are either new or updated objectives. Several changes reflect shifts in the global economy since trade promotion authority legislation was enacted more than a decade ago in 2002, and are summarized below.

  • Good and services in the digital economy. The bill contains expanded provisions and notes the increasing “utilization of global value chains” for trade in goods. The legislation highlights the importance of services in all sectors of trade and recognizes that services operate as a facilitator of trade and calls for the negotiation of an expansive trade in services agreement. The bill also calls for enhanced facilitation of digital trade through greater cross-border data flow.
  • Agriculture. The bill contains updated agricultural provisions, including those that seek robust rules on sanitary and phytosanitary measures (e.g., government measures related to the protection of human, animal, or plant life or health).
  • Foreign Investment. The bill contains provisions regarding the need to maintain strong investment protections for U.S. foreign investors (non-discrimination, free transferability of investment related funds, the elimination of performance requirements, “fair and equitable treatment consistent with United States legal principles and practices, including the principle of due process,” as well as standards for expropriation and compensation for expropriation). The bill also aims to improve investor-state dispute settlement mechanisms, including through provisions related to frivolous claims, the efficient selection of arbitrators, enhanced opportunities for public input into the formulation of government positions, and the use of an appellate body to provide coherence to the interpretations of investment arbitration tribunals.
  • Intellectual property rights. As in 2002, the objectives continue to call for trade agreements to protect intellectual property (IP) rights, foster innovation, and promote access to medicine. New provisions contained in the bill also address cyber theft. 
  • Labor and environment.  The bill calls for U.S. trading partners to adopt and maintain, and not waive or derogate from, measures implementing internationally recognized labor standards and multilateral environmental agreements, in a manner affecting trade and investment. These updated labor and environment objectives are in accord with provisions in recent U.S. trade agreements.
  • Currency. The bill adds a new negotiating objective that directs U.S. trade partners to avoid manipulating exchange rates. The provision provides that “parties to a trade agreement with the United States avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other parties to the agreement, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate.” The inclusion of currency as a principal negotiating objective is significant, as this issue has, and will continue to be, the subject of intense debate regarding the propriety and effectiveness of addressing currency manipulation through trade agreements.
  • State-owned enterprises. The bill adds a negotiating objective that calls for (i) eliminating distortions in trade and unfair competition that arise from state-owned enterprises (SOEs), and (ii) ensuring that SOEs act solely based on commercial considerations. 
  • Regulatory practices. The bill updates existing objectives relating to regulatory practices. The revisions are aimed at improving regulatory coherence and compatibility, as well as increasing transparency, in regulations and processes for the development of standards, and achieving procedural fairness.
  • Localization requirements. The bill adds a new negotiating objective to seek restrictions on the use of local content and other domestic sourcing requirements and the forced localization of facilities.

Increased Congressional Oversight. The bill includes several provisions to enhance congressional oversight of trade negotiations.

  • Consultations. The bill requires USTR to consult with Members of Congress (including relevant committees and newly-established House and Senate Advisory Groups on Negotiations), providing information and briefings on an ongoing basis regarding negotiating objectives, the status of trade negotiations, and the nature of any potential changes in law or regulation resulting from trade agreements under discussion.
  • Congressional Trade Advisor designations and attendance at negotiating rounds. A very significant provision is the one that would allow any member of Congress to be designated as a Congressional Advisor and to be accredited to attend negotiating rounds.
  • Access to information. The bill includes a mandate that every Member of Congress has access to negotiating text.
  • Guidelines. The bill also requires USTR to develop written guidelines on the legislation’s requirements for enhanced coordination with Congress, as well as the methods by which USTR will engage with the general public and solicit input on trade issues. These guidelines are aimed at increasing the transparency of the trade negotiation process.

Notification Requirements. The bill requires the president to notify Congress at least 90 days before initiating negotiations with another country, providing specific negotiation objectives and information to Congress about whether the president intends to seek an agreement or change an existing agreement. With respect to negotiations in certain sectors of the economy (including agriculture, import-sensitive products, the fishing industry, and textiles), the president would be required to engage in special consultations and submit additional information to Congress.

The bill also includes provisions that mandate advising Congress on the extent to which trade agreements under negotiation would require amendments to existing law as well as the impact of potential pacts on employment, labor rights, and other issues. The president would be required to submit a detailed enforcement plan to Congress upon the submission of a completed trade deal.

Implementation of Trade Agreements. The bill contemplates strict entry-into-force rules. An agreement in compliance with the negotiating objectives outlined in the bill would enter into force if:

  • The president notifies Congress before entering into the agreement, submits to Congress a description of changes to existing laws required by the agreement, and submits the final text of the agreement to Congress along with a draft of implementing legislation, a statement of proposed administrative actions to implement the agreement, and other information;
  • The implementing bill is enacted into law under procedures that require an up-or-down vote in both chambers of Congress without amendment;
  • The president notifies Congress that parties to the agreement have taken necessary measures to comply with the agreement before the agreement goes into force; and
  • Congress has not passed a resolution of disapproval relating to the agreement.

The legislation also provides that Congress can adopt a resolution of disapproval on the grounds that the proposed trade agreement is inconsistent with the negotiating objectives of the legislation. Additionally, Congress can reject a proposed agreement due to a lack of notice and consultation.

Duration of Trade Negotiating Authority. The trade negotiating authority of the president would extend to trade agreements completed before July 1, 2018, with options for additional three-year renewal if an extension is sought and neither chamber of Congress disapproves.

Trade Agreements Currently Under Negotiation. Provided certain conditions were satisfied, the bill would provide procedural flexibilities for certain trade agreements that were under negotiation before the enactment of the legislation, such as the TPP and TTIP, TISA, or agreements under the auspices of the World Trade Organization. 

Reaction of House Ways and Means Committee Ranking Member Sander Levin (D-MI) to the Bill
Ranking Member Levin declined to join his colleagues on the bill, and released a statement saying that “The effort by Sen. Baucus, Rep. Camp and Sen. Hatch has fallen far short of adequately replacing the failed 2002 TPA model.”  Levin stressed the need for legislation that addresses currency manipulation by providing direct relief to U.S. industries that are injured by imports—in contrast to the approach outlined by Chairman Baucus, Chairman Camp, and Ranking Member Hatch, which addresses currency manipulation through the bill’s negotiating objectives.

In his statement, Ranking Member Levin declared that any TPA bill must embody four key principles related to the role of Congress, transparency, reciprocity, and enforcement:

  • Increase the role of Congress. Under Levin’s approach, the House and Senate would form working groups to serve as trade advisors who would be closely involved in negotiations. Levin also believes that Congress should have a role in determining trade partners and deciding whether particular agreements proposed by the president should be subject to fast-track treatment before negotiations begin. In addition, Levin believes that Congress should reserve the power to remove fast-track treatment during the negotiations, if appropriate.
  • Provide greater transparency. Levin called for all Members and staff with necessary security clearances to have access to the text of trade negotiations, including proposals made by trading partners. In addition, Levin stressed the need for greater private sector participation through advisory committees, which would also have access to negotiation texts. USTR would also be required to solicit public comments on trade proposals under Levin’s approach.
  • Reciprocity and objectives that “reflect American values.” Levin called for trade promotion authority legislation to “ensure that trade and investment obligations do not undermine the ability of governments to protect legitimate public welfare objectives, such as the environment and public health and safety.”
  • Enforcement. Levin believes that TPA legislation should strengthen the enforcement of existing trade agreements and includes a broad strategy to increase U.S. competitiveness. 

Further, Ranking Member Levin called for Congress to immediately reauthorize Trade Adjustment Assistance.