Ramming the Matter Home: Peru-U.S. FTA Rushed, Diluted and Finagled

Council on Hemispheric Affairs

For Immediate Release

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Ramming the Matter Home: Peru-U.S. FTA Rushed, Diluted and Finagled

WASHINGTON - Two weeks ago, as the Peruvian Congress
buoyantly rushed to amend labor, health, and environmental requirements
in order to implement the long pending bilateral Free Trade Agreement
(FTA) with the U.S., former President George W. Bush and Peruvian
President Alan García could not afford any further delays. As
Barack Obama moved into the White House, it was clear that the Bush and
García Administrations' priority was to declare the FTA in effect
regardless of what had been previously negotiated and amended in the
halls of the Peruvian Congress. The U.S.-Peru Trade Promotion Agreement
will go into effect on February 1, 2009 as Bush and García finalized
the implementation of the FTA with their respective signatures on
January 16.

In the final days of Peru's Congressional session, legislators moved
quickly to get the job done before Bush left office. Congress approved
giving the Peruvian government temporary authority by applying Article
105 of Peru's constitution, which allows bills to bypass a committee
and go directly to the floor of Congress. This maneuver permitted Lima
to rapidly bring Peru's regulatory standards in line with the
stipulations of the trade agreement. However, a number of opposition
legislators in Peru as well as House Democrats in the U.S. have argued
that the rash lunge by the Peruvian legislature undermined the quality
of the debate and the legal framework that was being used to establish
labor and environmental protections. Similarly, Bush's widely perceived
hasty signature was met with skepticism and objections from civic
organizations and lawmakers in both countries.

Background
After a long debate that included compromises on both sides of the
aisle, the U.S. Congress approved the FTA with Peru in December 2007.
The passage of the FTA had been delayed in the House and the Senate due
to apprehension, mainly from Congressional Democrats, regarding Peru's
patently deficient environmental and labor protections history. After a
seeming impasse in the process, Congressional Democrats and former U.S.
Trade Representative (USTR) Susan Schwab arranged a
congressional-executive branch agreement that attempted to address the
various concerns. The agreement, named "A New Trade Policy for
America," prohibited Peru from weakening environmental and labor laws
and addressed various other concerns, such as intellectual property
rights and access to generic medicine. The new policy prevented
President Bush from officially authorizing the FTA until there was
compelling evidence that Lima had strengthened laws on trade unions and
the environment, a move immediately endorsed as a "fundamental shift in
U.S. trade policy," which would "spread the benefits of globalization
[in the U.S.] and abroad by raising standards." Although some Democrats
continued to question the likelihood that the new agreement would
actually uphold environmental and labor standards, enough of them were
converted to allow the FTA to pass.

In order to bring Peru's laws into correspondence with "A New Trade
Policy for America," President García enacted the 102 Legislative
Decrees before the first six months of 2008 had passed. The Peruvian
press, policymakers, and activists argued that a number of Garcia's
decrees actually weakened Peru's environmental and labor protections
and were detrimental to the agriculture industry along with indigenous
rights. The Peruvian Constitutional Commission added legitimacy to
these claims by declaring roughly forty percent of the decrees
unconstitutional. COHA has previously noted that a few of these decrees
had been overturned after protests led by indigenous groups and human
rights organizations were registered. However, many contested decrees
regarding intellectual property rights, as well as issues pertaining to
the environment, health, and labor remained outstanding at the official
end of Peru's legislative session in December 2008. Hence, Peru's
Congress agreed to extend their session to Jan. 15 in order to attempt
to quickly resolve what outstanding issues needed to be addressed.

Environmental Issues
On January 13, just two days before the end of Peru's extended
Congressional session, the government pushed through legislation that
dealt with environmental concerns that had been highlighted by U.S.
authorities. According to Doug Palmer of Reuters, one of the
modifications strengthened a law protecting the Amazon rainforest. The
measure modified the Forestry and Wildlife Law by strengthening
restrictions on forestry concessions, but opposition legislators and
environmentalists continued to argue that loopholes were allowed to
remain. They contended that the recently amended law created incentives
for large-scale deforestation of the Amazon. For instance, Roger Najar,
the head of Peru's indigenous caucus, reported to the Associated Press
on January 16: "The new law means 70 percent of the Amazon runs the
risk of deforestation." He said that an earlier decree, signed by
President García in January 2008, had considered sugar cane and bamboo
plantation developments to be in Peru's national interest. As such, the
previously protected forest may be transformed into cane, bamboo, pine
and castor bean commercial plantations, as bio-fuel developments are
advanced as "a matter of national interest." In defense of the new law,
despite its implicit threat to the environment, Antonio Brack, Peru's
environment minister, asserted that the measure was stronger than the
previous bill and that Najar was misinterpreting it.

The amendments to the forestry law also eliminated accountability
mechanisms, and limits public participation in government decisions
concerning the Amazon rainforest. According to Inside U.S. Trade, the
National Forest Policy Consultative Committee was purged as part of the
changes. This committee allowed the public to hold the government
accountable and promoted a dialogue about decisions regarding the
forestry sector. The modifications also make forestry management less
accountable, by eliminating the previously required "Environment Impact
Studies." Forestry management plans may now be approved with less
stringent "Declarations of Environmental Impact."

Intellectual Property Rights
The final week for legislating also included changes to a decree on
intellectual property rights. The amended law strengthened protections
for data concerning pharmaceutical products and granted a minimum
period of five years for the patent protection of new medicines. This
five year monopoly prohibits cheaper generic drugs from entering the
market, and it will restrict many lower and middle income Peruvians
from accessing affordable medicines. This law also applies to
chemicals, such as pesticides, but the restrictions on generic
production increases to a minimum of 10 years. These investor
protections ostensibly are supposed to encourage foreign investment
which will in turn benefit the Peruvian public. Yet, many contend that
they are not in the interest of the average Peruvian, whose autonomous
interests now will have to succumb to the foreign multinational
pharmaceuticals and agribusinesses.

Law 29316, which was adopted on January 14, creates a possibility to
patent genes obtained from Peruvian flora and softens the requirements
for attaining a patent. This measure conflicts with the Andean
Community of Nations' (CAN) intellectual property provisions, which
offer greater protection of indigenous and local resources. This shows
that the Garcia administration is clearly more interested in
international bilateral trade agreements than its regional commitment
to CAN. Likewise, the new law disregards the protection of the
Collective Knowledge of Indigenous Peoples in regards to indigenous
communities' biological resources. As Oxfam America Policy Director,
Gawain Kripke, confirms in an AFL-CIO press release, "Reforms to date
are inadequate and some laws recently enacted in the context of the FTA
undermine the rights of indigenous peoples and farming communities."
Indigenous communities are worried that the measure enacted will
facilitate bio-piracy of their resources by easing the steps for a
person or a private company to patent local resources or knowledge.

Labor Rights
The most disputed and criticized issue of Peru's last minute
FTA-related legislative changes were labor laws. Just two days before
Bush and García declared the FTA into effect, House Ways and Means
Committee Chairman Charles B. Rangel (D-N.Y.) and Trade Subcommittee
Chairman Sander M. Levin (D-Mich.) sent then-USTR Schwab a letter
asserting that Peru had failed to enact laws and regulations to meet
its labor obligations and that Schwab should "resist setting any
artificial deadline" until the labor issue had been fully resolved. The
letter states, "We are particularly concerned that the President may
allow the entry into force of the FTA before Peru has implemented its
obligation (under Article 17.2.1 of the FTA) to adopt and maintain in
its statutes, regulations and practices the fundamental right of
workers to freely associate and collectively bargain." The letter
raises the issue of subcontracting as a means to undermine workers'
ability to form a union. According to it, a law in 2007 ended the
practice of subcontracting, but a 2008 decree opened loopholes allowing
subcontracting "by creating a vague exception that applies whenever
Peru's labor department deems it ‘reasonable' to do so."

In response, Schwab sent a letter the next day asserting that "Peru
has put in place the laws and regulations necessary" in order to meet
the conditions of the FTA. But doubts still remain.

Eight labor and environmental organizations, including the AFL-CIO,
Sierra Club, Oxfam America and the World Wildlife Fund, issued a joint
statement calling for a delay to ensure adequate protections. The
letter pointed out that a number of Congressmen and women supported "A
New Trade Policy for America," because it included stronger provisions
promoting labor rights and protecting the environment. They worried
that a rushed process and a hasty certification would undermine the new
policy and secure weaker laws already in place. As Susan Ellsworth, an
Associate Representative with the Sierra Club, claimed, "The U.S.
Congress voted for an FTA that members believed represented a new day
for environmental protection and worker rights in trade agreements.
This is not what is likely to happen if Peru rushes through flawed laws
at the 11th hour. We need sufficient time and a transparent process to
ensure that Peru's laws and regulations fully comply with the letter
and spirit of the agreement," argued Thea Lee, trade policy specialist
at the AFL-CIO. She maintained that Peru's labor laws did not meet the
International Labor Organization's standards. According to Lee, "we are
deeply disappointed with the Bush administration's decision to rush
implementation without first securing compliance with the agreement's
provisions. This represents a wasted opportunity and shows poor faith
on the part of our own government."

Peru's labor organizations also advocated stronger labor reforms.
They had also hoped the new policy would bring change, but, according
to them, they were let down by Peru's Congressional process. The
aforementioned joint statement cites the Unitary Workers Central (CUT)
President Julio Cesar Bazan and the General Confederation of Workers of
Peru (CGTP) President Mario Huaman, "In the face of the Peruvian
government's rush to seek implementation of the FTA before President
Bush leaves office, [CUT] and [CGTP] urge the government to slow down
and protect the rights of working people. The best way to do this would
be to pass a new General Labor Law."

A Change Bush and Garcia Could Have Belief In
Ignoring the input from House Democrats, opposition legislators of
Peru, and social justice organizations in the U.S. and Peru, García and
Bush signed off on January 16 to implement the U.S.-Peru Trade
Promotion Agreement as of February 1, 2009. Republican lawmakers, the
business community and dignitaries of both countries hailed the
agreement. U.S. ambassador to Peru, Michael McKinley said the
implementation of the FTA was a significant "milestone in the excellent
relations" between the U.S. and Peru. Former USTR Schwab issued a
statement asserting, "This is the first free trade agreement in force
that will reflect the enhanced labor and environmental standards set
out in the May 10, 2007, agreement between the Administration and the
congressional leadership." Business groups also endorsed Peru's new
investor-friendly laws.

Peru's Prime Minister, Yehude Simon, quietly acknowledged that the
letter sent by Rangel and Levin was an issue of concern for the
Peruvian government. However, he thought it best to wait on further
analysis of the new laws. As Andina cites Simon, "It is surprising to
hear from [Rangel and Levin] that Peru is not fulfilling all
requirements. Anyway, I'll wait for the ministers' report."

President Alan García declared that the signing of the FTA allowed
Peru to achieve an important "national goal." García was especially
pleased, because he was concerned that if it did not go into effect
during Bush's term it could have been delayed months in the incoming
Obama Administration. Before the agreement was signed, Peru's Foreign
Commerce and Tourism Minister Mercedes Araoz told the Peruvian Congress
that the Obama administration would need time to adjust. She urged,
"[Their] priority will focus on the internal recession more than
finishing a treaty. We could be facing a delay of a year or more." In
turn, this would have delayed a number of outstanding FTA deals Peru is
currently negotiating with Canada, the EU, China and other Asian
countries, as Andina cited Felipe Ortíz de Zevallos, the Peruvian
ambassador in Washington. The latter agreements had the "implied
condition" that the U.S.-Peru Trade Promotion Agreement be implemented.
Thus, the U.S.-Peru Trade Promotion Agreement was Garcia's means to
more bilateral trade deals.

The terms of the agreement expands Peru's duty-free access to the
U.S. that it has enjoyed under the Andean Trade Preference Act (ATPA)
and the Andean Trade Promotion and Drug Eradication Act (ATPDEA), since
their enactment in 1991. In return, 80 percent of U.S. exports of
industrial and consumer products to Peru will be duty-free as of
February 1, 2009 when the agreement enters into force. Thus, Peru will
immediately remove duties on more than two-thirds of U.S. subsidized
farm exports, such as wheat, high quality beef, fruits, vegetables, and
other processed foods. As small and middle-scale Peruvian farmers are
forced to compete with U.S. subsidized agricultural imports, it is
estimated that countless farmers will be forced off their land,
exacerbating problems, such as urban poverty, the drug trade, and
forced migration as was experienced in Mexico after NAFTA was
implemented. Within five years, an additional 7 percent of U.S. exports
will be duty-free, and all remaining tariffs will be dropped within 10
years. The agreement will also open Peru's domestic economy and service
markets to U.S. multinational companies and boost intellectual property
rights protections. The trade agreement with Peru will have been the
14th and final FTA to enter into force under the Bush administration.

Schwab and Garcia's Dirty Tricks
In the end, the FTA was declared into effect without the proper
Peruvian legal institutions in place, even though the members of the
U.S. House Ways and Means Committee and leaders from both the U.S. and
Peru's civil society and non-governmental sectors urged Peru to slow
its Congressional process and enable the debate to play out, in order
to ensure labor and environmental protections within Peru. Peru's
Congress hastily debated and passed a number of modifications to
earlier legislation during the concluding days of their final session
in order to get USTR Susan Schwab's approval before Bush left office.
After Schwab issued the statement of entry into force on January 16,
Rangel and Levin responded in a statement the same day, "We made it
clear to the United States trade representative that these issues
should be resolved prior to certification. Regrettably, they were not,
as the administration has moved to certify the FTA during its last
hours in office." There appears to be a good bit of evidence that "A
New Trade Policy for America" was undermined due to Bush and García's
political goals.

The question now is whether President Obama intends to continue a
similar trade agenda or move a new one forward, to allow the passage of
the Panama and Colombia trade agreements only if important amendments
are made to protect U.S. workers and their Latin American counterparts.
While Obama is powerless to prevent the implementation of the Peru FTA,
his administration can and should urge Peru to make further
improvements to its labor, environmental, and intellectual property
rights laws. The Ways and Means Committee will likely continue pursuing
a dialogue with Lima on the labor issue, and Rangel and Levin "are
confident that the Obama administration will improve enforcement of
trade agreements, including the use of the dispute settlement mechanism
in the Peru and other FTAs." It is doubtful, however, that Peru's labor
and environmental standards are high up on Obama's priority list. The
necessary pressure may have to come from the ground-up in Peru. Last
year, indigenous farmers, labor groups and environmentalists organized
and exhibited their determination to stimulate the political will of
Peruvian legislators to close loopholes and abolish García's
decrees-they are capable of similar actions in the future.

As of February 1, 2009, subsidized U.S. food will flood into Peru's
supermarkets and presumably shift Peru's trade surplus to a trade
deficit. Wal-Mart, well-known throughout the world for its "social
responsibility," is also thinking about colonizing Peru in the near
future, according to Andina. As the new FTA ensures investor
protections for multi-national corporations, more of these corporations
and their industrial model, which marginalizes labor rights and the
environment as mere externalities, are likely to negate any obstacles
to expanding trade at any cost.

This analysis was prepared by COHA Research Associate Will Petrik

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Founded in 1975, the Council on Hemispheric Affairs (COHA), a nonprofit, tax-exempt independent research and information organization, was established to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of the inter-American relationship, as well as encourage the formulation of rational and constructive U.S. policies towards Latin America.

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