On Friday, January 4, 2019, the Office of the U.S. Trade Representative (USTR) announced that the United States has requested consultations with Peru under the auspices of the U.S.-Peru Trade Promotion Agreement (PTPA) to address an alleged violation by Peru of the environmental chapter of the agreement. According to USTR, Peru’s recent decision to move its previously-independent Agency for the Supervision of Forest Resources and Wildlife (OSINFOR) to a subordinate position within the country’s Ministry of the Environment conflicts with the express commitment under the PTPA that the agency remain independent.

The PTPA entered into force in February 2009, and total trade between the two countries has nearly doubled since that time to $15.9 billion in 2017. The PTPA was the first U.S. trade agreement – followed by agreements with Panama, Colombia, and Korea – to incorporate the more stringent and enforceable labor and environmental standards established in the May 10, 2007 Bipartisan Agreement on Trade Policy, known as the “May 10th Agreement.”

The United States’ decision to raise this issue in formal consultations with Peru is notable in two contexts. First, the specific provision of the PTPA’s environmental chapter that guarantees OSINFOR’s independence is found in the Annex on Forest Sector Governance – a unique set of commitments designed to address the environmental and economic consequences of trade associated with illegal logging and illegal trade in wildlife. Illegal logging in particular was a priority concern for the United States in negotiating the PTPA, and OSINFOR is the Peruvian agency, established in 2008, primarily responsible for detecting and combatting illegal logging. Thus, ensuring the agency’s ongoing independence and ability to enforce Peru’s forestry commitments is an important policy concern for the United States in the context of the U.S.-Peru trade relationship.

Second, the Trump Administration is in the process of seeking Congressional support for the U.S.-Mexico-Canada Agreement (USMCA), designed to replace NAFTA. As we previously noted, the USMCA’s labor and environmental provisions are likely to be a sticking point for House Democrats, even though USTR has stated that the USMCA comports with the May 10th Agreement. USTR’s action to enforce this particularly critical issue arising under the PTPA may be seen as a move to demonstrate the Administration’s commitment to the USMCA’s environmental terms and thereby garner Democratic support for the deal.

With the United States’ request for consultations, the parties have 60 days to resolve the dispute before the United States can request separate consultations or a meeting of the PTPA Commission under the dispute settlement provisions of the agreement. In a statement, USTR explained that it “will continue to confer with Members of Congress, interested agencies, and stakeholders on the results of these consultations before considering any further actions.”