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Legislative Update: TPA, Tax Reform, Textiles, Drug Security

Wednesday, December 04, 2013
Sandler, Travis & Rosenberg Trade Report

Trade promotion authority continues to be the most visible trade issue in Congress, but in the shadow of TPA other efforts are moving ahead. These include a proposal for overhauling U.S. international tax rules, a new bill that would toughen enforcement on imported textiles and apparel, and the president’s signature of legislation to enhance the security of drug supply chains.

Trade Promotion Authority. President Obama has said that TPA (also known as “fast track”) is needed to implement the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership agreements currently under negotiation, but the prospects for congressional action on TPA remain unclear. In mid-November nearly two dozen House Republicans and more than 150 House Democrats wrote to the president to express their opposition to TPA, although key House leaders and some Democrats support it. Senate Finance Committee Chairman Max Baucus said Nov. 14 that work on a TPA bill is close to being done and that the measure should be introduced before the end of this year, although further action, including committee markups, is not likely until 2014.

Tax Reform. Chairman Baucus unveiled last month a staff discussion draft on reforming U.S. international tax rules. This draft outlines proposals to reduce incentives for U.S. and foreign multinationals to invest in or shift profits to low-tax foreign countries rather than the U.S., increase the ability of U.S. businesses to compete in foreign markets, tax the foreign income of U.S. businesses either immediately when earned or not at all, and make it harder for multinationals to shift profits to tax havens. Feedback on this draft from stakeholders and the public is being requested by Jan. 17.

Senate Finance Ranking Member Orrin Hatch disagreed with Baucus’ decision to release the discussion draft before the budget conference negotiations have concluded and said “significant policy differences remain between both sides and a final agreement was never reached.” National Foreign Trade Council Vice President for Tax Policy Cathy Schultz added that the discussion draft proposes to penalize multinational companies and would make it more difficult for them to compete globally.

Textiles. Two dozen House members introduced Nov. 20 the Textile Enforcement and Security Act (H.R. 3558), which would provide U.S. Customs and Border Protection with more tools to enforce trade laws and better target fraudulent textile and apparel goods coming into the U.S. Among other things, this bill would (a) increase the number of CBP specialists in the Textile and Trade Agreements division and at over a dozen U.S. ports, (b) clarify that CBP has the authority to seize fraudulent textile and apparel goods imported under trade preference program and free trade agreement rules, (c) establish centralized databases so CBP can more effectively and efficiently identify high-risk importers and supply chains, (d) establish an Electronic Verification Program to track yarn and fabric inputs from FTA partners, (e) use revenue from fines and penalties to reward informants who expose import violations, and (f) require the U.S. government to publish the names of companies that intentionally violate the rules of textile and apparel trade agreements.

Drug Security. President Obama signed into law Nov. 27 the Drug Quality and Security Act (H.R. 3204), which is designed to (1) protect traditional pharmacies and clarify laws related to human drug compounding and (2) create a uniform national standard for drug supply chain security to protect consumers against counterfeit drugs.

Arnie Friede, senior food and drug law attorney for Sandler, Travis & Rosenberg, states that this law creates a regime of significant new Food and Drug Administration controls over large-scale drug compounders now called “outsourcing facilities.” However, coverage under this regime is based on a voluntary registration system; if a compounder elects not to register, the FDA’s authority remains as it was under pre-existing law. Friede notes that as a result, and if significant numbers of large compounders elect not to register, it is unclear what practical impact the law will have.

With respect to the drug supply chain, a fact sheet from the House Energy and Commerce Committee states that this bill establishes a 10-year transition to a unit level tracking system; eliminates the patchwork of red tape on drug manufacturers, wholesale distributors, pharmacies, repackagers and third-party logistics providers; and creates floor and ceiling licensure standards for wholesale distributors and 3PLs while preserving state authority for licensure issuance and fee collection.

Trade Preferences. Fifteen agriculture-related organizations circulated to members of Congress last month a letter expressing “strong opposition” to a long-term or permanent extension of the African Growth and Opportunity Act. The letter said any such extension would remove “any incentive for beneficiary nations to move toward reciprocal trade relationships with the United States” and effectively reward them for “maintaining barriers to U.S. exports that go beyond those permitted in trade agreements.” While the groups acknowledged that replacing AGOA with reciprocal free trade agreements “would be untenable for all but the most advanced of the AGOA countries at present,” they said that at a minimum AGOA beneficiaries “should be expected to refrain from erecting blatantly protectionist and WTO-incompatible barriers to our products.” U.S. Trade Representative Mike Froman said this past summer that the White House is interested in a “seamless” renewal of AGOA before it expires on Sept. 30, 2015, but that modifications to the program are needed to reflect the changes in the global economic situation since AGOA was created in 2000.

Many of the same organizations also signed a letter urging Congress to establish clearer eligibility requirements for the Generalized System of Preferences (which is not currently effective) that would “revoke GSP privileges partly or fully from nations that fail to accord U.S. products treatment consistent with international rules.” The letter calls for special attention to be paid to more advanced developing countries, “which have a particular obligation to validate the privilege of receiving and retaining GSP benefits.”

Separately, the House Foreign Affairs Committee approved Nov. 21 the Increasing American Jobs Through Greater Exports to Africa Act (H.R. 1777). A press release from bill sponsor Rep. Chris Smith says the measure calls for not less than 25% of existing available trade financing to be used for U.S.-Africa projects, with the goal of boosting U.S. exports to Africa by 200% within 10 years. Smith said he sees the bill as “complimenting AGOA … [and] absolutely not replacing it.”

Staff. Jason Park, formerly of the majority staff of the Senate Budget Committee where he worked on tax and trade issues, has joined the Democratic staff of the Senate Finance Committee. Park is expected to serve as international trade counsel focusing on trade adjustment assistance, TPA, customs and other trade issues.

Other. Following is a list of additional trade-related legislation that has been introduced recently. The texts of these bills are or will shortly be available on the Library of Congress Web site.

S. 1653 – to strengthen requirements related to nutrient information on food labels (introduced Nov. 5 by Sen. Blumenthal; referred to the Senate Committee on Health, Education, Labor and Pensions)

H.R. 3467 – to enhance reciprocal market access for U.S. domestic producers in the negotiating process of bilateral, regional and multilateral trade agreements (introduced Nov. 13 by Rep. Slaughter; referred to the House Committee on Ways and Means)

S. 1720 – to promote transparency in patent ownership and make other improvements to the patent system (introduced Nov. 18 by Sen. Leahy; referred to the Senate Committee on the Judiciary)

H.R. 3540 – to require the disclosure of information related to patent ownership (introduced Nov. 19 by Rep. Polis; referred to the House committees on the Judiciary and Energy and Commerce)

S. 1748 – to authorize appropriations to establish public-private partnerships under the Market Development Cooperator Program of the International Trade Administration (introduced Nov. 20 by Sen. Schatz; referred to the Senate Committee on Banking, Housing and Urban Affairs)

S. 1770 – to provide for federal civil liability for trade secret misappropriation in certain circumstances (introduced Nov. 21 by Sen. Flake; referred to the Senate Committee on the Judiciary)

H.R. 3575 – to establish conditions under which U.S. Customs and Border Protection security screening operations may commence at a preclearance facility outside the United States (introduced Nov. 21 by Rep. Jackson Lee; referred to the House Committee on Homeland Security)

H.R. 3619 – to amend and extend the State Trade and Export Promotion Grant Program (introduced Nov. 22 by Rep. Bass; referred to the House Committee on Small Business)

H.R. 3624 – to direct the FDA to revise the federal regulations applicable to the declaration of the trans fat content of a food on the label and in the labeling of the food when such content is less than 0.5 gram (introduced Nov. 22 by Rep. Israel; referred to the House Committee on Energy and Commerce)

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