[CTC] Text: Confidential LAC Interim Report

[Arthur Stamoulis]

Inside U.S. Trade - 06/05/2015
Text: Confidential LAC Interim Report
Posted: June 04, 2015
September 3, 2014

The Honorable Thomas Perez
Secretary of Labor

The Honorable Michael Froman
United States Trade Representative

U.S. Department of Labor
Office of the United States Trade Representative

Re: Labor Advisory Committee for Trade Negotiations and Trade Policy: Advice for Negotiating the Trans-Pacific Partnership Agreement

Dear Secretary Perez and Ambassador Froman:

We strongly support President Obama's efforts to create shared prosperity for all families in America. However, we do not believe that continuing to put in place trade policies similar to those enacted over the last 25 years will in fact achieve our shared goals. In our experience, our current trade policies have been an obstacle to creating good and sustainable jobs, providing the opportunity for rising prosperity for all, alleviating gross income inequality, and reinvigorating our manufacturing sector.

We, as members of the Labor Advisory Committee, on behalf of the millions of working people we represent, believe that our current trade policy is imbalanced. The primary measure of the success of our trade policies should be increasing jobs, rising wages, and broadly shared prosperity, not higher corporate profits and increased offshoring of America's jobs and productive capacity. Trade rules that enhance the already formidable economic and political power of global corporations undermine worker bargaining power, here and abroad, and weaken both democratic processes and regulatory capacity at the national, state, and local levels.

Repeatedly, over many decades, America's workers have protested flawed trade policies, including those enshrined in the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), Permanent Normal Trade Relations (PNTR) for China and more recently implemented agreements.

Under these agreements, U.S. communities lost hundreds of thousands of jobs, as companies shed their U.S. workforces to shift jobs and production to places where workers' fundamental labor and human rights are routinely violated and wages are consequently unfairly suppressed. While there have been some important improvements in trade-linked labor and environmental provisions over the past twenty years, these changes have fallen significantly short of what is needed to guarantee that workers are able to exercise their basic rights and that the environment is protected. The reality is that in Colombia, which is bound to the strongest labor rights provisions in any U.S. trade agreement, workers still cannot exercise their fundamental rights to organize and bargain collectively without fear for their lives and for their families' well-being.

Furthermore, improvements in labor and environmental standards must be coupled with changes to the underlying trade rules, which incentivize the off-shoring of jobs and exacerbate the erosion of worker bargaining power and leakage of trade benefits to countries that are not part of the agreements.

The statutory mandate to provide advice to the USTR and Department of Labor is severely undermined by the lack of full and ongoing access to negotiating texts. Given the importance of trade policy to our nation's overall economic strategy, we will continue our work to reform and update the trade negotiating authority process so that this and future trade negotiations can be more open, democratic, and participatory.

We believe our government must enact and implement a broad set of domestic industrial and economic policies to rebuild, repair and modernize our infrastructure and prepare our workforce for the jobs of the future. Absent these investments, so-called globalization and free trade will continue to leave workers behind.

Similarly, we are concerned that current U.S. trade agreements undermine our regulatory capacity and democratic decision-making processes. We believe strongly that our government must use trade negotiations and trade rules to work toward balanced and reciprocal trade by effectively addressing mercantilist policies such as currency manipulation that harm U.S.-based manufacturers and their employees. Likewise, our trade rules do not effectively address other countries' market-distorting policies that require the transfer of U.S. technology and production in return for market access.

In addition, U.S. trade policies unduly protect and privilege the "rights" of corporations and investors--even to the point of creating a private system of "corporate courts" (investor-to-state dispute settlement, or ISDS). The result is an ever-widening gulf between the share of GDP going to profits for corporations and the share that workers take home. The status quo approach is unacceptable.

America's workers -- and our brothers and sisters around the world -- are not willing to accept more trade deals that put profits before people.

Annexed to this letter is a list of concrete suggestions we have requested in one or more venues since the beginning of the TPP negotiations in 2010. We would very much like to discuss the reasons why these suggestions have not been incorporated into the TPP, while status-quo proposals harmful to working people continue to advance.

Trade can be a force for progress in the world, or it can continue to be a disguise for rules that create profit centers for global corporations that do not behave as good global citizens. This is unsustainable.

The U.S. can and must lead the world in creating progressive trade rules that build middle classes and consumer demand everywhere. America's workers want our government to alter its current approach to trade so that it will promote broadly shared prosperity.

Sincerely,

R. Thomas Buffenbarger
Chair, Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC)

FOR SECURED ADVISERS ONLY

--NOT FOR DISTRIBUTION--

Annex

LAC letter, September 3, 2014

Suggestions for a Worker-Centered Trade Policy

1. Currency: Misaligned currency is an important contributing factor to the U.S. trade imbalance with China and other Asian nations. Overnight, a country can undermine the price-reduction effects of tariff elimination by devaluing its currency. Traditional trade theory assumes the absence of such manipulation, yet USTR has repeatedly failed to address the issue either at the World Trade Organization or in any of bilateral or plurilateral trade agreements.

Since we filed our initial comments on the prospective TPP negotiations in January 2010, we have urged the administration to include in the TPP an "effective tool to deal with misaligned or manipulated currency." We have yet to see any proposal to include effective curbs on currency manipulation in the TPP.

2. Rules of Origin: Strong, specific, and enforceable rules of origin help to ensure the bulk of the benefits of a trade agreement inure to the parties to that agreement--those who have made reciprocal promises to each. Otherwise, benefits are likely to leak to countries that are free to operate in a manner wholly inconsistent with the strictures of the agreement. In our 2010 filing, we advised that "rules of origin should be negotiated such that the signatories are the primary beneficiaries of new market access."

In May 2012, the USTR requested comments on its "RVC Percentages for Select Product-Specific Rules (Non-Textile Goods) in the TPP Negotiations." We responded that the TPP "must include strong rules of origin that will target benefits to the parties to the agreement (including, of course, the United States)--rather than weak rules of origin that will allow non-parties, who have made no reciprocal obligations to the U.S., to reap the rewards. Our primary goal must not be to expand supply chains, but to expand employment opportunities here in America." Moreover, several individual affiliates developed and presented a very thoughtful proposal on regional value content for autos (starting with the current NAFTA standard of 62.5% and increasing over time to a higher 75% using a similar increasing formula to that used in NAFTA). The ambitious proposal is justified because anything less will result in the migration of auto sector jobs to Malaysia, Vietnam, and other TPP partners and away from North America and the U.S. specifically.

Our comments appear to have fallen on deaf ears. It does not appear that rules of origin are being strengthened in any significant way.

3. Market Access Assurances: Part of the reason that successive FTAs have failed to cure existing trade imbalances is that these agreements fail to ensure reciprocal market access. USTR has not developed an impressive history of accurately identifying and eliminating arbitrary and unreasonable non-tariff barriers. Such tools were included in a very limited way in the Korea FTA, but the proof is in the pudding. So far, the Korea FTA has only succeeded in adding to our trade woes. In our January 2010 filing on the TPP, we advised that "a results-oriented approach that allows for automatic responsive measures when market access limitations are not lifted should be included in a TPP."

Since then, testimony by the AFL-CIO and UAW at the International Trade Commission requested that reductions in U.S. tariffs on Japanese imports must be tied to an actual, verifiable opening of the Japanese auto market and a substantial reduction in our bilateral auto trade deficit with Japan.

Unfortunately, we have seen no proposals that would ensure that tariff reductions for Japan on autos, auto parts, and light trucks will be contingent upon actual inroads into the Japanese market.

4. State-Owned Enterprises (SOEs): While the AFL-CIO recognizes that foreign direct investment (FDI) can and often does contribute to the creation and maintenance of high-skill, high-paying jobs, such an outcome is not inevitable. Of particular concern are investments by state-owned, state-controlled, and state-influenced enterprises (collectively SOEs) which may not operate on the basis of commercial considerations, but instead may orient their operations to drive existing U.S. competitors out of the market, to undermine U.S. supply chains or to transfer valuable technology, equipment, intellectual property, and other assets to the home country or other points abroad. Moreover, regardless of an SOE's purpose for in investing in the U.S., if it can access subsidized inputs (such as low or no cost capital or subsidized inputs imported directly from its home-country operations), traditional U.S. anti-dumping and countervailing duty law would not be able to reach such behaviors, leaving U.S.-located producers and their employees injured and without remedy.

To address this issue, we were hopeful that provisions in the TPP would appropriately discipline the behavior of SOEs. We have been providing advice on creating such disciplines since our initial filing in 2010. After numerous in-person meetings and multiple rounds of written comments, including specific textual suggestions, we remain greatly concerned about the current state of the SOE disciplines.

Our greatest concerns about the SOE Chapter's current weakness include lack of coverage for mergers and acquisitions, an adverse effects test that is too limited and will leave too many workers without remedy, lack of coverage for sovereign wealth funds, lack of clarity regarding the ability to address SOE activities in our domestic market that may have an anti-competitive impact on production and jobs, and whether the definition of an SOE is broad enough to cover necessary foreign commercial entities while providing definite assurances for public services in each country and U.S. public institutions.

5. Labor Provisions: As you know, firms that can operate in conditions in which ILO core labor standards are not respected will drive down wages and working conditions, drawing in additional investment, enabling social dumping of lower-priced goods, and suppressing wages and working conditions in other markets against which producers everywhere are forced to "compete." Past trade agreements, even those that contain the so-called "May 10" provisions, failed to include standards and institutions that would effectively protect labor rights and reverse the race to the bottom. Thus, in Colombia, illegal subcontracting and threats against workers persist, and in Peru, the government has weakened some labor and environmental laws in hopes of attracting additional foreign investment.

In the case of labor provisions, not only have we attended a number of meetings and submitted numerous written comments, we joined with trade union federations from a number of other TPP nations to draft a labor chapter so there would be no question regarding our advice on meaningful improvements to the labor provisions. The following list comprises critical suggestions we have made that we understand were never included in the USTR labor chapter proposal:

a. Reference to the ILO Core Conventions, not just the ILO Declaration.

b. Elimination of the "May 10" footnote limiting the interpretation of the labor provision to the Declaration--a "principles" document--rather than the ILO Conventions, which the ILO relies upon to interpret labor standards.

c. A requirement that Parties not waive or derogate from any of their labor laws (laws implementing either ILO Core Conventions or acceptable conditions of work)--regardless of whether the breach occurred inside or outside of a special zone.

d. A broader definition of "acceptable conditions of work" to also include all wages (not just minimum wages), workers representatives, termination of employment, compensation in cases of occupational injuries and illnesses, and social security and retirement, as well as a directive that Parties should "give full effect" to any ILO conventions or recommendations that cover any of the aforementioned "acceptable conditions of work."

e. The ability of a petitioner to bring a claim based on a single egregious violation, rather than waiting for a "sustained or recurring course of action" to occur.

f. An entirely new article protecting the rights of migrant workers and specifically guaranteeing them the same rights and remedies under its labor laws as they relate to the core labor rights as well as wages, hours of work, occupational safety and health and workers compensation. We also proposed an annex laying out "Protections for Workers Recruited Abroad."

g. Additional duties for the Labor Affairs Council, including preparing reports on matters related to the implementation of the Chapter and developing guidelines for consideration of public communications to the LAC that include clear deadlines. (See Model Labor Chapter Article 17.7.2 and Annex 2 for full details--the major point of Annex 2 is that a meritorious submission will not languish, but will continue to move through the system in a prompt fashion).

h. A requirement that a Party that has received a public submission and has issued a finding that, if confirmed, would lead the Party to determine that the Party complained against is in violation of its obligations under the labor chapter must continue to proceed to the next step in the process. We also requested clearer deadlines for each Party to advance labor cases (to avoid years-long delays like those confronted in the Guatemala and Honduras cases).

i. The creation of an independent labor secretariat and Trans-Pacific works councils for firms operating in more than one TPP country.

6. Investment: In order to ensure that the TPP achieves shared prosperity rather than simply further skewed gains for global corporations, it is important that the TPP provide better balance in its investment provisions. If the skew toward private interests in the investment chapter is not remedied, global corporations will continue to force a race to the bottom, chilling efforts to increase labor, environmental, public health and consumer safety standards by countries competing with each other for foreign direct investment (FDI). Such a competition cannot and does not benefit working families, either here or abroad. America in particular cannot win and should not engage in such a race to the bottom. As such, since our first TPP filing in 2010, we have put forth a number of suggestions to rebalance investment protections to provide due respect and space for governmental decisions about how best to secure the public interest, including not only the replacement of the investor-to-state dispute settlement process (ISDS) with a state-to-state mechanism, but other specific, practical changes to the investment chapter and the ISDS process to address current shortcomings, key elements of which are included below.

a. Require investors to exhaust domestic remedies before filing an ISDS case.

b. Require a foreign investor to have the burden of demonstrating that a purported standard of protection under customary international law is based on actual state practice rather than on the unsupported assertions of previous investment tribunals (as the U.S. argued in the Glamis Gold case).

c. Codify the traditional, narrow definition of Minimum Standard of Treatment so that it applies only to the following three areas (as the U.S. argued in the Glamis Gold case): The obligation to provide internal security and protection to foreign investors and investment; to not deny justice by engaging in notoriously unjust or egregious conduct in judicial and administrative proceedings; and to provide compensation for direct expropriation.

d. Clarify that regulatory measures that adversely affect the value of an investment but do not transfer ownership of the investment or permanently destroy its entire economic value do not constitute acts of indirect expropriation.

e. Narrow the definition of investment to include only the kinds of property that are protected by the U.S. Constitution. This would mean excluding the expectation of gain or profit and the assumption of risk.

f. Ensure that foreign investors may not use the most favored nation principle to assert rights provided by other investment agreements or treaties.

g. Explicitly limit national treatment to instances in which a regulatory measure is enacted primarily for a discriminatory purpose.

h. Clarify the language to ensure that foreign subsidiaries are not allowed to bring investment claims against a nation that is the home of their parent company.

i. Modify the restriction on capital controls (used for example in the U.S.-Korea FTA, Art. 11.7.1(a)) so that it allows the use of such controls--at least with regard to circumstances consistent with recent IMF guidance.

j. In Annex 10-B on Expropriation, strengthen the "exception" by omitting the phrase "except in rare circumstances." In addition, the non-exhaustive list of "excepted" policies should also explicitly include, "labor," "decent work" as that term is understood by the ILO, and all measures that Parties take in order to comply with the Labor and Environment Chapters of the agreement.

Our understanding is that none of these suggestions have been incorporated into the TPP's investment chapter.

7. Enhanced Screening Mechanism for Inward Bound FDI: On a related note, we have repeatedly recommended that the administration improve the current Committee on Foreign Investment in the United States protocol so that the Committee can examine more than just national security issues, but can also consider economic security. The U.S. should emulate the screening mechanisms that Australia and Canada use (e.g., add a "net economic benefit test") in order to ensure that FDI is not used to undermine the U.S. economy or U.S. workers. Existing policy prevents the U.S. from scrutinizing deals such as the original proposal by China Development Bank Loan to Lennar Corporation, which would have required the homebuilder to use a Chinese state-owned construction company. Specifically, we requested that USTR abandon its policy of constricting other nation's investment screening policies and instead leave room for the U.S. to add such a policy in the future. Our understanding is that this suggestion has been rejected.

8. Procurement: Because they undermine important job creation programs, we have long opposed procurement chapters altogether. We believe that government procurement at the federal, state, and local level is an important tool of economic and social policy. When governments so decide, they should be able to use stimulus funds to create jobs within their borders, and not be required to spend those funds to create jobs elsewhere. In addition, it is simply bad policy to limit a government's ability to make its spending conditional so as to advance domestic social policy. We strongly support the widest possible use of Buy America, Buy American, and Buy "State" policies. We oppose any procurement commitments in FTAs that restrict the potential stimulative benefits of procurement programs by requiring procuring entities to treat foreign bidders the same as domestic bidders or that do not allow government entities to prohibit the purchase of goods made with child labor, forced labor, under unfair labor conditions, from employers who unlawfully discriminate, or from employers who practices otherwise undermine U.S. policy. Since our 2010 filing on the TPP, we have recommended, in the case that the Administration refuses to omit a procurement chapter, that:

* The USG should negotiate language that would carve out from procurement access obligations all procurement projects funded by stimulus funds appropriated in response to a verified recession.

* The USG should expand the language in the "May 10" agreement to include living wage laws and, for the sake of clarity, prevailing wage laws.

Not only do we understand that the USG has failed to include either recommendation in its TPP proposals, we were surprised to learn at a recent meeting with your staff, that these suggestions regarding prevailing wages were "new" to them. Such a response indicates our suggestions were never seriously considered at all.

9. Dock-on: The existence of the dock-on approach presents a potential major problem--the rules negotiated in the TPP could be even more devastating to U.S. workers depending upon which countries join at a later date. Since our 2010 filing, we have repeatedly urged the Administration to include standards for new entrants regarding labor rights, democratic governance, open markets, and other readiness criteria. To date we have not seen a proposal for such provisions in the TPP. We therefore remain concerned that future administrations would commence negotiations with inappropriate trading partners and without adequate Congressional consultation and approval. In addition, while we have been assured that Congress will have an opportunity for an up or down vote for each new entrant to the TPP, we have seen nothing in writing. We are reluctant to trust such oral assurances and would prefer to see the legislative text that would ensure that, unlike for the WTO, Congress must vote in the affirmative before any new party may join the TPP.

10. Elimination of Technology Transfer Mandates and Production Offsets in Return for Market Access: Some foreign countries rely heavily on official and non-official policies that force U.S. companies to transfer technology, production, and jobs in return for market access or government procurement. While such activity has been well-noted by the Department of Commerce, Bureau of Industrial Security in its annual reports to Congress with respect to the defense industry, this market distorting mechanism also occurs in the commercial sector--the effect is clear: it is yet another incentive to move jobs and whole factories from the U.S. As we have argued in numerous fora, trade agreements, including the TPP, should prohibit such activity. To date, we are unaware of any proposals in the TPP to effectively eliminate this practice.

11. Intellectual Property: Though we strongly support intellectual property protections, we have long opposed excessive protections for pharmaceutical products, which form part of the basic human right to health care. Proposals that require patent linkage, excessive data exclusivity periods, and evergreening of patents and that ban pre-grant opposition to patents actually deter innovation instead of promoting it by turning drug makers into rent seekers instead of innovative organizations. Since our initial TPP filing in 2010, we have recommended that pharmaceutical protections adhere to the TRIPS, rather than TRIPS+ provisions that jeopardize access to affordable medicines, particularly in developing countries. In addition, we recommended that USTR abandon its so-called "transparency provisions" that give drug makers leverage over drug listing and pricing decisions made by government health programs.

The USTR's proposals for the TPP failed to incorporate any of these recommendations (in fact, some of the USTR's intellectual property proposals were not even fully consistent with existing U.S. intellectual property law). Although we understand the text has subsequently changed due to strong opposition by TPP Parties, since we have not seen the working text, we do not know if those changes will adequately protect U.S. job creation while promoting public health here and abroad.

12. Services and Regulations: From the beginning, we have also provided concrete suggestions for improving the carve-out for public services and clarifying the prudential exception for the financial services chapter. Such suggestions will preserve the stability of our financial system and the right of state, local, and national governments to provide public services at the level and in the manner they see fit. Likewise, we have objected to a variety of proposals that would undermine effective environmental protections and food and consumer product regulations and put in place burdensome obligations to engage in "regulatory impact analysis" and similar requirements that undervalue the protective benefits of regulations while overemphasizing the "costs" to business interests.

Given our lack of access to the working texts, we do not know the latest status of these texts or to what degree, if any, our suggestions have been incorporated.

Inside U.S. Trade - 06/05/2015 , Vol. 33, No. 22
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