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

  • García and Bush signed the FTA into force just before Bush left office.
  • In its final week of being in session, Peru’s Congress closed labor and environmental loopholes as new ones were opened.
  • Big shots in U.S. and Peru hail the FTA as a great success, but labor, environmental and indigenous organizations mock such a claim.
  • Grounds to charge former USTR Susan Schwab and Bush administration for violating the rules in order to precipitously invoke the FTA with Garcia.

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.

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