USTR Rejects Dominican Republic HFCS Offer, As CAFTA Fight Looms
November 12, 2004
Inside US Trade

The Bush Administration has rejected as unacceptable an offer Dominican Republic President Leonel Fernandez made last month for settling a dispute over a proposed tax on soft drinks made with imported high fructose corn syrup.

In a letter to President Bush delivered last month, Fernandez proposed that the Dominican Republic would agree to drop the small amount of increased sugar access it was given as part of its free trade agreement with the U.S. in exchange for the U.S. accepting less favorable treatment for its HFCS exports, according to informed sources. During an Oct. 11 visit to Miami last month, Fernandez gave a letter to Florida Governor Jeb Bush (R) in the hopes he would pass it on to President Bush.

U.S. business representatives dismissed the offer as unacceptable because it would set a bad precedent. It would allow the Dominican Republic to unilaterally take back the negotiated concession of reduced HFCS tariffs by imposing a new trade restriction, according to one private-sector source. Another industry source said corn refiners would strongly reject any attempt to renegotiate the agreement’s HFCS and sugar provisions. The HFCS tax is contained in a tax package passed by the Dominican Republic’s Congress and signed by Fernandez in October. However, Fernandez sent an amendment to Congress calling for the elimination of the 25 percent HFCS tax (Inside U.S. Trade, Oct. 8, p. 4). To date no action has been taken on the amendment.

In the meantime, the Bush Administration is continuing to move ahead with plans to strip the Dominican Republic out of legislation to implement the Dominican Republic FTA along with an agreement with five Central American countries (DR-CAFTA), a U.S. trade official said. The Bush Administration has long angled to bundle the two deals together.

The U.S. Trade Representative’s (USTR) office has made an “internal decision” on the best way to strip the Dominican Republic out of the implementing legislation it is preparing, and will “shortly” discuss this internal decision with members of Congress, the U.S. official said. USTR Robert Zoellick is scheduled to meet with congressional leaders next week to discuss the 2005 congressional trade agenda, including CAFTA, which USTR hopes to pass by mid-year.

In a Nov. 9 briefing with Central American vice-trade ministers, Assistant USTR for the Americas Regina Vargo gave no firm timetable for congressional action. Instead, she told the viceministers only that votes on the DR-CAFTA deal could come “soon,” a Central American source said.The 109th Congress will be in session for two weeks in February, meaning the earliest the agreement could be considered would come in April or May, one informed source said.

Supporters and opponents of CAFTA expect congressional consideration of DR-CAFTA to be extremely contentious. AFL-CIO Chief International Economist Thea Lee warned publicly this week that opponents would wage a “major fight” to prevent ratification. In a Nov. 9 forum organized by the Global Business Dialogue (GBD), Lee said the fight over the DR-CAFTA deal would be the “first trade fight” of the new Bush Administration.Supporters of the agreement concede that they are 20 to 30 votes away from being able to guarantee passage in the House, one House aide said. Supporters are “not at the point where we have the votes right now,” the aide told reporters after the GBD forum.

The aide argued that supporters would need at least three weeks of lobbying to garner the necessary House votes, making it impossible to bring up the deal in the lame duck session that begins next week and is expected to last only a week. The aide said the Bush Administration has yet to begin lobbying House members to support the deal. Speaking to reporters after the GBD forum, this House aide acknowledged the difficulty in finding Democratic support for the deal especially given the retirement of Rep. Cal Dooley (D-CA), who in the past has been crucial in attracting much needed Democratic support for trade deals.

However, the aide said, House Republicans are looking at incoming Rep. Melissa Bean (D-IL) as a potential ally in the DR-CAFTA fight, given the number of corporate sugar users in Illinois and who might benefit from the increased amount of Central American sugar entering the U.S. under the deal. Bean unseated current Ways and Means Trade Subcommittee Chairman Phil Crane (R) who also championed more U.S. access for less expensive sugar. The aide also pointed to incoming House member Dan Boren (D-OK) as another Democrat that could support the deal.

Opponents of the agreement insist that it will take many more than 20 or 30 votes in the House to get the deal passed, according to another House aide. He noted that 25 House Democrats were needed to pass the 2002 fast-track bill that cleared the House by a slender three-vote margin, as 27 House Republicans broke party lines and opposed that bill. During the GBD forum, this aide predicted that the agreement would be defeated in the next Congress unless the deal’s labor chapter is strengthened and its textiles rules of origin are made more flexible. The aide made this case despite the fact that Republicans gained four seats in this month’s elections and now outnumber Democrats 231 to 200. Many House Democrats have long warned that the labor and environmental provisions of the DR-CAFTA deal are inadequate and have said they cannot support the deal unless those provisions are changed.

Similarly, some House Republicans with textile and sugar producing constituents may find it difficult to support the agreement. Previously, House Democrats have argued that supporters of the deal need to find anywhere from 50 to 60 votes to pass the deal (Inside U.S. Trade, May 7, p. 4). However, chances that the Bush Administration or any of the other signatories would agree to renegotiate the deal appear to be virtually non-existent. The U.S. trade official said President Bush’s DR-CAFTA policy is “to move boldly forward.” With President Bush being re-elected, “we intend to do what we said we were going to do,” the official said. Central American governments have previously warned that they have little interest in renegotiating the agreement.

A Central American official at the GBD forum also played down the chances of any renegotiation, saying the deal is already under congressional consideration in Honduras. Another Central American official said Nicaragua’s Congress is also already considering the agreement, with other Central American governments at varying stages of action. Costa Rica has vowed to first pass a tax reform package before moving on to DR-CAFTA, and a private-sector source said that consideration of the CAFTA has also been slowed by a corruption scandal involving foreign companies unrelated to the actual deal. But the scandal has served to taint the idea of more market access for foreign firms, he said.

El Salvador’s government is trying to find the necessary votes to pass the deal as the opposition left-wing party holds a congressional majority, the Central American source said. This source said it is not clear where Guatemala is in its ratification, as that country has only said that it was awaiting the outcome of the U.S. presidential election before proceeding. With respect to textiles, a House aide expressed doubts at the GBD forum that the DR-CAFTA would be able to shelter U.S. and Central American producers from a likely surge in Chinese exports after the complete elimination of global textile quotas at the end of this year.

The aide argued that despite the benefits Central American and Caribbean producers enjoy under the Caribbean Trade Preferences Act (CBTPA), they have seen their share of the U.S. market decline significantly for items where quotas have already been eliminated. The aide said CBTPA countries’ share of the U.S. market has dropped from 10 percent to 3.4 percent for goods no longer restrained by quota, while China’s share of these items grew from 9 percent to 72 percent. CBTPA allows duty-free and quota-free entry of woven and knit garments from the region if they are manufactured with U.S. yarn and fabric. The CBTPA also provides duty-free entry, subject to a quota, for knit apparel manufactured with regional fabric made with U.S. yarn. The agreement allows duty-free entry subject to a cap for Caribbean t-shirts made with regional fabric that is made from U.S. yarn.

A Central American official argued at the GBD forum that without swift implementation of the DR-CAFTA deal, U.S. cotton exporters would lose an extremely valuable export market. The official said apparel producers in the region are the biggest buyers of U.S. cotton, noting that some 58 percent of cotton apparel exports from the DR-CAFTA countries contain U.S. cotton yarn. In comparison, Chinese exports contain virtually no U.S. cotton yarn, the official noted.

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