By Krista Hughes and Richard Cowan
WASHINGTON (Reuters) - The discovery of scores of graves in people-smuggling camps in Malaysia is casting a shadow over President Barack Obama’s signature trade deal as U.S. lawmakers consider punishing trading partners that are soft on human trafficking.
Just as Obama's drive to win "fast-track" trade negotiating authority for the deal entered its most sensitive stage in the U.S. Congress, Malaysian police announced the discovery of 139 graves in jungle camps used by suspected smugglers and traffickers of Rohingya Muslims from Myanmar.
"This new information is very alarming," Senator Robert Menendez told Reuters, referring to the burials in the Southeast Asian country, which would be a signatory to a massive Pacific trade pact that Obama wants to complete this year.
When Menendez, a Democrat on the Senate Foreign Relations Committee, was asked if he still supported a compromise that he helped craft that would let Malaysia and other countries appearing on a U.S. black list for human trafficking participate in fast-tracked trade deals under certain circumstances, the senator said: "I'd like to try if it's possible to keep it as it is."
A spokesman said he is not opposed to the substance of his compromise, although he prefers the original language.
That compromise would have replaced Menendez's language, currently in a Senate-passed bill pending in the House of Representatives, that would bar from fast-tracked trade deals Malaysia and all other countries that earn the worst U.S. human trafficking rankings.
Trade experts consider the stricter language a "poison pill" that could condemn the entire Trans-Pacific Partnership (TPP) to a laborious congressional approval process.
It would mean that trade deals with countries ranked "Tier 3" on trafficking, the State Department's lowest, could not be fast-tracked, so either the TPP could not be expedited or Malaysia would have to leave.
The Menendez compromise was never voted upon in the Senate. By backing away now, he hopes to build support in Congress for maintaining his original, tougher language.
Having fast-track negotiating authority in place would allow Obama to negotiate the TPP, which links a dozen countries and covers 40 percent of the world economy, knowing Congress only has a yes-or-no vote and could not pick the deal apart.
The White House is working with Republicans on a legislative sleight-of-hand that would allow the House to vote on the fast-track bill containing the tougher language, betting it would be overridden by softer language in companion trade legislation.
But opposition from Menendez - an influential voice on foreign affairs who backed two of three major trade deals in 2011 - and other lawmakers could make that more difficult.
Most of Obama’s Democratic Party and some Republicans oppose fast-track.
House Democratic leader Nancy Pelosi supports the original language and says it is "an important step in advancing the debate over human rights as the TPP is negotiated," her spokesman said.
The Malaysia revelations come as the U.S. State Department prepares to release its annual human trafficking scorecard this month and decide whether to keep the country at Tier 3 following a downgrade last year.
The discovery of the graves puts pressure on the State Department to keep Malaysia on Tier 3, but it is no sure bet it will. The State Department draws a distinction between smuggling and trafficking. Smuggling, done with the consent of those involved, differs from trafficking, in which people are trapped by force or deception into labor or prostitution.
The graves were found in an area long known for the smuggling of Rohingya and local villagers reported seeing Rohingya in the area, but Malaysia's Deputy Home (Interior) Minister Wan Junaidi Tuanku Jaafar has said it was unclear whether those killed were illegal migrants or legal foreign workers.
"THE MALAYSIA FIX"
The State Department would need to show that Malaysia has neither fully complied with minimum anti-trafficking standards nor made significant efforts to do so to justify keeping Malaysia on Tier 3.
Malaysia has an estimated 2 million illegal migrant laborers, many of whom work in conditions of forced labor under employers and recruitment companies in sectors ranging from electronics to palm oil to domestic service.
An administration official said a major cause of the trafficking problem in Malaysia related to foreign workers who are subject to forced labor and debt bondage, and the White House was working closely with the Malaysian government and stakeholders to fight the problem.
"TPP is on track to require signatory countries to address forced labor through enforceable labor provisions, which would be a major step forward in regional and international efforts to address this problem," the official said. "Further, we are working with Malaysia on specific actions to help ensure that it can meet this commitment.”
Among the 12 TPP countries, Brunei has also come under attack by human-rights groups for adopting Islamic criminal law, which includes punishing offenses such as sodomy and adultery with death, including by stoning. Vietnam's Communist government has been criticized for jailing dissidents.
The trade battle could peak in the deeply divided House in mid-June if Republican House Speaker John Boehner estimates there are enough votes to pass a bill that he favors.
For many wavering lawmakers, the main worry is the economic impact the deal would have on their home districts.
Behind the scenes, House Republican leaders and the White House, which sees trade deals as a way to engage trading partners in debate on issues such as human rights, have worked hard on what some were calling "the Malaysia fix" to soften the language.
The Republican chairman of the House Ways and Means Committee, Paul Ryan, said the original language would unfairly punish other TPP partners, such as Japan and Australia, and the issue was best dealt with in a customs enforcement bill that is intended to move through Congress along with fast-track.
"We shouldn’t confer Malaysia’s sins to these other countries that we’re trying to get agreements with,” he told reporters.
David Abramowitz, a vice president with the human rights group Humanity United, said he wanted to see the exact language on this issue that House Republican leaders intend to attach to a customs enforcement bill.
His organization supported the compromise worked out in the Senate. "I believe that this approach is a positive step forward in that it requires real action by Malaysia" or other countries that may be involved in future trade agreements, Abramowitz said of the Senate language.
But some House Democrats said neither the original Menendez language nor the compromise version is enough.
"Congress should insist that Malaysian laws and practices change to meet international standards before we vote on TPP," said Sander Levin, a senior House Democrat.
(Paragraph four incorrectly said Menendez was the senior Democrat on the Senate Foreign Relations Committee. He is on the committee but is not its senior Democrat)
(Additional reporting by Al-Zaquan Amer Hamzah in Kuala Lumpur and David Lawder in Washington; Editing by Kevin Drawbaugh, Jason Szep, Stuart Grudgings and Steve Orlofsky)