S. 3569, the United States-Oman Free Trade Agreement Implementation Act
June 28, 2006
Summary and BackgroundS. 3569, the United States-Oman Free Trade Agreement Implementation Act (the “Oman Act”), as reported by the Senate Finance Committee, would implement the United States-Oman Free Trade Agreement (the “Agreement” or the “FTA”). In 2003, President Bush announced his intent to pursue Free Trade Agreements with Oman, the United Arab Emirates (“UAE”), and other Middle Eastern nations, and to establish a Middle East Free Trade Area (“MEFTA”) by 2013, as part of its strategy to promote democratic and economic reforms in the region. The United States has already implemented Free Trade Agreements with Jordan, Morocco, and Bahrain.
The Oman Act will be considered under the Trade Promotion Authority (“TPA”) or “fast track” rules established under the Trade Promotion Act of 2002 whereby Congress must consider implementing legislation through an up or down vote within 90 days of the President’s formal submission of the trade agreement to Congress. Under TPA rules, debate is limited to 20 hours and amendments are not in order.
The United States Trade Representative signed the Agreement on January 19, 2006. President Bush formally submitted the Oman Act to Congress on June 26, 2006, triggering the fast track process. The Senate Finance Committee and the House Ways and Means Committee held “mock markups” of the legislation during the week of June 26, 2005.
On July 28, 2006, the Senate Finance Committee voted in favor of the Oman FTA implementing text 14-6. The Senate is expected to take floor action on S. 3569 on June 29, 2006.
Major Provisions Title I: Approval of, and General Provisions Relating to, the Agreement Title I of
S. 3569 would:
Provide congressional approval for the Oman Act and the Statement of Administrative Action proposed to implement the Oman Act, as required by the Trade Promotion Authority;
Allow United States law to prevail in the case of a conflict: the Oman Act would not supersede federal law; only the United States would be able to challenge any state law as inconsistent with the Oman Act and there would be no private right of action under the Oman Act;
Provide the President the authority to proclaim actions and issue regulations needed prior to entry into force of the Oman Act;
Establish a congressional consultation and layover provision that the President must follow before proclaiming certain changes to tariffs and “rules of origin” under the Oman Act;
Authorize the President to establish and fund an office in the Department of Commerce that would provide administrative support for dispute resolution panels;
Authorize disputes under the investment chapter be settled under the Investor-State dispute settlement procedures; and
Provide the Oman Act to take effect on the date on which the Oman Act enters into force, and termination.
Title II: Customs Provisions Title II of
S. 3569 would:
Provide the President the authority to proclaim tariff reductions and modifications;
Terminate Oman’s Generalized System of Preferences (“GSP”) status on the date on which the Oman Act enters into force;
Establish “rules of origin” that define what goods are eligible for preferential treatment under the Oman Act and create procedures for the President to modify those rules;
Waive the Customs User Fee for qualifying imported goods from Oman;
Provide the Administration the authority to investigate and liquidate textile imports that are found not to comply with rules of origin provisions;
Provide for reliquidation of imports; and
Grant the Secretary of the Treasury the authority to prescribe regulations for the aforementioned rules of origin.
Title III: Relief From Imports Title III of
S. 3569 would:
Create a safeguard mechanism through the United States International Trade Commission (“ITC”) to address import surges that result from duty reductions under the Oman Act; and
Create a safeguard mechanism for textile and apparel imports that could increase the rate of duty after an investigation is completed by the ITC. The investigation would determine whether there has been “serious injury” or a threat to the domestic industry producing an article that is like, or directly competitive with, the imported article. No safeguard could be in place for longer than 3 years, and the entire safeguard provision expires in 10 years. The party invoking the safeguard would be required to provide trade-liberalizing compensation.
Title IV: Procurement Title IV of
S. 3569 would:
Provide access to the bidding process for federal government procurements to eligible goods and services from Oman.
Major Issues
Market Access Oman maintains relatively low applied tariffs, about 10.5 percent for agricultural goods and 5 percent for other goods. Its bound rates in the WTO are held at 28 percent and 11.6 percent for agricultural and industrial goods, respectively. Duties of over 100 percent are in place for beer, alcohol, and tobacco, which is common in Muslim countries. Over 400 tariff lines are already duty free, including some agriculture goods, medications and medical supplies, transportation equipment, and printed materials.
Under the FTA, nearly all U.S. exports will enter Oman duty-free upon entry into force of the Agreement. Exceptions include a five-year phase-out for fish, milk, dairy, textiles and apparel (201 tariff lines), and a 10-year phase-out for other textiles and apparel (86 tariff lines). Oman will retain duties on imports of bananas, dates, and lemons for 10 years. Alcohol, tobacco, swine, and other culturally sensitive products will enter duty free after ten years, but will still be subject to regulation and taxation. There are no tariff rate quotas (“TRQs”) for U.S. exports.
The United States commits to immediate duty free treatment for most Omani exports, a treatment they already receive under the Generalized System of Preferences (“GSP”). Exceptions include a five-year phase-out of the tariffs on certain fruits, vegetables, apparel, and textiles such as blankets, rugs, linens, and curtains (209 tariff lines) and 10-year phase-out for 173 tariff lines, including some footwear, ceramic products, and television parts. Date imports will enter duty free after ten years, and ski racing apparel faces special limitations for nine years. Tariff rate quotas are prescribed for 189 tariff lines, including beef, dairy products, peanuts, sugar, cotton, and tobacco.
While Oman is already subject to the obligations of the WTO Technical Barriers to Trade Agreement (“TBT”), the FTA’s TBT chapter encourages further transparency and cooperation, especially in rulemaking and testing and certification. The Agreement requires each country to allow nationals from the other country to participate in standards development bodies. The transparency chapter requires Oman to adopt rigorous anti-corruption and anti-bribery measures.
Services The FTA contains a general services chapter, a chapter on financial services, and a chapter on telecommunications services. As a whole, Oman's services commitments go far beyond its commitments in the General Agreements in Trade in Services (“GATS”), where it chose not to make commitments in several sectors to which it commits in the FTA. Oman takes only seven reservations (i.e., exceptions), including some financial services provided by the Omani Housing Bank and the Omani Development Bank, security services, and employment services.
The FTA would permit cross-border provision of portfolio management services without a commercial presence, and allow 100 percent ownership of branches and subsidiaries. U.S. insurance providers will no longer face the 70 percent equity limit when establishing a presence in Oman, and new insurance products will be approved in 30 to 60 days. The Omani telecommunications sector is already largely open under Oman’s WTO commitments.
The primary U.S. services exports to Oman are travel and tourism, royalties from software licensing and distribution, and transportation services. Of the 17 insurance companies active in Oman, American Life Insurance is the only U.S. company.
Some concerns have been raised about whether the Oman FTA would allow companies from Oman and companies that conduct business activities in Oman to control U.S. ports. Specifically, the U.S. Schedule of Annex II (Investment and Services Non-Conforming Measures) to the Agreement includes landside aspects of port activities, operation and maintenance of docks, loading and unloading of vessels directly to or from land, marine cargo handling, operation and maintenance of piers, waterfront terminal operations, and other related activities. Under the terms of this Agreement, companies from Oman would be entitled to conduct these activities in the U.S. In light of the of the recent Dubai Ports World experience, concerns have been raised as to whether the Administration would invoke national security provisions or exceptions in the case of foreign acquisitions of strategic infrastructure and assets.
Intellectual Property Rights (“IPR”) According to the USTR, Oman has made progress in strengthening intellectual property rights protections, implementing a new trademark law in 2000 and enhanced copyright protection laws in 1996 and 1998. Since 1999, Omani officials have stepped up enforcement efforts. As a WTO member, Oman is subject to the WTO Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) Agreement. In 2002, Oman implemented the World Intellectual Property Organization (“WIPO”) Copyright and Performances and Phonograms Treaties, which extend traditional copyright protection to works transmitted by the Internet and other digital media.
As with all bilateral FTAs, the U.S.-Oman Agreement goes beyond TRIPS obligations. For example, for the first time in any FTA, copyrights for sound and audiovisual records are extended to 95 years from first publication – the same standard as in the United States. Other copyrights are extended to life plus 70 years. The FTA also obligates the parties to protect against piracy of satellite television programming.
The IPR chapter commits Oman to accede to the WIPO Patent Cooperation Treaty, which would make it easier for U.S. companies to obtain patent protection and recognition in Oman. Patents will be made available for new uses of existing or known products, and the 20-year patent term may be extended to account for administrative delays. The Agreement also clarifies obligations to protect not only patents, but also data related to safety and efficacy of pharmaceuticals and agricultural chemicals (so-called “data protection”).
The Agreement contains enforcement language, including a mandate that fines for IPR violations be sufficient to deter further infringements. It also contains language that clarifies internet service provider liability for hosting infringement activity, and criminalizes trafficking in counterfeit labels or documentation affixed to phony goods.
Sanitary and Phytosanitary Measures The Sanitary and Phytosanitary (“SPS”) measures chapter reaffirms both parties’ commitments under the WTO SPS Agreement, which requires parties to ensure that measures to protect plant and animal health are non-discriminatory and science-based.
One important obstacle was the shelf-life standard for imported food Oman and other Gulf Cooperation Council (“GCC”) countries have used. The standard enforced strict shelf-life and labeling standards for 58 food products that were not based on science and therefore at odds with the WTO SPS Agreement. In its accession to the WTO, Oman committed to eliminate mandatory shelf-life standards for shelf-stable foods from the date of accession and revise its shelf-life requirements program to meet the substantive requirements of relevant WTO Agreements.
Investment The investment chapter is modeled on provisions in the Chile, Singapore, and Morocco FTAs. The chapter requires national and MFN treatment for covered investments. Specifically, neither country may impose performance or nationality requirements as a condition of investment.
National treatment does not apply to specified “non-conforming” measures, which for Oman includes the purchase of real estate by foreign nationals (which is limited to tourist areas) and differential treatment for countries with which Oman signed aviation and maritime agreements prior to this FTA.
Both parties must also submit to a binding investor-state dispute resolution mechanism under terms provided in the chapter.
Labor As in other FTAs, the labor chapter does not require the parties to have labor laws that meet basic, internationally-recognized standards; the parties only agree to “strive to ensure” that their labor laws are consistent with internationally recognized labor rights. Where parties fail to effectively enforce their labor laws (whatever those laws happen to be), they may be subject to dispute settlement provisions as outlined in the Agreement. The dispute settlement provisions for labor and environment issues are distinct from those applicable to other provisions of the Agreement – generally involving longer time lines and using fines rather than suspension of benefits as the penalty.
The Agreement also establishes a Labor Cooperation Mechanism, which facilitates cooperation on fundamental worker rights and their effective application, working conditions, and other relevant issues.
Oman has ratified the International Labor Organization’s (“ILO”) Convention 29 on forced labor, Convention 182 on the worst forms of child labor, Convention 105 on the abolition of forced labor, and Convention 183 on the minimum age of employment. Oman has ratified the United Nations Protocol to Prevent, Suppress, and Punish Trafficking in Persons, Especially Women and Children. Oman also has a U.S.-funded technical assistance program with the ILO.
Omani workers had no representation prior to the 2003 labor law, which created worker representative committees. Oman and the USTR argue that these serve similar purposes as unions, but others have pointed out that management serves on the representative committees. About 30 representative committees had been formed as of May 2006, according to the United States Embassy in Oman. The law also provides for dispute settlement between employers and employees, fines for violations of the law, maximum working hours, and equal treatment for women. Labor issues are discussed more fully below in the section entitled, “Other Considerations.”
Environment Enforcement of environmental laws. The Agreement commits both parties to effectively enforce their environmental laws and subject this obligation to binding dispute settlement. As with the labor provision, the dispute settlement and enforcement rules for violations of the environmental provision are different than for violations of other provisions in the Agreement. The Agreement also states in unenforceable language that each country will strive to refrain from weakening these laws to encourage trade and investment. Both parties must provide procedures laws (e.g. judicial or quasi-judicial) to address a violation of environmental laws, and maintain a means for a public dialogue on these laws. These provisions are the same as in previous FTAs.
Subcommittee on the Environment. The Agreement would allow the parties to establish a Subcommittee on Environment at the request of either party under the Joint Committee administering the FTA. If either party finds that the other has failed to enforce its environmental laws, it may request consultations.
Memorandum of Understanding on Environmental Cooperation. A separate Memorandum of Understanding on Environmental Cooperation annexed to the Agreement outlines initiatives for professional exchanges, information sharing, and joint research to strengthen environmental laws enforcement, improve air quality, protect water resources, and improve public participation in environmental protection. It would also establish a Joint Forum on Environmental Cooperation to monitor the progress of these initiatives.
Textiles“Yarn forward” rule of origin. Current Omani exports of textiles to the United States face a duty of approximately 15 to 16 percent. Once the Agreement is in place, nearly all “originating” textiles from Oman will enter duty free although blanket and linen tariffs are phased out over 5 years, and wool yarn, fabric, and apparel tariffs are phased out over 10 years. To qualify for this treatment, the Agreement requires these exports to be assembled from Omani or U.S. inputs (the “yarn forward” rule). The Agreement also grants a Tariff Preference Level (“TPL”) for cotton and manmade fibers using third country or “non-originating” inputs for 10 years. The TPL is not to exceed 5 million square meter equivalents annually, slightly less that total U.S. textile imports from Oman in 2004. Once the preference period expires, all trade falls under the “yarn forward” rule.
Textile safeguard. The textiles chapter also includes a safeguard that could increase the rate of duty to the MFN rate (which is 16.7 percent for cotton trousers) after an investigation is completed. No safeguard could be in place for longer than 3 years, and the entire safeguard provision expires in 10 years. The party invoking the safeguard would have to provide trade-liberalizing compensation.
Other Considerations Boycott of Israel. Oman claims that it has not enforced the primary, secondary, or tertiary boycotts on Israel since 1994. The “primary” boycott forbids direct trade with Israel, “secondary” boycott blacklists companies that operate in Israel, while the “tertiary” boycott applies to companies that have relationships with companies that operate in Israel. For several years, Israel and Oman maintained trade representation offices in each other’s countries, though they were closed in 2000. The Minister of Commerce and Industry re-emphasized Oman’s policy of not enforcing any boycott of Israel in a September 2005 letter to USTR Portman.
There is no serious dispute that Oman has stopped enforcing the secondary and tertiary boycotts. A June 8, 2006 Jerusalem Post article alleged, however, that Oman was enforcing the primary boycott of Israel, citing an interview with a senior Customs official who stated quite clearly that goods from Israel would not be allowed to enter Oman. The Omani government and the U.S. government have argued that the article was inaccurate and that no boycott of Israel is in place.
Labor. A number of Democrats have raised concerns about Oman’s labor laws. Until 2003, unions were outlawed in Oman. Starting in 2003, Oman allowed worker representation committees, which Oman maintains serve similar functions to unions. House Democrats have argued that in various areas – both in law and enforcement – Oman’s laws do not meet the basic “core” standards established by the International Labor Organization. Specifically, concerns have been raised about the role of management in the representation committees, whether there is a right to strike in practice and in law, whether there is a right to engage in collective bargaining in practice and in law, and whether there are adequate protections for foreign workers. USTR and the Government of Oman maintain that in law and in practice, Oman’s labor standards do meet ILO minimums. Oman has agreed to make additional changes to its laws in October of this year. Negotiations with House Democrats had been ongoing but are unresolved as of the date of this document.
In addition, the Bush Administration stripped out a
Conrad/Bingaman/Kerry amendment adopted unanimously (on a recorded vote) by the Senate Finance Committee. The amendment would have prohibited any goods made with slave labor, forced labor, or labor that had been subject to human trafficking from benefiting from the preferential access provided for in the FTA. The genesis for this amendment was a report alleging that companies in Jordan were importing workers from Bangladesh, Pakistan, and other poor countries, taking away their passports, working them 80-100 hours per week, paying them inadequately if at all, and subjecting them to physical intimidation and in some cases violence. The report alleged that many of these workers actually paid recruiters thousands of dollars to get these “good jobs” and so could not leave until they had earned enough money to pay off their debts.
Foreign policy. The United States has long-standing ties with Oman, dating back to a treaty of friendship signed with the Sultanate in 1833. The United States has had use of military facilities in Oman since 1979, which have been the staging areas for the 1979 attempted rescue of American hostages in Iran, as well as the recent invasions of Afghanistan and Iraq. Oman military facilities have at times hosted as many as 4,000 U.S. military personnel, as well as munitions and aircraft. Oman has been cooperative in its efforts to monitor financial flows and intelligence flows relating to terrorism. The Omani port of Salalah joined the U.S. Container Security Initiative in 2005, opening its cargo to pre-screening of U.S. bound cargo by U.S. officials.
Government procurement. The FTA procurement chapter sets out clear definitions, rules, transparency and notice requirements for government procurement of goods and services. A side letter promises Omani state-owned entities will also procure goods and services in a transparent and commercial manner.
Most importantly, the chapter specifically addresses reported Omani practices of non-publication of significant public tenders, as well as the provision of a 10 percent price preference to bids that contain a high level of local content.
Legislative HistoryThe United States-Oman Free Trade Agreement was signed on January 19, 2006. President Bush formally submitted the bill to implement the Agreement to Congress on June 26, 2006. That submission kicked off the fast track process, whereby the Senate Finance Committee and the House Ways and Means Committee held a markup of the legislation. This markup is largely a formality, however, as the legislation is not amendable and because a floor vote is guaranteed regardless of whether the bill is reported favorably by Committee.
On July 28, 2006, the Senate Finance Committee voted in favor of the Oman FTA implementing text 14-6. The Senate is expected to take floor action on S. 3569 on June 29, 2006.
Proponents and Opponents Supporters of the Oman FTA include the Business Roundtable, the U.S. Chamber of Commerce, the National Association of Manufacturers, and the Emergency Committee for American Trade. The FTA is opposed by 400 organizations, including all of the leading labor unions. Other opponents include faith-based organizations such as the Presbyterian Church USA and the United Methodist Church. Environmental groups such as the Defenders of Wildlife, Friends of the Earth, Sierra Club, and the Western Organization of Resource Councils also oppose the Oman FTA.
Statement of Administration PolicyA Statement of Administration Policy (“SAP”) on S. 3569 from the Office of Management and Budget (“OMB”) was not available at press time.
Possible AmendmentsBecause the legislation is fast tracked, no amendments are allowed.
http://democrats.senate.gov/dpc/dpc-new.cfm?doc_name=lb-109-2-92 
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