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# Legislative Bulletin.................................................November 7, 2007

**Contents:**

**H.R. 3688**---United States-Peru Trade Promotion Agreement
Implementation Act

H.R. 3688---United States-Peru Trade Promotion Agreement Implementation
Act (*Hoyer, D-MD*)

**[Order of Business]{.underline}**: The bill is (reportedly) scheduled
to be considered on Wednesday, November 7^th^, subject to a closed rule
allowing no amendments. Under Trade Promotion Authority (Public Law
107-210), bills implementing trade agreements are not amendable (either
in committee or on the House floor) in order to make the implementation
acts easier to move through Congress and to make trade agreements
themselves easier to negotiate because they offer foreign nations the
assurance that what is negotiated won't be tweaked in the legislative
process. Although Trade Promotion Authority (TPA) technically expired
earlier this year, TPA still applies to this implementing legislation
since the trade agreement itself was signed by both countries before
such expiration.

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**[Summary by Title]{.underline}**: Negotiations for a free trade
agreement (FTA) between the United States and Peru began in May 2004 and
concluded on December 7, 2005. On April 12, 2006, then-U.S. Trade
Representative Rob Portman and Peruvian Minister of Foreign Trade and
Tourism Alfredo Ferrero Diez Canseco signed the Peru FTA. The Agreement
was then ratified by the Peruvian Congress in June 2006.

H.R. 3688 would approve and implement the United States-Peru Free Trade
Agreement, entered into on April 12, 2006; amended on June 24 and 25,
2007 by the United States and Peru, respectively; and submitted to
Congress on September 27, 2007. Pending compliance by Peru with certain
measures in the Agreement, the Agreement would take effect on or after
January 1, 2008.

According to the United States Trade Representative (USTR), the
Agreement would [immediately]{.underline} [eliminate]{.underline} 80% of
the tariffs on consumer and industrial products. An additional 7% of the
tariffs would become duty-free within five years, and [all]{.underline}
remaining tariffs would be eliminated within ten years. Two-thirds of
current U.S. farm exports would [immediately]{.underline} become duty
free, including beef, cotton, wheat, soybeans, apples, pears, peaches,
and several processed food products. Textiles and apparel at met the
Agreement's rules of origin would become duty-free and quota-free
immediately.

[]{.mark}

According to the U.S. International Trade Commission (ITC), the U.S.
Gross Domestic Product (GDP) will likely rise by 0.02% (or \$2.1
billion) as a result of the Agreement, U.S. imports from Peru will
likely increase by \$439 million, and U.S. exports to Peru will likely
increase by \$1.1 billion, once the Agreement is fully implemented.

According to the ITC, key U.S. industrial sectors that are expected to
benefit from the Peru FTA include information technology products,
mining, agriculture and construction equipment, medical and scientific
equipment, auto parts, paper products, rubber and plastic products, and
chemicals. U.S. agricultural exports, such as cotton, wheat, soybeans,
beef, apples, pears, peaches, cherries, and almonds, are also expected
to benefit under the Agreement.

Key Peruvian sectors that are expected to benefit from the FTA include
minerals and metals, mineral fuels and oils, organic chemicals, apparel,
citrus fruits, and vegetables (such as asparagus).

[]{.mark}

According to the Ways & Means Committee, trade with Peru accounted for
approximately 0.3% of total U.S. goods trade in 2006. Peru is the 43^rd^
largest U.S. export market and 42^nd^ largest source of U.S. imports.
The U.S. is Peru's leading trading partner, sending 25.6% of its exports
to the U.S. and receiving 20.1% of its imports from the U.S.

In 2006, **95%** of Peru's exports to the United States entered the
United States duty-free (thus much of this Agreement is aimed at
reducing Peruvian tariffs on American goods). Leading U.S. imports from
Peru include refined copper cathodes, certain petroleum products, and
cotton shirts and sweaters.

U.S. foreign direct investment (FDI) in Peru totaled \$5 billion in
2006, focused mainly on mining.

Highlights of H.R. 3688 are as follows:

***[Title I---Approval of, and General Provisions Relating to, the
Agreement]{.underline}***

[]{.mark}

-   Makes U.S. law paramount to any provision in the Agreement that
    conflicts with U.S. law. States that the Agreement would not modify
    or limit any authority conferred under any U.S. law.

-   A state law that conflicts with any provision in the Agreement could
    only be declared invalid in an action brought by the United States
    Government.

-   Prevents private legal actions against any provision of the
    Agreement.

-   Provides for 15-day and 60-day layover procedures for certain
    actions made (i.e. regulations issued) by presidential proclamation
    under the Agreement.

-   Authorizes "such sums" as may be necessary for the President to
    establish an office within the Department of Commerce to administer
    the Agreement.

-   Terminates the applicability of this implementing legislation (other
    than this provision) on the date on which the Agreement might
    terminate.

***[Title II---Customs Provisions]{.underline}***

[]{.mark}

-   Allows the President to modify any tariffs or tariff-free treatment
    in the Agreement and to create additional tariffs as necessary
    (subject to certain limitations).

-   Terminates Peru's status as a beneficiary developing country for
    trade purposes.

-   Directs the Secretary of the Treasury to assess a duty (as detailed
    in the bill) on certain agricultural goods imported into the United
    States in a calendar year if the Secretary determines that the total
    imported volume of the good in question exceeds 130% of the volume
    allowed in the Agreement.

-   Defines in detail what an "originating good" is (originating from
    either the United States or from Peru) and what "originating
    materials," "nonoriginating materials," and "regional value content"
    are, as they relate to preferential tariff treatment under the
    Agreement. The bill also provides special calculation methods of
    such operative terms for automotive goods.

-   Includes the costs of freight, insurance, packing, and other such
    transportation costs, as well as duties, taxes, customs fees, and
    spoilage in the calculation of value of an originating material.

-   Allows for certain textiles or apparel goods to be considered an
    "originating good," as long as the total weight of all
    nonoriginating fibers in such a good does not exceed 10% of its
    total weight.

-   Requires that a person's selected inventory method be used
    consistently without change throughout a fiscal year.

-   Excludes packing materials and shipping containers when determining
    whether a material is an "originating material" or a good is an
    "originating good."

-   Includes "indirect materials" (materials used in the production,
    testing, inspection, maintenance, and operation of the good---but
    not physically incorporated into the good) for the purposes of
    determining an "originating material."

-   Originating goods would be disqualified as such if they undergo
    further production or any other operation (other than unloading,
    reloading, or essential preservation operations) outside Peru or the
    U.S.

-   Goods put up as sets would [not]{.underline} be considered
    "originating goods" unless each of the goods in the set is an
    originating good or the total value of the nonoriginating goods in
    the set does not exceed 10% of the value of the textile/apparel set
    or 15% of the non-textile/non-apparel set.

-   Defines numerous operative terms, including and especially "good
    wholly obtained or produced entirely in the territory of Peru, the
    United States, or both," for the purposes of the preferential tariff
    treatment under the Agreement.

-   Authorizes the President to proclaim modifications to the Agreement
    (subject to layover and other requirements). Specifically allows the
    President to add by proclamation fabrics or yarns not available in
    commercial quantities in the United States to the list of such
    products receiving preferential tariff treatment under the Agreement
    in unrestricted quantities.

-   Creates a process by which a person could request the
    [addition]{.underline} of fabrics, yarns, or fibers not available in
    commercial quantities in the United States or Peru to the list of
    such products receiving preferential tariff treatment under the
    Agreement in restricted or unrestricted quantities.

[]{.mark}

-   Creates a process by which a person could request the
    [removal]{.underline} of fabrics, yarns, or fibers from the list of
    such products receiving preferential tariff treatment under the
    Agreement in restricted or unrestricted quantities.

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-   Exempts products covered by this trade agreement from customs user
    fees.

-   Shields an importer from penalties for making an incorrect claim of
    a qualifying originating good if he "promptly and voluntarily" makes
    a corrected declaration and then pays any duties owed. Exporters
    would be similarly shielded if they voluntarily provide written
    notice of any incorrect informant to every person to whom the
    original certification of a qualifying originating good was made.

-   Allows the Homeland Security Department (Customs Service) to suspend
    preferential tariff treatment for an importer, exporter, or producer
    if such person is consistently found to be making false or
    misleading representations of their goods.

-   Provides authority for the Customs Service to "reliquidate" an entry
    to refund any excess duties (including any merchandise processing
    fees) paid on a good qualifying under the rules of origin for which
    no claim for preferential tariff treatment was made at the time of
    importation, if the importer so requests, within one year after the
    date of importation.

-   Authorizes the President to take certain actions while a
    verification of the originating status of a [textile or apparel
    good]{.underline} is taking place. Such actions include suspending
    preferential tariff treatment to the textile or apparel good for
    which a claim of origin has been made or, in a case where the
    request for verification was based on a reasonable suspicion of
    unlawful activity related to such goods, for textile or apparel
    goods exported or produced by the person subject to a verification.
    Other available actions include the detention of applicable goods or
    the denial of entry into the U.S. of such goods.

***[Title III---Relief from Imports]{.underline}***

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-   Authorizes the filing (with the U.S. International Trade Commission)
    by an entity, including a trade association, firm, certified or
    recognized union, or group of representative workers, of a petition
    requesting adjustment to the obligations of the United States under
    the Agreement (and asking for provisional relief). The Commission
    would then have to investigate whether "a substantial cause of
    serious injury or threat thereof to \[a\] domestic industry" is
    occurring as a result of the U.S.-Peru Free Trade Agreement (subject
    to certain exceptions).

-   If the Commission finds injury or threat of injury, it would then
    have to recommend the amount of import relief necessary to correct
    or prevent harm. Further, the Commission would have to facilitate
    the efforts of the domestic industry to make a "positive adjustment
    to import competition."

-   The President would not *have* to provide the suggested import
    relief, if doing so would have greater economic and social costs
    than benefits.

-   Import relief could entail increasing duties or suspending their
    reductions and would have to occur progressively in intervals if the
    relief is to last more than one year.

-   Import relief could not last more than two years, subject to
    up-to-two-year extension by presidential determination.

-   No import relief could be provided for a good that has been given
    duty-free treatment under the Agreement, and no import relief could
    be provided ten years after the Agreement enters into force (subject
    to exception).

-   Prohibits the President from releasing information that is submitted
    in an import relief proceeding and that the President considers to
    be confidential business information, unless the party submitting
    the confidential business information had notice at the time of
    submission that such information would be released, or such party
    subsequently consents to the release of the information. To the
    extent a party submits such confidential business information to the
    President, the party would have to submit a non-confidential version
    of the information in which the confidential business information is
    summarized or, if necessary, deleted.

-   Enacts similar provisions as above for import relief specifically
    for the [textile and apparel]{.underline} industries. Total allowed
    aggregate import relief for textiles would be three years (two years
    plus an-up-to-one-year extension), instead of four years as above.

***[Title IV---Procurement]{.underline}***

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-   Makes Peruvian products and services eligible for federal government
    procurement.

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***[Title V---Trade in Timber Products of Peru]{.underline}***

-   Directs the President to establish an interagency committee
    responsible for overseeing the implementation of the Agreement's
    Annex on Forest Sector Governance.

-   Authorizes the committee to request the Government of Peru to
    conduct

> \--an audit to determine whether a particular producer or exporter in
> Peru is complying with all applicable Peruvian laws, regulations, and
> measures governing the harvest of, and trade in, timber products; or
>
> \--a verification with respect to a particular shipment of timber
> products from Peru to the United States, to determine whether the
> exporter or producer of the products has complied with the applicable
> Peruvian laws, regulations, and measures governing the harvest of, and
> trade in, timber products. (The committee could direct U.S. Customs
> and Border Protection to detain the shipment that is the subject of
> the verification (while a verification is pending) or to deny the
> shipment (if Peru will not verify).

-   Directs the committee, upon receipt of the results of a verification
    from the Government of Peru (or upon the denial there from), to
    determine whether it is appropriate to take any action with respect
    to the shipment in question or the products of the relevant producer
    or exporter.

-   Provides for confidential treatment of documents or information
    received in the course of a timber audit or verification above.

***[Title VI---Offsets]{.underline}***

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-   Increases the estimated tax payments that certain corporations must
    remit to the federal government. Under current law, corporations
    with assets of at least \$1 billion must make estimated tax payments
    for the third quarter of 2012 that are 115% of the estimated payment
    otherwise due. The payment due for the fourth quarter of 2012 is
    reduced accordingly so that the corporations pay no net increase in
    estimated payments in 2012. The bill would increase this 115% figure
    to 115.75%. [NOTE]{.underline}: This provision is merely a revenue
    timing shift, a budget gimmick used to comply with the House's PAYGO
    rules.

-   Extends the authority to collect customs user fees from October 7,
    2014 to December 13, 2014. *(This provision scores as a credit
    against mandatory spending because the collected fees can be spent
    without further legislation action.)*

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**[Supporting Documents]{.underline}**: To read a brief summary of the
U.S.-Peru Free Trade Agreement itself, please visit this webpage:

<http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2007/asset_upload_file585_13067.pdf>.

To read a more detailed summary of the Agreement itself, please visit
this webpage:

<http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2007/asset_upload_file672_13066.pdf>.

[]{.mark}

To read the actual text of the Agreement, please visit this webpage:

<http://www.ustr.gov/Trade_Agreements/Bilateral/Peru_TPA/Final_Texts/Section_Index.html>.

[]{.mark}

For other supporting documents, including state-by-state and
sector-by-sector benefits of the Agreement, please visit these webpages:

<http://www.ustr.gov/Trade_Agreements/Bilateral/Peru_TPA/Section_Index.html>;
and

<http://waysandmeans.house.gov/MoreInfo.asp?section=33>.

[]{.mark}

**[Additional Background]{.underline}**: With a population of 28 million
people, Peru is the fifth most populous country in Latin America, after
Brazil, Mexico, Colombia, and Argentina. According to the Ways & Means
Committee, Peru's GDP in 2006 was \$77 billion, or about 0.6% of U.S.
GDP (\$13.2 trillion in 2006).

According to the Peruvian Embassy, between 2001 and 2006, Peru's Gross
Domestic Product (GDP) grew by 57%, and economic growth has been
sustained for the past 76 consecutive months. Over the last three years,
Peru's total trade has grown over 30% per year.

[]{.mark}

Peru is a long standing ally of the United States in an important region
of the world. With the rise of dictator Hugo Chavez in nearby Venezuela,
Peru's continuing path to democracy (since 1980) and its desire to
strengthen ties with the U.S. is vital. According to a recent poll,
Peruvians consider the U.S. as one of their country's closest allies and
the top country with which to improve its economic relationship.

**[Key Issues]{.underline}**:

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-   [Labor]{.underline}. The Agreement requires both countries to adopt,
    maintain, and enforce basic international labor standards, including
    prohibitions on the worst forms of child labor, as stated in the
    International Labor Organization (ILO) Declaration on Fundamental
    Principles and Rights at Work. Government procurement contracts
    could be conditioned on adherence to certain minimum labor
    standards. Neither country could waive or derogate from the laws
    that implement this obligation in a manner affecting bilateral trade
    or investment. These labor obligations are subject to the same
    dispute settlement procedures and enforcement mechanisms as are
    commercial obligations. Also the Agreement establishes a cooperative
    mechanism for the governments to develop cooperative activities
    aimed at advancing labor rights. And perhaps most importantly for
    conservatives, the Agreement would not harm right-to-work laws in
    the United States. *(NOTE: Leading labor organizations and
    labor-oriented Democrats have praised the Peru FTA for its labor
    standards.)*

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-   [Environment]{.underline}. The Agreement requires both countries to
    implement and enforce certain common multilateral environmental
    agreements and to require Peru to take action to combat illegal
    logging in the Amazon, as well as the illegal collection of
    endangered species for export. All environment-related obligations
    in the Agreement are subject to the same dispute settlement
    procedures and enforcement mechanisms as are commercial obligations.
    *(NOTE: Leading environmental organizations and environment-oriented
    Democrats have praised the Peru FTA for its environment
    provisions.)*

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-   [Intellectual Property]{.underline}. Under the Agreement, Peru will
    adopt higher and extended standards for the protection of
    intellectual property (IP) rights such as copyrights, patents,
    trademarks and trade secrets. The Agreement also provides enhanced
    means for enforcing those rights.

> According to the USTR, the Agreement "provides for improved standards
> for the protection and enforcement of a broad range of intellectual
> property rights, which are consistent, both with U.S. standards of
> protection and enforcement and with emerging international standards.
> Such improvements include state-of-the-art protections for digital
> products such as U.S. software, music, text, and video; stronger
> protection for U.S. patents, trademarks and test data, including an
> electronic system for the registration and maintenance of trademarks;
> and further deterrence of piracy and counterfeiting of criminalizing
> end-user piracy."
>
> However, not all players in the intellectual property arena are
> completely satisfied with the Agreement. For example, the
> Pharmaceutical Research and Manufacturers of America (PhRMA) is
> remaining neutral on the Agreement, claiming that the Agreement does
> not do enough (or as much as past Bush Administration agreements) to
> slow the introduction of generic drugs in to the Peruvian marketplace.
> One lobbyist for a pharmaceutical company wrote that, "\[the\]
> agreement seems to lay the groundwork for countries to undermine U.S.
> IP protections in the pharmaceutical sector -- which will hurt our
> competitiveness and result in fewer dollars flowing into research and
> development of new, life-saving technologies and products."

-   [Ports]{.underline}. The Agreement reaffirms that the United States
    can prevent foreign companies from operating U.S. ports.

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-   [Investors]{.underline}. The Agreement gives U.S. investors in Peru
    the same protections as Peruvian investors in Peru. Similarly, the
    Agreement gives Peruvian investors in the U.S. the same protections
    as U.S. investors in the U.S. Peru has agreed to eliminate measures
    that require U.S. firms to hire national rather than U.S.
    professionals and measures requiring the purchase of local goods.
    Peru also agreed that both mutual funds and pension funds in Peru
    will be allowed to use portfolio managers in the U.S.

-   [Telecom]{.underline}. The Agreement prevents local telecom firms
    from having preferential access to telecom networks. U.S. phone
    companies obtain the right to interconnect with Peruvian dominant
    suppliers' fixed networks at nondiscriminatory and cost-based rates.

In Latin America, the United States recently implemented a bilateral FTA
with Chile, and the North American Free Trade Agreement and the Central
American Free Trade Agreement remain in force. FTAs with Panama and
Colombia are pending. Based on statements from House leadership, no
legislation implementing the Panama or Colombia FTAs is expected to be
brought to the House floor in 2007. For more information on these and
other trade agreements, please visit this website:
<http://www.ustr.gov/Trade_Agreements/Bilateral/Section_Index.html>.

**[Committee Action]{.underline}**: On September 27, 2007, H.R. 3688 was
referred to the Ways & Means Committee, which, on October 31, 2007,
marked up and ordered the bill reported to the full House by a unanimous
vote of 39-0.

**[Administration Position]{.underline}**: The Administration, since it
negotiated the US-Peru FTA, is strongly supportive of it.

**[Cost to Taxpayers]{.underline}**: CBO estimates that H.R. 3668 would
reduce revenues by \$20 million in FY2008, increase revenues by \$292
million over the FY2008-FY2012 period, and reduce revenues by \$423
million over the FY2008-FY2017 period. *(NOTE: the revenue increases are
solely due to the corporate estimated tax payments gimmick described
above.)*

CBO also estimates that the legislation would increase mandatory
spending by \$4 million in FY2008, increase mandatory spending by \$27
million over the FY2008-FY2012 period, and reduce mandatory spending by
\$443 million over the FY2008-FY2017 period (because of customers user
fees, which score as a credit against mandatory spending).

Lastly, CBO notes that the bill would authorize appropriations of less
than \$500,000 per year.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: No, the legislation would implement an FTA
that reduces government involvement in, and taxation of, trade between
the United States and Peru.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: Yes, CBO writes that H.R. 3688
would impose private-sector mandates, as defined in the Unfunded
Mandates Reform Act (UMRA), by extending the customs user fees and by
enforcing new record-keeping requirements on exporters of goods to Peru.
CBO notes that the aggregate costs of those mandates would "greatly
exceed" the annual threshold established in UMRA for private-sector
mandates (\$131 million in 2007, adjusted annually for inflation) in
2015.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: The Ways & Means
Committee, in House Report 110-421, asserts that, "Pursuant to clause 9
of Rule XXI of the Rules of the House of Representatives, the Ways &
Means Committee has determined that the bill as reported contains no
congressional earmarks, limited tax benefits, or limited tariff benefits
within the meaning of that Rule."

[]{.mark}

**[Constitutional Authority]{.underline}**: The Ways & Means Committee,
in House Report 110-421, cites constitutional authority in Article I,
Section 8, Clause 1 (the congressional power to lay and collect taxes,
duties, imposts, and excises, to pay the debts and provide for the
common defense and general welfare of the United States).

**[Outside Organizations]{.underline}**: The following organizations are
[supporting]{.underline} the Peru FTA:

-   Business Roundtable

-   Financial Services Roundtable

-   Latin America Trade Coalition (including 711 individual companies
    and associations, large and small, most of which can be found
    [here](http://www.latradecoalition.org/NR/rdonlyres/em2zueg4ji3rdderxq64kiwwcnmgc3lyihgyxubpy5xlbprbtieufmzqwbplbklfpq5kv6xyocjeqsd6nj7smfef4bh/Coalition082907.pdf))

-   National Association of Manufacturers

-   U.S. Chamber of Commerce

PhRMA is remaining neutral on the Agreement, and the United Auto Workers
circulated a letter praising the Agreement, though not explicitly
endorsing it.

The Heritage Foundation has released reports supportive of increased and
freer trade with Peru.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718