[CTC] Connolly Faults USTR Official For Failing To Rebut TPP Enforcement Criticisms

[Arthur Stamoulis]

Insert Nelson laugh here...

Inside US Trade
Connolly Faults USTR Official For Failing To Rebut TPP Enforcement Criticisms
Posted: December 03, 2015

Rep. Gerry Connolly (D-VA), a Democratic supporter of Trade Promotion Authority and the Trans-Pacific Partnership (TPP), this week criticized a U.S. trade official for failing to adequately respond to allegations by TPP opponents that the agreement lacks strong enforcement mechanisms.

During a Dec. 2 hearing of the House Foreign Affairs subcommittee on Asia and the Pacific, Assistant U.S. Trade Representative Bruce Hirsh was repeatedly hammered by subcommittee Ranking Member Brad Sherman (D-CA) about how the administration would enforce the rules of origin of TPP.

Sherman, a vocal critical of TPP, asked how the administration could avoid instances where, for example, a Chinese company with production facilities in Vietnam cooked its books to make it appear that it satisfied the content requirements of the TPP agreement to secure duty preferences.

Connolly took issue with Sherman's line of questioning, saying that it presumed cheating on a massive scale. In an attempt to prod Hirsh to counter Sherman's point, Connolly then asked Hirsh whether there were rules in TPP that could penalize a country for turning a blind eye or being complicit in such a pattern of abuse.

When Hirsh said he would have to check and get back to him on that, Connolly was clear in expressing his disappointment.

"It's a pretty significant question my friend from California is asking, and I think it's pretty important that you answer it hopefully forthrightly and forcefully, because frankly this goes to the question of: are there teeth in the enforcement of this agreement or not?" Connolly said.

"Are there consequences for serious patterns of evasion and cheating or not?" he continued. "Because if there aren't, then the treaty isn't worth much. We already have cheating without a treaty.”

In comments to reporters, Connolly reiterated that he supports TPP, but signaled that the USTR official's inability to address criticisms like Sherman's directly would be to the detriment of efforts to pass the deal. "The fact that [Hirsh] needed to get back to us on that was not reassuring, and unfortunately allowed, in a sense, the legitimacy of the underlying point Mr. Sherman was making to remain," he said.

In a subsequent email exchange with Inside U.S. Trade, USTR spokesman Matthew McAlvanah said that under TPP, "the United States can deny preferential treatment for goods that do not meet the rules of origin, apply penalties, and withhold preferential treatment to identical goods from a trader if a pattern of false or unsupported claims by that trader for TPP benefits is found.”

"The TPP will also allow us to address cheating directly with other countries, by providing a cooperation mechanism that will help us determine whether traders are committing fraud or evading duties," McAlvanah added.

He referred specifically to a provision pertaining to Customs Cooperation, found in Article 5.2, that requires parties to cooperate with each other through "information sharing and other activities" to achieve compliance with their laws and regulations -- including as they pertain to preferential tariff treatment.

The Rules of Origin chapter also requires parties to disclose where an exporter is located if the importing party decides to conduct a verification of a preferential tariff claim. The government of the country where the exporter is located may also assist in the verification process, but is not bound to do so.

During his exchange with Sherman, Hirsh said U.S. officials conduct "spot checks" to ensure compliance with the rules of origin. Midway through his answer, Sherman interrupted and reacted incredulously.

"Every invoice, every inter-company billing decision is totally in the control of those who want the free entry of the product. What's spot checking -- spot checking could verify that nothing was being done to the product in Vietnam, but how would you possibly know whether it was 33 percent or 23 percent Vietnamese-made?" Sherman asked.

Hirsh responded that officials also look at a company's books to make sure they follow generally accepted accounting principles.

This was also shot down by Sherman. "I'm probably the only CPA in the room, and I know that 'generally accepted accounting principles' does not answer the question," he said.
 

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