AWPA Wireline - June 2004

After months of difficult negotiations, the Senate approved the JOBS Act (S 1637) which repeals the current US export tax regime and implements roughly $174 billion in business tax reforms over 10 years. The bill represents a major step forward in current efforts tool eliminate the export tax provisions ruled illegal by the WTO in 2002 and to end EU sanctions (currently 7%) that have been imposed on a number of US exports since March 2004. S 1637, which is revenue neutral, includes a number of tax relief provisions for US manufacturers and other business taxpayers, as well as international tax reforms to help level the playing field for US companies with global operations. Included is $170 billion in different tax breaks for businesses, lower tax rates for some major manufacturers, and $14 billion in tax incentives for the energy sector.

The Senate bill also allows US companies to defer more tax payments on profits made abroad, and grants them a one-year grace period to transfer back home their overseas profits, 85% of which are tax-exempt. To soften the measure's negative impact on the budget deficit, the bill eliminates some tax havens and tightens tax-evasion
prevention.

Meanwhile in the House, the Senate approval breathed a new life into the House version of the FSC fix and the House passed HR 4250 written by Ways and Means Chairman Bill Thomas (R-CA). However, differences with the Senate bill will likely result in a contentious conference.

It has become even more urgent for the Congress to pass this legislation because the European Union has recently expanded by 10 countries and 75 million people. All EU trade laws apply to these new countries, including the punitive tariffs levied against the US.

The US and Brazilian Co-Chairs of the Free Trade Area of the Americas (FTAA) negotiations made progress in narrowing their differences over what should be in the common set of rights and obligations of the FTAA during a May meeting. Sources say the key to the progress was new Brazilian willingness to consider intellectual property enforcement and new American willingness to consider aspects of agricultural support issues. But it remains highly unrealistic to think that the FTAA could yet be concluded by the deadline of January 2005 given the amount of work that remains for the negotiating groups once they receive new instructions from the vice ministers.

The US and Panama held their first round of free trade negotiations in Panama City. Nearly half ($1.8 billion) of Panama's imports come from the US. The negotiating teams hope to conclude the bilateral FTA later this year so that it can be ready for congressional approval in 2005.

Peru and Ecuador will join with Colombia in the first round of a US-Andean Free Trade Agreement. Colombia had been judged the most ready to begin negotiations, but recent steps by both Ecuador and Peru to resolve some outstanding disputes with the US led the Administration to view them as ready to begin FTA negotiations as well. The US hopes to include Bolivia at a later stage.

The Central American Free Trade Agreement (CAFTA) has also been signed between the US and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The Dominican Republic is expected to sign the agreement later. The bill can now be sent to Congress for approval. However, the Bush Administration has not indicated when it will send it to the Hill, and it will likely be next year.

The pact represents a relatively small amount of trade. Together, the Central American countries are the 13th largest export market for the US in 2003, the US exported $11 billion in goods to the five nations of CAFTA.

According to the USTR, the average allowed tariff on agricultural goods is 60% in Nicaragua, 49% in Guatemala, 42% in Costa Rica, 41% in El Salvador, and 35% in Honduras. Under the agreement, most agricultural tariffs will be phased out over varying periods, from five years on some products to 20 years for chicken leg quarters and dairy products.

Congressional approval is not a certainty. The sugar and textile industries have been lobbying members to oppose the pact since its completion was announced. In addition, labor groups are concerned about the agreement's provisions that call for participating nations to enforce their own labor laws.

Meanwhile, the US and Bahrain have come to terms on a free trade agreement, according to the USTR. The Administration must now notify Congress of its intent to sign the deal, which begins a 90-day consultative process after which the legislation can be signed. Two-way trade between the US and Bahrain totals $887 million annually.

Finally, USTR Zoellick and Australian Trade Minister Mark Vaile signed the US-Australia Free Trade Agreement, clearing the way for both governments now to seek final approval of the deal by the respective legislatures. The FTA immediately removes tariffs on 99% of US industrial exports to Australia, making it the most front-loaded FTA for manufacturing ever negotiated.

Zoellick recently expressed cautious optimism that his goal of securing agreement on the broad principles of a negotiating framework for the round is within reach. This is because the European Union stated it was finally ready to end its much-criticized agricultural export subsidies and back down on its demands for WTO negotiations on the so-called Singapore issues (competition, investment, transparency in government procurement and trade facilitation). The EU is sending a letter to trade ministers from all 148 WTO members that will state the EU is committed to pushing ahead with the stalled round and is willing to take a more flexible stance.

However, disagreements over dismantling farm trade barriers remain a tough problem. The Cairns Group of farm exporters and the Group of 20 developing countries led by Brazil want deep cuts by rich nations. But the EU, Japan, South Korea and Switzerland remain reluctant to open their highly protected markets.

Some countries, such as Brazil, have recently signaled a more conciliatory stance, but others, such as India, are sticking to rigid positions and resisting any agreement that would require them to cut their own farm import barriers.

California environmentalists have sued the EPA for allegedly failing to review and set water pollution technology standards in a timely way for thousands of industrial facilities across the US. Our Children's Earth Foundation and the Ecological Rights Foundation charge that EPA violated the Clean Water Act by abdicating its obligation to review the adequacy of the standards each year.

The standards, known as effluent limitation guidelines (ELG), determine the best available technologies for industrial facilities that discharge wastewater to the environment. Section 304 of the CWA requires EPA "to revise effluent limitations annually, if appropriate," and set a schedule every five years for reviewing all effluent guidelines.

The new lawsuit alleges that the two-year review policy violates the law and that EPA has not abided by the terms Congress spelled out for setting ELGs under the Act. Among other things the agency gave more weight to the costs imposed by the new guidelines than the technological feasibility of installing better systems, the plaintiffs charge. Additionally, they charge EPA wrongly determined it could rule out new guidelines for sectors with discharges the agency believes pose low health and environmental risks.

Plaintiffs ware calling on the court to enforce the law's requirement that all effluent guidelines be reviewed at five-year intervals.