TheWeekInCongress.com
Week Ending July 16, 2004
HR 4759 to implement the United States- Australia Free Trade Agreement
BRIEF
The bill is a fairly standard free trade agreement (FTA) because it is with Australia, a developed country with an established economy and international trade policy. There is one particular difference with this FTA and that is the provision that would not reduce tariffs on textile goods and apparels, a common part of most recent FTAs with Singapore, Central America, Bahrain and Chile.
The bill puts control of the regulations and approved actions in the hands of the President who exercises that authority through the Office of the US Trade Representative (USTR).
Although the bill was widely accepted some members were concerned that a provision prohibiting re-importation of prescription drugs would be setting a precedent at a time when Congress might be dealing with re-importation as a way to reduce the cost of prescription drugs for Americans.
The bill provides for the traditional administration of dispute settlement, specified tariff modification, additional duties on certain horticultural and beef safeguard goods, and enforcement of textile and apparel rules of origin.
The bill also provides for relief from imports benefiting from this FTA and some Trade Commission findings with regard to whether or not imports from Australia could cause serious injury to US articles and industries. The President can provide relief to US manufacturers if Australian products, after the tariffs are removed, are imported in large enough numbers to damage US manufacturers. The relief would be in the form of increased tariffs and would not extend longer than four years while US industry makes necessary changes. The President must determine ‘the relief will provide greater economic and social benefits than costs.’
The bottom line would point to an immediate tariff reduction on 99 percent of US imports to Australia, but the bill would still cost taxpayers nearly $1 billion in lost revenue through 2014. The apparent justification for the revenue loss was mentioned in discussion on the House floor as an increase in demand for US products and the consequent increase in jobs to produce the products. US industries that will see a tariff reduction include; chemicals, plastics and soda ash; information technology products; electrical equipment and appliances; non-electrical machinery; fabricated metal products; construction equipment; paper and wood products; furniture and fixtures; and medical and scientific equipment. 67 percent of US agricultural products would be exported free of any tariff.
Textiles, on the other hand would not see a reduction of any significance for ten years.
A provision making some business information confidential would likely inhibit public
knowledge of some negotiations and the President’s immediate involvement with the law may create concern among ‘public right to know’ advocates should the administration refuse to produce information on meetings with principal parties to the agreement.
Sponsor: Rep. Tom Delay (R-TX-22)
Vote: Passed House 314 to 109, 1 voting Present (RC 375) (July 14, 2004)
Passed Senate 80 to 16 (RV156) (July 15, 2004) UpDate: Became New Public Law No. 108-286 August 3, 2004.
Cost to the taxpayers: ‘United States collected $109 million in customs duties in 2003 on about $6.5 billion of imports from Australia. Those imports consist mostly of chilled and frozen meat, wine, certain motor vehicles and motor vehicle components, and various products made of metal. Based on that data, CBO estimates that phasing out tariff rates as outlined in the U.S.-Australia agreement would reduce revenues by $29 million in 2005, by $293 million over the 2005-2009 period, and by $884 million over the 2005-2014 period, ($579 million revenue reduction between 2009 and 2014) net of income and payroll tax offsets. The bill also would increase direct spending by less than $500,000 in 2005. Implementing the bill would cost less than $500,000 in each year, subject to appropriation of the necessary amounts.’ ## All Rights Reserved. No reproduction or distribution without written permission from TheWeekInCongress.com.
MORE INFORMATION
SUPPORT FOR THE BILL
The committee noted in its’ report that the market available to US business is extensive , ‘Australia will accord substantial market access across its entire services regime, offering access in sectors such as telecommunications, express delivery, computer and related services, tourism, energy, construction and engineering, financial services, insurance, audio/visual and entertainment. U.S. suppliers are granted rights to bid on contracts to supply Australian government ministries, agencies and departments above certain contract values specified in the Agreement (low-value contracts/micro purchases are excluded). The Agreement covers the purchases of 80 Australian central government entities, including key ministries and government enterprises.
‘All U.S. investment in new businesses in Australia will be exempted from screening under Australia's Foreign Investment Promotion Board (FIRB). Thresholds for acquisitions by U.S. investors in nearly all sectors will be raised significantly, from A$50 million to A$800 million. This higher threshold would have exempted nearly 90 percent of U.S. investment transactions from screening over the past three years.
‘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. Both Parties also agree to adopt state-of-the-art protection for digital products such as software, music, text, and videos, and to ratify or accede to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty by the date of entry into force of the agreement.’
SUPPORT COMMENTS
Rep. Kevin Brady (R-TX-8th) said, “America needs more customers like Australia. In Texas, this trade agreement means some 12,000 jobs for our State. It is good for our farmers. It is good for our manufacturers.”
Rep. Philip M. Crane (R-IL-8th) said, “This is an important agreement. The U.S. enjoys a $9 billion trade surplus with Australia, and Australia is our ninth largest goods export market. Australian firms in the U.S. employ about 85,000 Americans, and it is estimated that U.S. exports to Australia support more than 150,000 U.S. jobs. Under the terms of this agreement, … nearly $2 billion per year in increased U.S. exports of manufactured goods.
“This agreement also gives our farmers new opportunities. All U.S. agricultural exports to Australia totaling more than $400 million will receive immediate duty-free access. Key agricultural products that will benefit from immediate tariff elimination include soybeans and oilseed products, fresh and processed fruits, vegetables and nuts, and pork products. Our dairy farmers also will have immediate access to the Australian market.
“Mr. Speaker, this agreement is also very important to my State of Illinois, which is home to companies including Caterpillar, Boeing, Motorola, Abbott Labs, and Zurich Life. Illinois exports to Australia directly support approximately 4,400 jobs in the State of Illinois. Additionally, there are 20 Australian-owned companies in Illinois, employing over 2,000 people. Nine hundred of these positions are manufacturing jobs. Trade with Australia supports numerous other high-paying jobs in areas such as transportation, finance, and advertising; and between 1999 and 2003, Illinois exports to Australia grew by 12 percent. This Free Trade Agreement means more jobs, better jobs, and higher-paying jobs in Illinois and America.”
Other Representatives saw growth benefits in their States;
Jennifer Dunn (R-WA-8th) said, “State of Washington leads the Nation with more than $2.6 billion worth of exports to Australia each year.” And “While all States will benefit from this agreement, the Puget Sound region will have even more to gain, because Australia already is our fifth largest trading partner, and the State of Washington leads the Nation with more than $2.6 billion worth of exports to Australia each year. It is a trade agreement that will help businesses and farmers in the Northwest.
“For the 25,000 Boeing workers that I represent, this agreement will ensure that Boeing remains competitive in Australia. Currently, nearly 95 percent of Qantas Airways' operating fleet is Boeing aircraft, making them one of Boeing's key customers in that region.
“For our high-tech industry, strengthening intellectual property standards will help reduce counterfeiting and piracy, while encouraging capital investments.
“For our farmers, eliminating agricultural tariffs and resolving technical and regulatory barriers will ensure that Northwest fruits will enter the Australian market.”
Rep. Rob Portman (R-OH-2nd) said, “This agreement will help small business and manufacturers quite a bit in my home State of Ohio. Australia is now number 11 in terms of countries to which we export. Total exports are now valued at $389 million. Ohio primarily exports high-value products to Australia, aircraft engines and parts, auto parts, forklift trucks, pet food, household appliances. If the Free Trade Agreement was in effect last year, we would have seen over 93 percent of those exports, including again some of these manufactured high-quality, high-value exports, 93 percent of them would have entered Australia duty free.
“Ohio's exports to Australia directly support about 1,800 good-paying jobs in Ohio. And, by the way, there are 17 Australian-owned companies in Ohio, which also employ roughly 1,800 people. 1,300 of those positions, by the way, are in manufacturing.
“Trade with Australia supports countless other high-paying jobs in areas such as transportation, finance and advertising. This agreement is good for Ohio. It is good for jobs. It is good for relations with one of our great friends, Australia. Opening markets across the globe to Ohio businesses is the key to keeping our Buckeye economy strong.”
OPPOSITION AND CONCERN
Concern over the bill mainly focused on re-importation of pharmaceuticals.
The report noted, ‘With respect to Article 17.9(4) on importation of patented products, that provision effectively bars the United States from allowing the import of patented drugs (from that country)--a provision directly inconsistent with congressional efforts to allow for the `re-importation' of patented drugs. USTR has noted that the provision reflects current U.S. law. Current law, however, is the subject of a vigorous and on-going debate in Congress, and in fact both Houses have recently passed separate bills that would change current law. If Congress changes U.S. law to allow the import of patented drugs, that revised law would be inconsistent with U.S. obligations under the Agreement.’
Rep. Pete Stark (D-CA-13th) said, “Rep. Stark, “We are concerned that intellectual property language allows pharmaceutical manufacturers to contractually prohibit reimportation of prescription drugs from Australia. We know that. Once we approve this language, any attempt to pass reimportation language will immediately run afoul of the Australian Free Trade Agreement. This is not just about the U.S. and Australia. This is a bill that was engineered by the pharmacy lobby.” “The last time that I checked,” he added “reimportation of pharmaceutical drugs was a domestic health policy issue that should be debated in Congress, and we should be making domestic health policy in this Chamber, not the U.S. Trade Representative.”
Specifically, Rep Stark noted the transparency requirements of the bill adding to the re-importation obstacles, “…transparency requirements in annex 2(c) of the Fair Trade Agreement actually do apply to a Medicare Part B drug reimbursement decision. In its current form, the proposed change to an average sales price reimbursement system does not meet the transparency requirements of the FTA, it opens the door to challenges, and it frustrates the ability of this body to pass reasonable, safe reimportation that will lower the cost of drugs for our senior citizens by, in many cases, 50 percent,…”
The Committee saw less concern because of the modification of the USTR’s proposal, ‘Those proposals would have required the Government of Australia, which provides a universal prescription drug benefit for all Australian residents, to significantly alter how it reimburses for patented, prescription drugs. In addition to likely raising (dramatically) the cost of patented, prescription drugs in Australia, USTR's initial proposals could have had serious repercussions for certain U.S. drug coverage programs, including: Medicare, Medicaid, Veteran's Administration health benefits, and the DOD TRICARE program. The report continued, ‘During consideration of the implementing bill in Committee, some Members raised concerns that the FTA could limit Congress' ability to enact legislation to allow drug reimportation. The Committee strongly believes that these concerns are groundless because the FTA does not prevent Congress from changing U.S. laws, including allowing reimportation of prescription drugs. The Agreement includes a provision whereby both nations agree to protect patent owners' rights to determine how, by contract or other means, their patent is used by a licensed third party. This provision is not specific to pharmaceuticals nor is it a new provision in trade agreements. It reiterates and is consistent with existing U.S. patent laws. That is, under U.S. law patent holders already have the right through contracts and by other means to limit the use of their products. H.R. 4759 does not change U.S. patent laws or the Federal Food, Drug, and Cosmetic Act.
Further, Australian law already prohibits the exportation of drugs dispensed under the Pharmaceutical Benefits Scheme (PBS) to other nations. The PBS subsidizes the cost of a comprehensive range of medicines for all Australian residents and covers over 90% of the Australian pharmaceutical market. Australian law does allow exportation of non-PBS dispensed drugs, regardless of whether they are generics or brand name, but only by the original manufacturer or its Australian licensed distributor. Thus any change in U.S. law would have no practical effect on reimportation from Australia due to Australian domestic law--not the FTA--and therefore Australia would have no plausible basis to claim harm or pursue sanctions.’
One Representative saw wider concerns with the bill. “Rep. Bernard Sanders (I-VT-at large), “I rise in strong opposition to this agreement. It seems to me that before we rush into yet another free trade agreement we should spend a little bit of time assessing the horrendous impact that past free trade agreements have had on the middle class and working families of this country. If you have a policy which is failing, failing and failing, why do you want to continue going along that path?
“Mr. Speaker, for many years now, corporate America and the big money interests have told us how good unfettered free trade would be if they spent a fortune getting these agreements passed. What they forgot to tell us is that while these free trade agreements are in fact good for the big corporations and their well-paid CEOs, they have been a disaster for the middle class and working families of our country.
“The reality is, despite tremendous increases in technology and productivity, the average American today is working longer hours for lower wages. The gap between the rich and the poor is getting wider, and poverty is increasing. The middle class in America is collapsing, and unfettered free trade is one of the reasons.
“In the last 3 years alone, we have lost 2.7 million good manufacturing jobs, over 16 percent of the total, and now after the collapse of manufacturing we are beginning to see the hemorrhaging of good-paying information technology jobs. While large corporations throw American workers out on the streets and move to China, India, Mexico and other low-wage countries, the new jobs being created here for our people are mostly low wage with minimal benefits. In fact, according to the Bureau of Labor Statistics, 7 out of 10 of the fastest-growing professions in the next 10 years are going to be with high school degrees, minimal benefits, lower wages.
“Is that the future that we want for our country?
“To add insult to injury, Mr. Chairman, the President of the U.S. Chamber of Commerce, Tom Donohue, the leader of our country's big business organization, has urged, has urged American companies to send our jobs overseas. Urged them. That is the kind of contempt that corporate America has for the working families of this country. By continuing to pass unfettered free trade agreements, we accommodate Mr. Donohue's goal; and we will see the loss of more and more good-paying jobs in this country.
“I understand that Australia is not China, and I understand that workers there earn comparable wages, and I understand they do not go to jail when they stand up for their rights, and we could perhaps negotiate good agreements here and there with Australia, but an unfettered free trade agreement is not good.
“Let me conclude by mentioning two specific objections I have.
“Number one, the gentleman from Ohio (Mr. Brown) is right about reimportation and prescription drugs. I worry very much about the precedent, if we want to lower prescription drug costs in this country by this agreement.
“Second of all, dairy farmers in Vermont, New England and America will be significantly and negatively impacted by the importation of a lot of dairy products over the years from Australia.”
RULES OF ORIGIN
A good is an originating good if: it is `wholly obtained or produced entirely in the territory of Australia, the United States, or both'; those materials used to produce the good that are not themselves originating goods are transformed in such a way as to cause their tariff classification to change or meet other requirements, as specified in Annex 4-A or Annex 5-A of the Agreement; it is produced entirely in the territory of Australia, the United States, or both exclusively from originating materials; or it otherwise qualifies as an originating good under chapter 4 or chapter 5 of the Agreement.
Under the rules in chapter 5.1 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 Australia, an apparel product must have been cut (or knit to shape) and sewn or otherwise assembled in Australia from yarn, or fabric made from yarn, that originates in Australia or the United States, or both.
DISCLOSURE OF INCORRECT INFORMATION
The provision ‘prohibits the imposition of a penalty upon importers who make an invalid claim for preferential tariff treatment under the Agreement if the importer acts promptly and voluntarily to correct the error and pays any duty owing. Importers have at least a 12-month grace period after submitting an invalid claim in which to correct it’
PROTECTING UC AGRICULTURAL INTEREST THROUGH YEAR 2022
The bill provides for three different types of agricultural safeguards and the US ability to impose additional duties on some agricultural imports. The first applies to certain horticulture goods specified in Annex 3-A of the Agreement. The second applies to certain beef goods imported into the United States above specified quantities (`quantity-based safeguard') during the period from January 1, 2013 through December 31, 2022. The third applies to the same categories of beef goods if they are imported into the United States above specified quantities and the monthly average index price in the United States falls below the specified `trigger' price (`price-based safeguard') beginning January 1, 2023. ##All Rights Reserved. No reproduction or distribution without written permission from TheWeekInCongress.com.