[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]




 
                    FREE TRADE AREA OF THE AMERICAS

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 22, 1997

                               __________

                             Serial 105-32

                               __________

         Printed for the use of the Committee on Ways and Means

                               ----------

                     U.S. GOVERNMENT PRINTING OFFICE
50-672 cc                    WASHINGTON : 1998




                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California              ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisories announcing the hearing................................     2

                               WITNESSES

U.S. Trade Representative, Jeffrey M. Lang, Deputy; accompanied 
  by Peter Allgeier, Assistant U.S. Trade Representative for 
  Inter-American Affairs.........................................    22
U.S. Department of State, Jeffrey Davidow, Assistant Secretary 
  for Inter-American Affairs.....................................    31
U.S. General Accounting Office, JayEtta Z. Hecker, Associate 
  Director, International Relations and Trade Issues, National 
  Security and International Affairs Division....................    67

                                 ______

Aebi Nursery, Lina Aebi Hale.....................................    98
Association of American Chambers of Commerce in Latin America, 
  Vincent McCord.................................................    39
California Cut Flower Commission, California Floral Council, and 
  California Rose Growers, Lina Aebi Hale........................    98
Campbell, Hon. Tom, a Representative in Congress from the State 
  of California..................................................    19
Caribbean/Latin American Action, Hon. Antonio J. Colorado........    49
Council of the Americas, William T. Pryce........................    45
Esso Inter-America Corp., Vincent McCord.........................    39
Farr, Hon. Sam, a Representative in Congress from the State of 
  California.....................................................    15
Floral Trade Council, Arthur L. Heyl.............................   105
Florida Citrus Mutual, Bobby F. McKown, as presented by Matt 
  McGrath, Barnes, Richardson and Coburn.........................   113
Hale, Lina Aebi, California Floral Council, California Cut Flower 
  Commission, California Rose Growers, and Aebi Nursery..........    98
Heyl Roses, Inc., Roses, Inc., and Floral Trade Council, Arthur 
  L. Heyl........................................................   105
Institute for International Economics, Jeffrey J. Schott.........    61
International Intellectual Property Alliance, Eric H. Smith......    54
Kolbe, Hon. Jim, a Representative in Congress from the State of 
  Arizona........................................................    10
Lande, Stephen, North-South Center, University of Miami..........    81
McCord, Vincent, Association of American Chambers of Commerce in 
  Latin America, and Esso Inter-America Corp.....................    39
McKown, Bobby F., Florida Citrus Mutual, as presented by Matt 
  McGrath, Barnes, Richardson and Coburn, and Florida Citrus 
  Mutual.........................................................   113
Pryce, William T., Council of the Americas.......................    45
Roses, Inc., Arthur L. Heyl......................................   105
Schott, Jeffrey J., Institute for International Economics........    61
Smith, Eric H., International Intellectual Property Alliance.....    54
Sweeney, John P., Heritage Foundation............................    75

                       SUBMISSIONS FOR THE RECORD

American Farm Bureau Federation, statement.......................   123
Association of Floral Importers of Florida, Eugenio M. Valdes, 
  statement and attachments......................................   124
Bernal, His Excellency Richard L., Ambassador, Government of 
  Jamaica, statement.............................................   142
Clawson, James B., JBC International, letter.....................   141
Deutsch, Hon. Peter, a Representative in Congress from the State 
  of Florida, statement..........................................   130
Distilled Spirits Council of the United States, statement........   131
Intellectual Property Committee, Jacques J. Gorlin, statement....   133
International Trademark Association, New York, NY, David C. 
  Stimson, letter and attachment.................................   139
JBC International, James B. Clawson, letter......................   141
Jamaica, Government of, His Excellency Richard L. Bernal, 
  Ambassador, statement..........................................   142
Mattel Toys, Inc., El Segundo, CA, statement.....................   147
Ramstad, Hon. Jim, a Representative in Congress from the State of 
  Minnesota, statement...........................................   150
Rubber and Plastic Footwear Manufacturers Association, statement 
  and attachment.................................................   150
Shaw, Hon. E. Clay, Jr., a Representative in Congress from the 
  State of Florida, statement....................................   152
Stimson, David C., International Trademark Association, New York, 
  NY, letter and attachment......................................   139
United States-Mexico Chamber of Commerce, Albert C. Zapanta, 
  statement and attachment.......................................   153
Valdes, Eugenio M., Association of Floral Importers of Florida, 
  statement and attachments......................................   124
Zapanta, Albert C., United States-Mexico Chamber of Commerce, 
  statement and attachment.......................................   153


                    FREE TRADE AREA OF THE AMERICAS

                              ----------                              


                         TUESDAY, JULY 22, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:14 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
presiding.
    [The advisories announcing the hearing follow:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                Contact: (202) 225-1721
FOR IMMEDIATE RELEASE

April 14, 1997

No. TR-5

                       Crane Announces Hearing on

                    Free Trade Area of the Americas

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the status and outlook for 
negotiations aimed at achieving a Free Trade Area of the Americas 
(FTAA). This hearing is the second in a series which began March 18, 
1997, to consider major U.S. trade initiatives. The hearing will take 
place on Thursday, May 8, 1997, in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include Deputy U.S. Trade 
Representative Jeffrey Lang. Also, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    The goal of free trade in the Western Hemisphere was first put 
forward by President Bush in June 1990 when he proposed the Enterprise 
of the Americas Initiative. At the December 1994 Summit of the Americas 
in Miami, leaders of 34 Western Hemisphere democracies agreed to 
establish a FTAA in which barriers to trade and investment will be 
progressively eliminated. They committed to begin the process 
immediately, make concrete progress by the year 2000, and to conclude 
negotiations by no later than 2005. The Summit Declaration signed on 
December 11, 1994, identified 11 major areas that will be covered in 
the negotiations: market access, customs procedures and rules of 
origin, investment, sanitary and phytosanitary measures, standards and 
technical barriers to trade, subsidies, antidumping and countervailing 
duties, smaller economies, competition policy, government procurement, 
intellectual property rights, and services. Subsequent ministerial 
meetings held in 1995 and 1996 have established working groups to 
prepare for negotiations on these issues.
      
    Recognizing that substantial progress towards economic integration 
in the hemisphere has already been made, the Declaration calls for 
building on ``existing sub-regional and bilateral arrangements in order 
to broaden and deepen hemispheric economic integration and to bring the 
agreements together.''
      
    Since 1990, four sub-regional groups in particular have made 
considerable progress in breaking down intra-regional trade barriers. 
Mercado Comun del Sur, the ``Common Market of the South,'' consists of 
Argentina, Brazil, Paraguay, and Uruguay and is the second largest 
preferential trading group in the Americas, after the North American 
Free Trade Agreement. The Andean Pact, consisting of Bolivia, Colombia, 
Ecuador, Peru, and Venezuela, ranks third. The Caribbean Community and 
Common Market, consisting of 13 English speaking Caribbean nations, has 
agreed to implement a common external tariff over a period of 6 years, 
although members will be able to maintain their own non-tariff 
barriers. The Central American Common Market, originally established in 
1961, was reinvigorated in 1990.
      
    There is growing concern, however, that the exclusive nature of 
these trade alliances may prove disadvantageous to U.S. business 
opportunities and leadership in the region, and inconsistent with the 
goal of free trade in the hemisphere.
      
    Western Hemisphere Trade Ministers held their first meeting under 
the FTAA process in June 1995 in Denver, Colorado, and the second 
meeting in March 1996 in Cartagena, Colombia. On May 15, 1997, in Belo 
Horizonte, Brazil, Ministers will consider when and how to formally 
begin FTAA negotiations. In March 1998, President Clinton will join 
Western Hemisphere leaders in Santiago, Chile, where it is expected 
that leaders will formally launch negotiations.
      
    In announcing the hearing, Chairman Crane stated: ``The Summit of 
the Americas Declaration represents a historic commitment by countries 
in the Western Hemisphere to promote their economic growth and that of 
the region through free trade, open markets, and diminished government 
regulation. It is important that Congress monitor the progress U.S. 
trade negotiators are making toward the goal of establishing the FTAA 
by 2005.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to examine: (1) progress in the 
FTAA negotiations, and (2) whether and under what conditions these 
talks are in the national economic and security interest of the United 
States. Testimony will be received on specific objectives for the 
negotiations, the outlook for the Bela Horizonte Ministerial meeting, 
and the anticipated impact of expanding trade in the hemisphere on U.S. 
workers, industries, and other affected parties. Finally, witnesses may 
also address that status of existing sub-regional trade arrangements in 
the Western Hemisphere, and their impact on U.S. economic interests.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the 
close of business, Wednesday, April 30, 1997. The telephone request 
should be followed by a formal written request to A.L. Singleton, Chief 
of Staff, Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515. The staff 
of the Subcommittee on Trade will notify by telephone those scheduled 
to appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies of their 
prepared statement and a 3.5-inch diskette in WordPerfect or ASCII 
format, for review by Members prior to the hearing. Testimony should 
arrive at the Subcommittee on Trade office, room 1104 Longworth House 
Office Building, no later than close of business, Tuesday, May 6, 1997. 
Failure to do so may result in the witness being denied the opportunity 
to testify in person.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
copies of their statement and a 3.5-inch diskette in WordPerfect or 
ASCII format, with their address and date of hearing noted, by the 
close of business, Thursday, May 22, 1997, to A.L. Singleton, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. If those 
filing written statements wish to have their statements distributed to 
the press and interested public at the hearing, they may deliver 200 
additional copies for this purpose to the Subcommittee on Trade office, 
room 1104 Longworth House Office Building, at least one hour before the 
hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
designated representative may be reached and a topical outline or 
summary of the comments and recommendations in the full statement. This 
supplemental sheet will not be included in the printed record.

      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-225-1904 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

                   ***NOTICE--HEARING POSTPONEMENT***

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                Contact: (202) 225-6649
FOR IMMEDIATE RELEASE

May 2, 1997

No. TR-5-Revised

                Postponement of Subcommittee Hearing on

                    Free Trade Area of the Americas

                         Thursday, May 8, 1997

    Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on 
Trade of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the status and negotiations aimed at achieving 
a Free Trade Area of the Americas, previously scheduled for Thursday, 
May 8, 1997, at 10:00 a.m., in the main Committee hearing room, 1100 
Longworth House Office Building, has been postponed and will be 
rescheduled at a later date. (See Subcommittee press release No. TR-5, 
dated April 14, 1997.)
      

                                

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                          SUBCOMMITTEE ON TRADE

                                                Contact: (202) 225-1721
FOR IMMEDIATE RELEASE

July 7, 1997

No. TR-12

                       Crane Announces Hearing on

                     Free Trade Area of the Americas

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the status and outlook for 
negotiations aimed at achieving a Free Trade Area of the Americas 
(FTAA). This hearing is the third in a series which began March 18, 
1997, to consider major U.S. trade initiatives. The hearing will take 
place on Tuesday, July 22, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include Deputy U.S. Trade 
Representative Jeffrey Lang. Also, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    The goal of free trade in the Western Hemisphere was first put 
forward by President Bush in June 1990 when he proposed the Enterprise 
of the Americas Initiative. At the December 1994 Summit of the Americas 
in Miami, leaders of 34 Western Hemisphere democracies agreed to 
establish a FTAA in which barriers to trade and investment will be 
progressively eliminated. They committed to begin the process 
immediately, make concrete progress by the year 2000, and to conclude 
negotiations by no later than 2005. The Summit Declaration signed on 
December 11, 1994, identified 11 major areas that will be covered in 
the negotiations: market access, customs procedures and rules of 
origin, investment, sanitary and phytosanitary measures, standards and 
technical barriers to trade, subsidies, antidumping and countervailing 
duties, smaller economies, competition policy, government procurement, 
intellectual property rights, and services. Subsequent ministerial 
meetings held in 1995 and 1996 have established working groups to 
prepare for negotiations on these issues.
      
    Recognizing that substantial progress towards economic integration 
in the hemisphere has already been made, the Declaration calls for 
building on ``existing sub-regional and bilateral arrangements in order 
to broaden and deepen hemispheric economic integration and to bring the 
agreements together.''
      
    Since 1990, four sub-regional groups in particular have made 
considerable progress in breaking down intra-regional trade barriers. 
Mercado Comun del Sur, the ``Common Market of the South,'' consists of 
Argentina, Brazil, Paraguay, and Uruguay and is the second largest 
preferential trading group in the Americas, after the North American 
Free Trade Agreement. The Andean Pact, consisting of Bolivia, Colombia, 
Ecuador, Peru, and Venezuela, ranks third. The Caribbean Community and 
Common Market, consisting of 13 English speaking Caribbean nations, has 
agreed to implement a common external tariff over a period of 6 years, 
although members will be able to maintain their own non-tariff 
barriers. The Central American Common Market, originally established in 
1961, was reinvigorated in 1990.
      
    There is growing concern, however, that the exclusive nature of 
these trade alliances may prove disadvantageous to U.S. business 
opportunities and leadership in the region, and inconsistent with the 
goal of free trade in the hemisphere.
      
    Western Hemisphere Trade Ministers held their first meeting under 
the FTAA process in June 1995 in Denver, Colorado, and the second 
meeting in March 1996 in Cartagena, Colombia. On May 15, 1997, in Belo 
Horizonte, Brazil, Ministers agreed that ``FTAA negotiations should be 
initiated in Santiago, Chile, in March 1998'' when President Clinton 
will join other Western Hemisphere leaders at the Second Summit of the 
Americas.
      
    In announcing the hearing, Chairman Crane stated: ``The Summit of 
the Americas Declaration represents a historic commitment by countries 
in the Western Hemisphere to promote their economic growth and that of 
the region through free trade, open markets, and diminished government 
regulation. It is important that Congress monitor the progress U.S. 
trade negotiators are making toward the goal of establishing the FTAA 
by 2005.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to examine: (1) progress in the 
FTAA negotiations, and (2) whether and under what conditions these 
talks are in the national economic and security interest of the United 
States. Testimony will be received on specific objectives for the 
negotiations, the results of the Bela Horizonte Ministerial meeting, 
and the anticipated impact of expanding trade in the hemisphere on U.S. 
workers, industries, and other affected parties. Finally, witnesses may 
also address that status of existing sub-regional trade arrangements in 
the Western Hemisphere, and their impact on U.S. economic interests.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the 
close of business, Wednesday, July 16, 1997. The telephone request 
should be followed by a formal written request to A.L. Singleton, Chief 
of Staff, Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515. The staff 
of the Subcommittee on Trade will notify by telephone those scheduled 
to appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies of their 
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS 
Text format only, for review by Members prior to the hearing. Testimony 
should arrive at the Subcommittee on Trade office, room 1104 Longworth 
House Office Building, no later than close of business, Friday, July 
18, 1997. Failure to do so may result in the witness being denied the 
opportunity to testify in person.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-space legal-size copies of their statement along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text format only, with their 
name, address and hearing date noted on a label, by the close of 
business, Tuesday, August 5, 1997, to A.L. Singleton, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. If those 
filing written statements wish to have their statements distributed to 
the press and interested public at the hearing, they may deliver 200 
additional copies for this purpose to the Subcommittee on Trade office, 
room 1104 Longworth House Office Building, at least one hour before the 
hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS 
Text format.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
designated representative may be reached and a topical outline or 
summary of the comments and recommendations in the full statement. This 
supplemental sheet will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `http://www.house.gov/ways__means/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

    Mr. Thomas [presiding]. The Subcommittee will come to 
order. Chairman Crane has been delayed and will be here as soon 
as he possibly can.
    In Chairman Crane's words, today's hearing of the Trade 
Subcommittee is to consider U.S. interests and objectives in 
negotiations to establish FTAA, a free trade area of the 
Americas. This is the third Subcommittee hearing in a series on 
major U.S. trade initiatives.
    The Chairman wants to mention that the Subcommittee plans 
to reschedule the hearing on the administration's review of 
NAFTA, a subject obviously related to the FTAA, in September.
    The exceptionally successful Summit of the Americas meeting 
in Miami in 1995, which the Chairman attended, highlighted the 
fact that remarkable achievements in both political and 
economic reform have occurred in our hemisphere in the last 
decade.
    At this meeting the Chairman notes, leaders of 34 
functioning democracies, representing every country in the 
region, with the exception of Cuba, agreed to establish a 
hemispheric free trade agreement by the year 2005. Such a 
commitment obviously would have been hard to imagine as 
recently as a decade ago.
    The agreement to establish an FTAA is an achievement that 
is startling if we keep in mind Latin America's history of 
closed economic policies and authoritarian governments. As the 
Chairman says, we have the unusual opportunity before us to 
lock in widespread trade liberalization and economic reform in 
our hemisphere, but only, he says, if we can actively 
participate in the FTAA process.
    The responsibility now facing Congress and the President is 
to take on the problem of fast track negotiating authority so 
that opportunities such as the FTAA and other trade initiatives 
are not lost. The Chairman sincerely hopes the President is 
committed to working with us to develop a strong, protrade fast 
track bill. Inaction or delay amounts to a decision to 
sacrifice fundamental national section objectives as well as 
the interests of U.S. workers, consumers, and businesses who 
stand to gain from expanding trade.
    The Chairman looks forward to the testimony of Assistant 
Secretary Davidow and his friend, Ambassador Lang, who will be 
able to discuss results of the recent Belo Horizonte meeting in 
Brazil, and the outlook for creating more momentum in the FTAA 
process.
    At this time I recognize the Ranking Member, Mr. Matsui, 
for an opening statement.
    Mr. Matsui. Thank you, Mr. Chairman, for holding today's 
hearing on the status and outlook for negotiations on the free 
trade area of the Americas.
    This is a timely hearing in light of the administration's 
expressed intent of submitting a proposal to Congress in early 
September on renewal of fast track negotiating authority.
    Although fast track will be used primarily in the immediate 
future for such negotiations as part II of the International 
Technology Agreement, and other sectoral initiatives, as well 
as the built-in agenda for the WTO, it will also be important 
as negotiations on the FTAA unfold.
    In this regard it should be noted that Ambassador 
Barshefsky and other trade ministers agreed in Brazil this past 
May 15 that the FTAA negotiations should be formally launched 
in March 1998, in Chile, when President Clinton joins the other 
Western Hemispheric leaders at the second Summit of the 
Americas.
    The focus of today's hearing will be to examine the 
progress made to date in preparatory discussions on the FTAA, 
and what the United States should seek to achieve and avoid 
while negotiating these agreements. Although the first Summit 
of the Americas in Miami in 1994 established the year 2005 as a 
goal of reaching agreement on FTAA, much must still be done, 
both substantively and politically, for that to become a 
reality.
    There will be many obstacles along the way, both 
domestically and internationally, and there are many divergent 
interests in the region that must be reconciled.
    Moreover, specific concerns will be raised by the United 
States that must be addressed, including those that will be the 
subject of some of today's testimony.
    Despite the challenges and potential controversies that lay 
ahead, it's important to acknowledge that the successful 
negotiation of a Free Trade Area for the Americas is an 
extremely important undertaking for the United States in both 
economic and geopolitical terms.
    Economically, Latin America and the Caribbean are the 
fastest growing markets for United States exports. Indeed, if 
current trends continue, these hemispheric markets could exceed 
the combined markets of Europe and Japan as the largest 
destination for United States exports by the year 2010.
    From a geopolitical standpoint, hemispheric trade 
agreements would strengthen the democratic forces and 
institutions throughout the region, and solidify recent moves 
toward market oriented governments.
    Mr. Chairman, I would like to thank the three Members of 
Congress, Representatives Farr, Kolbe, and Campbell, along with 
Deputy U.S. Trade Representative Jeff Lang and Assistant 
Secretary of State Davidow, who will help us begin to 
understand some of the issues involved in negotiations of the 
free trade agreement.
    While some of the likely opponents have apparently chosen 
not to testify at today's hearing, I am sure they will make 
their views well known to us in the future on this subject.
    Again, I thank you, Mr. Chairman.
    Mr. Thomas. I thank my colleague from California. This is 
clearly a national concern, and certainly not a regional one. 
Notwithstanding that, the Chairman welcomes the gentleman from 
Arizona, Mr. Kolbe, and our two colleagues from California, Mr. 
Campbell and Mr. Farr. If you have written testimony, it will, 
of course, without objection, be made part of the record, and 
you can address this in any way you see fit in the time that 
you have available to you.
    The gentleman from Arizona, Mr. Kolbe.

STATEMENT OF HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF ARIZONA

    Mr. Kolbe. Thank you, Mr. Chairman. And with your 
permission, when I complete my testimony, since we're in markup 
in appropriations, I will excuse myself. It's probably just as 
well, because the two gentlemen on either side of me are 
talking about a somewhat more narrow concern.
    I would be loath to use the word parochial, since we know 
Members of Congress never address parochial interests, but only 
national interests. Nevertheless, with your permission, I will 
excuse myself when I finish here.
    I am delighted to have this opportunity to testify today. 
It was just 3 years ago in Miami, Mr. Chairman, that President 
Clinton ushered in what was perceived to be a new era in United 
States-Latin American relations. Every Latin American head of 
state, with the exception of Cuba, the lone, remaining 
dictatorship of this hemisphere, stood side by side and jointly 
pledged to promote the growth of democracy and free market 
economies in Latin America.
    This vision was embodied in the mutual commitment to create 
a free trade area of the Americas by the year 2005, or the 
FTAA.
    At the summit, President Clinton made a clear and 
unequivocal commitment to begin this process by seeking early 
accession of Chile to the North American Free Trade Agreement. 
It seemed at that moment that a free trade zone from Alaska to 
Tierra del Fuego was within our grasp.
    However, during the past 3 years, the vision of FTAA has 
slowly faded. Unfortunately, the administration has not come 
forward with a proposal to seek fast track negotiating 
authority with other nations in the hemisphere.
    And so, other nations, most notably Brazil, are beginning 
to fill the leadership vacuum. Last May at a major meeting of 
trade ministers in Belo Horizonte, Brazil, the extent to which 
we have abdicated our responsibility to lead was painfully 
obvious.
    No amount of positive spin could mask the fact that the 
United States failed to meet its original negotiating 
objectives. While we wait, Brazil dictates the timetable and 
structure of negotiations for the FTAA.
    Our failure to lead hurts no one but ourselves. Three years 
ago, it seemed certain that any free trade area of the Americas 
would be modeled after NAFTA, an agreement the United States 
was instrumental in helping to draft.
    However, what once appeared so certain is but a dim 
prospect now. As U.S. trade policy continues to drift, it has 
become increasingly clear that any hemispheric free trade zone 
will be based ultimately upon some merger of Mercosur and 
NAFTA.
    While we deliberate about our role in the world economy, 
Brazil, Argentina, Uruguay, and Paraguay are consolidating the 
southern common market, or Mercosur. While we discuss whether 
we should begin talking to Chile about accession to NAFTA, 
Chile enters into its own bilateral trading arrangements with 
our NAFTA partners, Canada and Mexico.
    While we analyze and reanalyze our trade relationship with 
Canada and Mexico, Chile and Mercosur are starting to negotiate 
with the European Union. And I'm sure that Europe is relishing 
our failure to lead.
    While we waffle and fuss among ourselves, South America 
continues to tilt toward Europe. The traditional trade ties 
between North and South America which we have relied upon for 
decades are beginning to erode in favor of a new trading 
alliance between the nations of the Mercosur and the European 
Union.
    Mr. Chairman, if this continues, we will find ourselves 
frozen out of our traditional export markets, and we will have 
no one to blame but ourselves. It will not be just economic 
opportunities that will be lost. Over the past several years we 
have seen the steady advance of democracy across Latin America. 
We've seen protectionist markets open, centralized governments 
abandoned, and dictators fall.
    Think about it for a moment. If 20 years ago someone had 
told you every nation in this hemispheric market, with the 
exception of Cuba, would be under democratic rule, you would 
have dismissed it as a utopian dream.
    If they prophesied these same nations would abandon their 
protectionist economic policies and embrace the principles of 
free trade, in some cases even more enthusiastically than we 
have done ourselves, you would be certain they were completely 
daft. But that's exactly what's happened. Latin America and the 
United States have become true partners in democracy and 
economic progress.
    There is no guarantee, however, that these trends are going 
to continue. But I do believe, just as we have most recently 
seen with the elections in Mexico, that further progress toward 
free trade will help consolidate these democratic trends in 
Latin America.
    We have to remember that open trade is not just about lower 
tariffs and better wages. It's also about intangibles. It's 
about economic opportunity for workers, market stability for 
investors. It's about locking in economic and political reform.
    We all seek a stable, prosperous Latin America. Fast track 
renewal and progress on the FTAA are integral to that goal.
    The Clinton administration must submit its proposal for 
fast track authority now. And Congress must grant that 
authority with all possible dispatch. The eyes of Latin 
America--indeed, of the whole world--are going to be on the 
negotiations to bring Chile into NAFTA.
    But first we must have fast track authority. This is the 
litmus test for our commitment to free trade.
    If you doubt the importance of Chile in this equation, let 
me share this news with you. Earlier this year, Southwestern 
Bell, a major shareholder in Chile's telecommunications 
industry, signed a contract to purchase $200 million in 
telecommunications, not from a supplier in the United States, 
which still has an 11-percent tariff hurtle to leap over in 
Chile, but from Northern Telecom in Canada, which, as of June 
1, is a tariff-free trading partner with Chile.
    Chile is certainly more prepared than any other Latin 
American country to enter into a free trade agreement with the 
United States. By almost any measure, it is a shining success 
story of Latin America.
    If we can't conclude negotiations with Chile, can we be 
expected to move forward with our vision of a free trade area 
of all of the Americas? Mr. Chairman, make no mistake. If we 
let the dream of hemispheric free trade evaporate, we risk 
losing much in Latin America.
    If the United States does not recommit itself to the 
pursuit of hemispheric free trade now, our credibility will 
continue to evaporate, and our ability to structure a free 
trade agreement with any nation on terms favorable to all of us 
will be seriously curtailed.
    To a great extent, our ability to influence future 
negotiations in the World Trade Organization will depend upon 
how well we negotiate our position in FTAA. If we fail in Latin 
America today, we jeopardize our economic opportunities 
tomorrow.
    Mr. Chairman, our window of opportunity is closing. If the 
United States does not regain the leadership role in promoting 
free trade, Latin America will have no other choice but to 
abandon its historic partnership with its northern neighbor and 
seek economic progress through other channels with more willing 
partners.
    How tragic for us to be left on the sidelines wondering why 
we failed to share in their success.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Jim Kolbe, a Representative in Congress from the 
State of Arizona

    Mr. Chairman, members of the Committee, thank you for the 
opportunity to testify today. Just three years ago in Miami, 
President Clinton ushered in what was perceived to be a ``new 
era'' in U.S. Latin America relations. Every Latin American 
head of state, save Cuba--the lone remaining dictatorship--
stood side by side and jointly pledged to promote the growth of 
democracy and free market economies in Latin America. This 
vision was embodied in the mutual commitment to create a Free 
Trade Area of the Americas by the year 2005. At the Summit, 
President Clinton made a clear and unequivocal commitment to 
begin this process by seeking early accession of Chile to the 
North American Free Trade Agreement. A free trade zone from 
Alaska to Tierra del Fuego seemed to be well within our grasp.
    During the past three years, however, the vision of the 
FTAA has slowly faded. While the Clinton Administration dilly-
dallies in seeking ``fast track'' negotiating authority other 
nations in the hemisphere, most notably Brazil, are beginning 
to fill the leadership vacuum. Last May, at a major meeting of 
trade ministers in Belo Horizonte, Brazil, the extent to which 
we have abdicated our responsibility to lead was painfully 
obvious. No amount of positive spin by the Administration could 
mask the fact that the United States failed to meet its 
original negotiating objectives. While we wait, Brazil dictates 
the timetable and the structure of negotiations for the FTAA.
    Our failure to lead hurts no one but ourselves. Three years 
ago it seemed certain that any Free Trade Area of the Americas 
would be modeled upon the NAFTA, an agreement the United States 
helped draft. However, what once appeared so certain is but a 
dim prospect now. As U.S. trade policy continues to drift, it 
has becoming increasingly clear that any hemispheric free trade 
zone will be based ultimately upon some merger of MERCOSUR and 
NAFTA.
    While we deliberate about our role in the world economy, 
Brazil, Argentina, Uruguay and Paraguay are consolidating the 
Southern Common Market (MERCOSUR). While we discuss whether we 
should even begin talking to Chile about acceding to the NAFTA, 
Chile has entered into its own bi-lateral trading arrangements 
with our NAFTA partners, Canada and Mexico. While we analyze 
and re-analyze our trade relationship with Canada and Mexico, 
Chile and the MERCOSUR are starting to negotiate with the 
European Union.
    And I am sure Europe is relishing our failure to lead. 
While we waffle and fuss among ourselves, South America 
continues its tilt towards Europe. The traditional trade ties 
between North and South America, which we have relied on for 
decades, are beginning to erode in favor of a new trading 
alliance between nations of the MERCOSUR and the European 
Union. Mr. Chairman, if we let this continue, we will find 
ourselves frozen out of our traditional export markets. And we 
will have no one to blame but ourselves.
    It will not be just economic opportunities that will be 
lost. Over the past several years we have seen the steady 
advance of democracy across Latin America. We have seen 
protectionist markets open, centralized governments abandoned, 
and dictators fall. Think about it for a minute. If twenty 
years ago someone told you that every nation in this 
hemisphere, with the exception of Cuba, would be under 
democratic rule, you would have dismissed it as a utopian 
dream. If they prophesied that these same nations would abandon 
their protectionist economic policies and embrace the 
principles of free trade--in some cases even more 
enthusiastically than ourselves--you would be certain they were 
completely daft. Yet that is the Latin America we have today--
true partners in democracy and economic progress.
    There is no guarantee that these trends will continue. But, 
I do believe that, just as we have seen most recently with 
elections in Mexico, further progress towards free trade will 
help consolidate these democratic trends. We must remember that 
open trade is not just about lower tariffs and better wages. 
It's also about the intangibles--economic opportunity for 
workers and market stability for investors. It's about locking 
in economic and political reform. We all seek a stable, 
prosperous Latin America. Fast track renewal and progress on 
the FTAA are integral to that goal.
    The Clinton Administration must submit its proposal for 
fast track authority now, and Congress must grant that 
authority with all possible dispatch. I assure you that the 
eyes of Latin America,--indeed, the world--will be on the 
negotiations to bring Chile into NAFTA. This is the litmus test 
for our commitment to free trade.
    If you doubt the importance of Chile alone in this 
equation, let me share this news with you. Earlier this year 
Southwestern Bell, a major shareholder in Chile's 
telecommunications industry, signed a contract to purchase $200 
million in telecommunications equipment, not from a supplier in 
the U.S.--which still has an 11-percent tariff hurdle to leap 
over in Chile--but from a company in Canada, which is--as of 
June 1--a tariff-free trading partner with Chile.
    Chile is certainly more prepared than any other Latin 
American country to enter into a free trade agreement with the 
United States. By almost any measure, Chile is the shining 
success story of Latin America. If we cannot conclude 
negotiations with Chile, how can we be expected to move forward 
with our vision of a Free Trade Area of ALL the Americas?
    Make no mistake. If we let the dream of hemispheric free 
trade evaporate, we risk losing much in Latin America. If the 
United States does not re-commit itself to the pursuit of 
hemispheric free trade now, our credibility will continue to 
evaporate and our ability to structure a free trade agreements 
with any nation, on terms favorable to us, will be seriously 
curtailed. To a great extent, our ability to influence future 
negotiations in the World Trade Organization will depend upon 
how well we negotiate our position in the FTAA. If we are 
successful in pursuing our agenda regionally, it will provide 
us with much greater leverage when we approach future 
multilateral negotiations in the World Trade Organization. If 
we fail in Latin America today, we jeopardize our economic 
opportunities tomorrow.
    Mr. Chairman, our window of opportunity is closing. If the 
United States does not regain a leadership role in promoting 
free trade, Latin America will have no other choice but to 
abandon its historic partnership with its northern neighbor and 
seek economic progress through other channels, with more 
willing partners. How tragic for us to be left on the 
sidelines, wondering why we failed to share in their success.
      

                                

    Mr. Thomas. I thank the gentleman very much. No one has 
been more indefatigable than he has in pursuing free trade, and 
I wonder if you could just delay for one observation from the 
gentleman from California, Mr. Matsui.
    Mr. Kolbe. Certainly.
    Mr. Matsui. Thank you. I would just like to reiterate the 
observation by the Chairman, Mr. Thomas, here, that Jim, you've 
been one of the real leaders in the area of trade for the last 
10 years or so. At least, your tenure in the U.S. Congress, and 
we really appreciate it and the fact that you are here today.
    I want to make one observation, and it does not require a 
response, because you did talk about fast track and why we have 
not had fast track yet. I think it is a bipartisan problem. It 
is not really a problem for the President. I notice you made 
reference to that on three different occasions in your opening 
statement.
    I would like to observe that, from my perspective, I think 
it's the fault of a lot of different people, Democrats and 
Republicans. And I would not want to cast blame on the 
President or the executive branch, because I think we have a 
lot of problems ourselves in trying to come up with the proper 
and appropriate language, and that is what is really holding 
this up.
    I know you share that belief, and I just would hope that we 
would try to, as much as possible, maintain a bipartisan 
approach to all of this.
    Mr. Kolbe. Mr. Chairman, and Mr. Matsui, I do share that 
view, and I also would return the compliment, and say that 
there has been no person on this Subcommittee or this Committee 
or within the Congress who has been more of an advocate of more 
open markets in the world than you have been. And your 
leadership has been tremendous in this area, and I have 
certainly enjoyed working with you.
    It is a bipartisan problem. There is no question of that. I 
guess my statement reflects a frustration because we cannot 
find out what the bipartisan problems are until we have a 
proposal on the table, and that is what we are still lacking, 
is getting a proposal on the table, and to really push forward.
    I believe, as we saw with NAFTA, and we saw with GATT, it 
can happen here in Congress, but the proposal must have the 
administration behind it. We must have the administration 
actively engaged in this. Without that support, it will not 
happen, as you know. There are not enough votes to pass it 
independently here in Congress without the President's 
involvement in this. And we need to have him engaged, and 
actively engaged.
    We have the assurances that they are. I guess I am just 
frustrated because it has been more than 2 years since fast 
track authority expired for the President, and we have done 
nothing to get that going again, and we need that very badly.
    Thank you.
    Mr. Matsui. Thank you, Mr Chairman.
    Mr. Thomas. Thank you very much. And now our two colleagues 
from California, the gentleman from the Monterey area, and the 
gentleman from the peninsula. If you have written statements, 
they will be made a part of the record, and notwithstanding the 
argument that you should be leery of Members bearing bouquets, 
we are interested in your testimony.

 STATEMENT OF HON. SAM FARR, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF CALIFORNIA

    Mr. Farr. Thank you, Mr. Chairman. I want to point out 
that, first of all, I am a strong supporter of free trade. I 
voted for NAFTA and GATT, and I told Mr. Kolbe as he was 
leaving, the flowers are not parochial, but artichokes are, and 
I represent both.
    Exports are obviously a key to economic success in my 
district and in each of your districts. Nonagricultural exports 
alone total about $200 million a year, and the Santa Cruz-
Watsonville area was the 13th fastest growing exporter in the 
country in 1995.
    The free trade area of the Americas could have tremendously 
positive benefits for my district and the United States. But in 
recognizing free trade, we have to also point out the problems 
with how it affects fair trade.
    Tariffs should be equal for everyone--there needs to be a 
level playingfield. Trade agreements should recognize and 
address the potential impact on domestic industries. Trade 
agreements should address possible unintended consequences. The 
Andean Trade Preference Act did none of this.
    The Andean Trade Preference Act, or the ATPA, was supposed 
to reduce drugs without hurting American industry. It gives 
tariff free status to a range of goods, including cut flowers 
imported from four countries--Colombia, Bolivia, Ecuador, and 
Peru.
    It was created to discourage drug cultivation through crop 
substitution. However, it is clear today that not only are more 
drugs being cultivated, but American cut flower growers have 
been hurt by the ATPA, especially by competition from Colombia.
    The Andean Trade Preference Act was a disaster for American 
cut flowers. The number of American flower growers has fallen 
60 percent since 1989. California flower growers go out of 
business at a rate of 10 percent a year. We have two witnesses 
this afternoon, Lina Hale and Art Heyl, who are local growers, 
who will be testifying before you.
    Let me tell you. I was a Peace Corps volunteer in Colombia 
when the Colombian flower market began, and it certainly has 
been a boon for Colombia. Cut flowers are Colombia's fifth 
largest export. The total value of Colombian cut flower imports 
has increased from $88 million in 1992 to $370 million in 
1995--a fourfold increase.
    The Colombian cut flower industry currently controls 65 
percent of the United States market. The next largest importer 
of flowers, Holland, controls only 12 percent of the import 
market.
    The Andean Trade Preference Act was useless in drug 
eradication efforts. The drug cultivation in Colombia has grown 
by 55 percent since the ATPA. The amount of coca that escapes 
eradication has grown by 35 percent since the ATPA became law 
in 1991.
    Comparing the tariffs on other goods traded with Colombia 
highlights just how unfair the ATPA has been. All major United 
States goods exported to Colombia--machinery, produce, 
chemicals, oil--all pay tariffs of 5 to 15 percent, yet ATPA 
allows Colombians to export flowers to the United States for 
free. Only flowers from ATPA countries are allowed to come into 
the United States for free. Holland is the second largest 
importer of flowers, and they pay a tariff.
    Colombians pay tariffs on other goods: oil, textiles, and 
leather goods that come in. But this is the one open area where 
they are allowed to come in totally free. And it just does not 
make any sense.
    In short the ATPA gives a bad name to free trade. It does 
not work. It hurts our own citizens and is an example of what 
critics of free trade think free trade really means.
    I urge this Subcommittee to end this unfair flower trade by 
passing H.R. 54, and consider the effect of ATPA when it 
considers future trade agreements, like the free trade area of 
the Americas.
    I would be glad to answer any questions you might have, and 
I appreciate the opportunity to be here before you this 
morning.
    [The prepared statement and attachment follow:]

Statement of Hon. Sam Farr, a Representative in Congress from the State 
of California

    Mr. Chairman, Members of the Subcommittee, thank you for 
the opportunity to testify before you today regarding trade in 
the Americas and the Andean Trade Preference Act.
    Let me first make clear that I support free trade. Free 
trade not only makes good economic sense, it also improves and 
strengthens ties between countries and encourages the flow of 
information, knowledge, and understanding across borders. I 
voted for both GATT and the expansion of NAFTA to Mexico. My 
district is a model for the immense positive effect of open 
trade, exporting hundreds of millions of dollars of goods each 
year around the world. The Santa Cruz/Watsonville metropolitan 
area alone was the 13th fastest growing exporter in the nation 
in 1995.
    Latin America is a strong, vibrant, and diverse region, and 
its economic potential is only just beginning to make itself 
felt. I was a Peace Corps volunteer in Colombia and have long 
held strong personal ties to the area. A free trade agreement 
such as the Free Trade Area of the Americas (FTAA), properly 
structured, could have tremendous economic, social, and 
political benefits for North, Central, and South America.
    While I support free trade, however, I should clarify that 
I also support fair trade. As the Subcommittee considers the 
issue of trade in the Americas, and specifically the FTAA, it 
should look at the impact of a trade agreement already on the 
books--the Andean Trade Preference Act (ATPA)--which has given 
one-sided trade benefits to several South American countries 
and has caused considerable hardship to at least one domestic 
American industry: cut flowers.
    Since enactment in 1991, the Andean Trade Preference Act 
(ATPA) has provided duty-free access to the U.S. market for 
flower exporters in four Latin American countries: Colombia, 
Bolivia, Ecuador, and Peru. For six years it has allowed flower 
growers in these four countries to avoid tariffs normally 
imposed on their product, tariffs ranging from 3.6% to 7.4%.
    The purpose of this preferential treatment was to encourage 
the growth of alternative crops to replace the cultivation of 
illegal narcotics. The result, however, has been a steady 
weakening of the American flower industry. Since the enactment 
of ATPA, the number of American chrysanthemum growers has 
fallen 25%; the number of carnation growers has fallen as much 
as one-third. Flowers from Colombia have had the most 
significant impact on American industry, to the point that the 
Colombian cut-flower industry now controls some 70% of the U.S. 
market.
    At the same time, evidence shows that the problem of 
illegal drugs, namely those cultivated in Colombia, has gotten 
worse. The drug fighting effort has not come close to catching 
up with the dramatic increase in drug production. According to 
the International Trade Commission, the amount of coca 
eradicated in Colombia grew by some 7,800 hectares since ATPA 
became law. However, the amount of hectares of coca cultivated 
grew nearly three times as much (21,200 hectares) over the same 
period. The situation in Colombia is so poor that, early this 
year, President Clinton for a second year in a row did not 
certify that Colombia was taking sufficient steps to stop drug 
production or drug trafficking.
    This year, Congressman Tom Campbell and I introduced 
legislation (H.R. 54, referred to the Trade Subcommittee) to 
repeal the preferential tariff treatment provided by the ATPA. 
Although the Colombian flower industry will still have many 
advantages over American flower growers, favorable 
consideration of this legislation would end an ineffective drug 
control policy and restore a level playing field for the 
American cut-flower industry.
    The problems of ATPA are an example of the kind of trade 
agreement that gives free trade a bad name, ultimately hurting 
the efforts of those who would reach broader-based agreements 
such as the FTAA. A free trade arrangement with the rest of 
Latin America has enormous positive potential for all the 
Americas. But we should erase the bad trade laws that already 
exist and be sure the FTAA does not repeat the mistakes made 
with the ATPA.
      

                                
[GRAPHIC] [TIFF OMITTED] T0672.006

      

                                

    Chairman Crane [presiding]. Thank you, Mr. Farr.
    Mr. Campbell.

 STATEMENT OF HON. TOM CAMPBELL, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Campbell. Thank you, Mr. Chairman. I am here for one 
purpose more than any other, and that is to address you, Mr. 
Chairman, on this very simple point.
    I may part company with my colleague here. I would go to 
zero tariff on flowers. I would go to zero tariff. But since we 
do not have zero, it makes no sense to have zero only for a 
country that is exporting cocaine.
    That is my point. Let us bring everybody down to zero. 
Fine. I am there. I believe in free trade. That is where I may 
part company with my colleague, but it might add some force to 
what I am saying.
    Instead, we just make this exception, and in 1991 they were 
supposed to be cutting back drugs. They have increased drugs.
    And last, making my testimony very short, and hopefully 
memorable for that reason, if that reason alone, what sort of a 
message do we send when we decertify Colombia and then just 
say, everything is the same as normal. We wag our finger, we 
say now 2 years in a row you are decertified, but your flowers 
still come in duty free. Just the same as Holland.
    The tariff rates are 3.7 to 7.4 on flowers. Let's bring 
them down to zero. But if we do not bring them down to zero for 
everybody, do not do it just for the drug exporter. That is my 
point.
    Thank you.
    [The prepared statement follows:]

Statement of Hon. Tom Campbell, a Representative in Congress from the 
State of California

    Mr. Chairman and members of the Subcommittee:
    Thank you for allowing me and my colleague Congressman Sam 
Farr to testify before you today, and for holding this hearing 
on free trade in Latin America. I also want to welcome Lina 
Hale, a flower grower from the Bay Area who will testify on a 
later panel and who has been impacted by our trading policies 
with Latin America.
    I would like to speak today about a specific area of Latin 
American trade that is affected by Colombia and the Andean 
Trade Preference Act (ATPA). As you are all aware, in 1991 the 
Congress passed the ATPA, which removed tariffs imposed upon 
fresh cut flowers, among other goods, coming from Colombia and 
three other Andean nations. I was in Congress and supported the 
ATPA when it was being debated in 1989 and when it passed in 
1991. One of the main goals of this bill was to encourage 
Colombia to move away from drug production and toward 
legitimate crop substitution. Although I had several flower 
growers in my district that were hurt by the ATPA, I decided to 
support the bill and support duty free treatment for Colombian 
flowers because I felt that stopping the flow of drugs into our 
country was more important. If the drug problem could be 
alleviated, the price paid by our domestic flower industry 
would have been worth it.
    Unfortunately, the substitution of flowers in the economy 
of Colombia for coca leaf production has not happened. I am 
shocked that, in fact, more hectares are being cultivated for 
cocaine now than before the ATPA. I feel even more betrayed by 
the fact that Colombia is now rivaling Asia as the leading 
producer of heroin coming into the United States.
    Last year, for the first time, the Clinton Administration 
decertified Colombia as a partner in the war on drugs and 
revoked Colombian President Ernesto Samper's travel visa. Yet 
major drug cartel leaders were released from prison after 
serving very light sentences, and the Colombian vice-president 
resigned because he felt the nation was being undermined by 
Samper's drug ties.
    I have written the US Trade Representative and Commerce 
Secretary, and met with the President's point man on this 
issue, General Barry McCaffrey, in February to try to convince 
the Clinton Administration to deny preferential tariff 
treatment for Colombian fresh cut flowers. That would be the 
president's prerogative since Colombia has been certified as a 
non-cooperative country in the drug war. Instead of deciding to 
take the next step and impose trade sanctions on Colombia, the 
Administration instead merely decertified Colombia for the 
second year in a row. No sanctions beyond these automatically 
required by the law were imposed. The decertification of 
Colombia had no effect last year, and yet this year again the 
Administration again decided upon no discretionary sanctions.
    Colombia now controls nearly 70% of the US cut flower 
market production. The Colombian flower exports increased over 
300% in the first three years of the ATPA, from 1992 to 1995. 
Cut flowers account for nearly two thirds of the ATPA duty-free 
imports from Colombia. During this same period, nearly 500,000 
kilograms of cocaine have been seized since the ATPA began in 
1991, almost all of it coming from Colombia.
    No other country exporting flowers to the US enjoys the 
Andean Trade Preference Act's benefits. Why should we continue 
to favor Colombia by giving them this special preference for a 
purpose they have not come close to achieving in the past five 
years? Eradication efforts have barely kept up with the growth. 
With all their advantages into our market, and their failed 
drug efforts at the expense of our own people, I wonder why are 
we still subsidizing Colombia by giving them duty free 
treatment flowers in our country?
    The bill Congressman Farr and I have introduced, HR 54, is 
one that would eliminate this special privilege for Colombia. 
We had hoped to avoid legislation and to have President Clinton 
take care of this problem with the power he has to deny 
preferential treatment and impose trade sanctions on Colombian 
flowers, but, failing that, we have introduced legislation to 
remove fresh cut flowers from the ATPA. Currently there are 38 
bipartisan co-sponsors representing the nation, from California 
to Ohio, Pennsylvania, New York, New Jersey, Colorado, 
Minnesota, South Carolina and Oregon. Additionally, this bill 
has the support of 17 prominent organizations within the flower 
industry.
    Our bill should not be seen as a punitive measure. It 
merely reimposes tariffs on Colombian fresh cut flowers and 
puts Colombia on the same trade level as the rest of Latin 
America, the European Union and the Pacific Rim. Those duties 
currently range from 3.7% to 7.4%. The tariff reinstatement 
will simply return the Colombian flower industry to the 
position shared by its other foreign competitors.
    Mr. Chairman, I believe in free trade. I have always 
supported free trade and supported NAFTA, GATT and the ATPA 
itself. If we had free trade in flowers, I would support it for 
Colombian flowers, too. But the ATPA is not free trade. It is a 
preference for Colombia that Colombia does not deserve. 
Colombia has betrayed the ATPA. In each of the five years it 
has been in place, drug production and drug cultivation have 
dramatically increased, all while the amount of Colombian 
flowers coming duty free into this nation has also dramatically 
increased. No other flower growing country in the world is 
allowed this privilege.
    Our policy with regard to Colombia and the ATPA has not 
worked. We must stop continuing to subsidize Colombia's failed 
compliance by the message we send of continued preferential 
treatment!
    Thank you very much, Mr. Chairman, for the opportunity to 
speak on this issue and I urge the Committee to consider this 
issue and this bill in its own separate hearing.
    I would be happy to answer any questions the Committee may 
have.
      

                                

    Chairman Crane. Thank you, Mr. Campbell.
    Mr. Matsui.
    Mr. Matsui. I want to thank both Mr. Farr and Mr. Campbell 
for their testimony. I am a cosponsor of your legislation, and 
I realize that our calendar is somewhat difficult in terms of 
seeking further action on your legislation.
    But I will continue to work with you, and certainly with 
Chairman Crane, to see if we can move the process along on this 
matter, because I do feel that some further action should be 
taken.
    And I agree with both of you in the sense that if 
significant amounts of cocaine increases are occurring from 
these countries, we certainly ought to take some kind of 
further action, or perhaps pass your legislation, if we cannot 
get cooperation out of them.
    And I feel very strongly about this. And unlike some of the 
other countries that we question their internal behavior, we 
can really do something about this one. It would be pretty 
easy.
    They do not have many other markets to ship their flowers 
to, and a few provocative acts on our behalf could probably 
turn this around.
    So, I thank both of you for your testimony.
    Mr. Farr. Thank you very much. And if you could just take a 
look at the economics on this one particular issue, you will 
see how out of whack it is. Colombians paid tariffs before the 
Andean Trade Pact. They have 65 percent of the market share 
now.
    I know Colombia flower growers. They have indicated to me 
privately that a tariff is not going to put them out of 
business. They will still have a lot of market share.
    Mr. Matsui. I might just mention, and I think you said 
this, Mr. Farr, that one of the reasons we have this Andean 
legislation in the first place is in order to make sure that 
Colombia is in a position where it can convert its resources so 
that it would get its growers and use its soil for the purpose 
of legal activities, rather than illegal activities.
    And it sounds to me as though they are taking advantage of 
both, and very little is being done. And if there is anybody 
that represents the Colombian Government out there, it is my 
belief that they ought to take this matter more seriously than 
they have in the past, because this is an issue that will grow, 
and I am certain that we will want to take further action on 
this.
    Mr. Campbell. Mr. Matsui, would you allow me to make a 
quick comment?
    Mr. Matsui. Certainly.
    Mr. Campbell. Your point is right. But it is important not 
to give an argument to the other side on this. You will hear 
that the terrain is not comparable. You cannot substitute 
flowers for coca leaf. That is really not the point so much as 
within the economy of Colombia, we gave them this preference so 
they would have something else to do.
    It is probably never going to be hectare per hectare 
because of the different topography and climate.
    Mr. Matsui. Yes, I agree with that. Thank you for that 
clarification.
    Chairman Crane. Ms. Dunn.
    Ms. Dunn. Thank you, Mr. Chairman. I do not have any 
questions. I just appreciate your involvement in this hearing, 
and I think the more we can hear from different points of view, 
the better off we are. We are all interested in fair trade and 
free trade, but before it is free, it has got to be fair.
    I think probably Mr. Kolbe's point was a terribly important 
one for us to keep in mind, and that is that if we lose our 
competitive advantage, as in the example he gave, of the 
telecommunications deal that was cut between Chile and Canada 
as a result of zero tariffs there, and 11 percent for us, and 
our industry as we go into Chile, that is going to be a big 
problem for us in the future.
    And, Mr. Campbell, as you have said, I want to see them go 
to zero, too, and I am glad that you are supporting that.
    Thank you, Mr. Chairman.
    Chairman Crane. And I want to express appreciation to the 
witnesses, and apologize for getting here late. I was stuck in 
a traffic jam on the George Washington Parkway where there was 
an accident. We went bumper to bumper for about 5 miles, stop 
and go.
    But I appreciate your testimony and any written statements 
you have will be made part of the permanent record.
    Mr. Campbell. Mr. Chairman, might I prevail for 1 second 
further?
    Chairman Crane. Certainly.
    Mr. Campbell. I was in the same backup, by the way.
    Chairman Crane. How did you get here on time?
    Mr. Campbell. I was on time for this, but not my earlier 
meeting this morning, though, as a result.
    I just wanted to put on the record my admiration for my 
colleague, Sam Farr, and just note that he is fighting for what 
I think is correct economics for the reason that I put to you, 
and that he has been vigilant in this, and deserves special 
recognition, at least from me his neighbor and colleague, for 
the hard work he has done.
    Mr. Matsui. Nobody says that when I talk about wine. 
[Laughter.]
    Chairman Crane. Thank you very much.
    I just recognize that our distinguished former Chairman is 
here with us today, and we want to honor you, Sam Gibbons. 
Thank you.
    I would now like to recognize Hon. Jeff Lang, Deputy U.S. 
Trade Representative, and Hon. Jeff Davidow, Assistant 
Secretary for the Bureau of Inter-American Affairs at the 
Department of State. Thank you for testifying before us today, 
and I look forward to hearing the administration's position on 
the future of Free Trade Area for the Americas.

STATEMENT OF JEFFREY M. LANG, DEPUTY U.S. TRADE REPRESENTATIVE; 
      ACCOMPANIED BY PETER ALLGEIER, ASSISTANT U.S. TRADE 
           REPRESENTATIVE FOR INTER-AMERICAN AFFAIRS

    Mr. Lang. Thank you, Mr. Chairman. Good morning. I am 
joined on my left by Jeff Davidow, who is the Assistant 
Secretary of State for Inter-American Affairs, and who will 
have a short statement after me; and on my right by Peter 
Allgeier, who is the Assistant U.S. Trade Representative for 
Inter-American Affairs.
    I will try and summarize the written statement I gave to 
the Subcommittee a day ago. I think it is very important the 
Subcommittee is holding this hearing, and we are glad to 
provide you with our views on the status of the free trade area 
of the Americas, or FTAA, as well as the general course of 
American trade policy with respect to the Western Hemisphere.
    As Mr. Kolbe said, trade ministers met in Belo Horizonte on 
May 16, and agreed to a number of important ideas. They will 
recommend initiative of negotiations for the FTAA at the second 
Summit of the Americas, which will be held in Santiago, Chile, 
next April.
    The President has heard directly from leaders of the region 
with whom he has met over the last several months during his 
visits to Mexico, Central America, and the Caribbean about 
their readiness to move forward to build the FTAA.
    The countries in this hemisphere have really entered a 
completely new era of shared commitment to democracy and to 
open markets. Those are very important common values, and with 
them we are moving to meet the challenges of increased 
prosperity throughout the hemisphere.
    Increased prosperity will obviously have some positive 
economic effects, but it will also solidify democracy, bolster 
regional peace, and create those new markets we need. 
Conclusion of the negotiations of the FTAA no later than the 
year 2005 is a critical ingredient in achieving these goals.
    I want to highlight some of the key factors affecting our 
involvement in the hemisphere and the prospects for conclusion 
of the FTAA by 2005, as committed in both Miami and Belo 
Horizonte.
    Let me give you a little background on Latin America which 
I think is important to putting our conversation in 
perspective. Latin America is currently the most dynamic market 
in the world for United States exports.
    In 1996 our exports to Latin America and the Caribbean grew 
by 14.5 percent. That means they reached $109 billion. That is 
twice the rate of growth of U.S. exports to the rest of the 
world.
    And we have every reason to believe that the growth will 
continue, because there are sound economic policies being 
implemented throughout the region. Just one example: Exports to 
certain countries in the region; namely, Venezuela, Argentina, 
Brazil, Bolivia, and the Dominican Republic, were up more than 
25 percent during the first 4 months of this year. In the case 
of Brazil, the number is 30 percent.
    By the end of next year, our exports to the region should 
surpass our exports to the European Union. And, by the way, our 
exports to Mexico are already on the verge of exceeding our 
exports to Japan. That fact would mean that our two NAFTA 
partners would be our top two foreign markets in 1997.
    One of the principal reasons we are experiencing this rapid 
expansion of trade with the Americas is that there has been a 
dramatic reorientation of trade policy on the part of most of 
the Latin American countries during the past several years.
    For some countries these changes have been as revolutionary 
as those that occurred in Central Europe during the late 
eighties and early nineties.
    Basically, the countries of the region are abandoning 
protectionism and heavy government intervention in favor of 
market-oriented policies that will increase their abilities to 
compete in the global economy.
    They have been reducing their tariffs and nontariff 
barriers. In many cases, binding those in the WTO. And that is 
due to their Uruguay round obligations. There are also some 
unilateral reductions in there.
    Across the region, you see a great many State enterprises 
being privatized. The laws on intellectual property are being 
modernized. Macroeconomic reforms are taking hold. Realistic 
exchange rate regimes have been induced.
    These are the fundamentals for growth in an increasingly 
competitive world for both markets and capital.
    All of this has stimulated a resurgence of activity toward 
economic integration. In fact, no region in the world has a 
more active agenda of free trade area negotiations than Latin 
America. Let me just name a couple of them.
    There has already been a discussion of the Chile-Canada 
free trade area. There is a Mercosur-Chile FTA, a Mercosur-
Bolivia FTA. We also have the initiation of negotiations 
between Mercosur and the Andean community, between Panama and 
Chile, between Mexico and the northern triangle of Central 
America--that's Guatemala, El Salvador, and Honduras, and 
between Central America and the islands of the Caribbean.
    Now, properly done, these subregional agreements can 
obviously contribute to trade liberalization. However, the 
expansion of these preferential trade arrangements without U.S. 
participation has put many American suppliers of goods at a 
disadvantage in those markets, even when the arrangements are 
consistent with the WTO, because obviously U.S. exports are 
subject to comparatively higher rates of duty, or standards--
different from those we use in the United States.
    In addition, these other hemispheric arrangements are often 
not as comprehensive of NAFTA in covering other trade and 
trade-related aspects of economic exchange. There is a danger 
that as these subregional arrangements develop, provisions in 
the nontariff areas, U.S. interests will be placed at a further 
disadvantage, unless we are at the negotiating table to 
influence the outcome.
    It is essential, therefore, to move rapidly to develop 
FTAA-wide disciplines in all of these areas. We certainly 
cannot stand on the sidelines as subregional arrangements are 
negotiated in the growing markets of Latin America. Nor should 
we be a bystander as standards for trade behavior in the next 
century are negotiated.
    This is one of the reasons, obviously, that we will seek 
fast track authority this fall.
    Now, let me just say a couple of things about FTAA. As 
agreed at Miami, and further refined by the three subsequent 
trade ministerials, each of which, I might add, has added an 
important increment to our understanding of how we are going to 
move forward in the FTAA, the FTAA is envisioned as a state-of-
the-art agreement for the future.
    It goes well beyond WTO obligations. Comprehensive, single 
undertaking--that's a very important phrase--to open markets by 
setting high levels of discipline in tariffs, nontariff 
barriers, goods and services, agriculture, subsidies, 
investment, intellectual property, government procurement, 
product standards, rules of origin, antidumping, countervailing 
duties, sanitary and phytosanitary, dispute settlement, 
competition policy, and obviously taking into account the 
importance of environment and workers' rights.
    The trade ministers who met in Belo Horizonte agreed to 
recommend initiation of negotiations at the Summit of the 
Americas next April, so that FTAA negotiations can be completed 
by 2005 at the latest.
    To ensure this objective is met, the ministers established 
a preparatory committee, now known as the PREPCOM, to set out a 
clear work plan to meet this deadline next April.
    We know that negotiations will proceed at different paces 
for different subject matters. Some issues, obviously, are more 
complex than others, or more politically sensitive than others. 
But we should start on everything at the same time because that 
signals our seriousness to meet the deadline of 2005.
    It was clear at Belo Horizonte that nearly all countries 
agree on this approach, rather than negotiating in stages on 
different subjects.
    We also have to remain sensitive as we go forward in this 
project to the disparities in economic size among FTAA 
countries. And we, in the administration, propose to offer 
technical assistance, as appropriate, to enable the smaller 
economies to participate fully in these negotiations.
    We already provide substantial support for expanded trade 
opportunities for the countries of the Caribbean and Central 
America through CBI, and the President is working with Congress 
to obtain legislation that will offer eligible CBI countries 
enhanced trade preferences, predicated on meaningful policy 
reforms that will prepare these countries for free trade in 
2005.
    I must emphasize the importance of the advice of the 
private sector. They are going to help us define the objectives 
and priorities, and we need to define the private sector 
broadly.
    It is going to include not only business, but all the 
economic and political interests in society. Not just business, 
but labor, environmental groups--any other groups should have 
an equal right to provide input for the construction of the 
FTAA.
    That assures that everybody has a seat on the plane at the 
take off, as well as when it lands.
    So a couple of conclusions. We have clear, concrete 
instructions by the ministers. I think that should be judged a 
major achievement. The United States has consistently pressed 
for rapid movement in carrying out the Miami declaration's 
vision of the FTAA. We will continue to work toward that end in 
the coming year.
    We are gratified to note that increasing numbers of our 
trading partners in the hemisphere share the same dedication 
and level of ambition. We have been working very closely with 
them, and I think that bodes well for a successful conclusion.
    The countries have revealed their readiness to pursue 
greater integration with or without us, so if we are unable to 
shape this process, we are going to be losers. We lose our 
credibility, our leadership role, and our companies and workers 
lose their competitive advantage.
    Ultimately, fast track authority is essential to ensure the 
continued competitiveness of U.S. exports in this most dynamic 
and growing market.
    The nations of the hemisphere want to work with us to 
create the FTAA. They believe it will help them and us 
together, a good deal for both sides. It will make our people 
more prosperous, strengthen democracy, and build regional 
peace. So I think this is an opportunity we can and should 
seize.
    I thank you all very much.
    [The prepared statement follows:]

Statement of Jeffrey M. Lang, Deputy U.S. Trade Representative

    Thank you, Mr. Chairman, for providing this opportunity for 
the Administration to present its views on the status of the 
Free Trade Area of the Americas (FTAA) and the course of U.S. 
trade policy toward the Western Hemisphere after the Third 
Western Hemisphere Trade Ministerial held on May 16 in Belo 
Horizonte, Brazil. This was perhaps the most important 
ministerial to date in the FTAA process, as the Ministers 
agreed to recommend the initiation of negotiations for an FTAA 
at the next Summit of the Americas to be held in Santiago, 
Chile in April 1998.
    After President Clinton's visit to Mexico, Central America 
and the Caribbean, we expected a successful Belo Horizonte 
Ministerial. The President heard directly from the leaders of 
the region of their readiness to move forward to build the 
FTAA. We have entered into a new era of shared commitment to 
democracy and open markets. Now that we have common values, we 
can talk about meeting common challenges. Increased economic 
prosperity in the hemisphere will help solidify democracy and 
regional peace and will create new markets for the United 
States.
    Before I get into the details of the Ministers' agenda and 
the near-term outlook for the FTAA, however, I would like to 
highlight some facts which demonstrate the enormous 
opportunities that we face in Latin America.

                U.S. Trade with Latin America/Caribbean

    Latin America currently is the most dynamic market in the 
world for U.S. exports. In 1996 our exports to Latin America 
and the Caribbean grew by 14.5%, reaching $109 billion. That 
growth rate is more than twice as great as the growth of U.S. 
exports to the rest of the world. And that has been the pattern 
throughout this decade---our exports to Latin America and the 
Caribbean (including Mexico) more than doubled between 1990 and 
1996, whereas our exports to the rest of the world grew by 50% 
during the same period.
     Recently released figures for the first four 
months of 1997 reveal that this growth is continuing--exports 
in the first four months period of 1997 grew 21.6% over the 
levels of the same period in 1996. Exports to five countries of 
the region--Venezuela, Argentina, Brazil, Bolivia and the 
Dominican Republic--were up more than 25%, and, in the case of 
Brazil, more than 30%, during the first third of 1997.
     If current growth rates continue over the next 
year, our exports to Latin America and the Caribbean will 
exceed our exports to the European Union (EU) by the end of 
1998.
     Mexico already is on the verge of replacing Japan 
as our second largest export market; in fact, in April 1997 
Mexico did exceed Japan in purchases of U.S. exports.
    The United States also is the most significant market for 
Latin America's products. Last year Latin American countries 
increased their exports to the U.S. by 17.2%, reaching $122 
billion.

                 Trade Liberalization in Latin America

    One of the principal reasons that we are experiencing this 
expansion of trade with Latin America is that there has been a 
dramatic re-orientation in trade policy on the part of many, 
indeed most, Latin American countries during the past several 
years. The countries of the region are abandoning the 
protectionism and heavy government intervention of the past for 
market-oriented policies that will increase their ability to 
compete in the global economy. They have been reducing their 
tariffs and non-tariff barriers, due to the implementation of 
their Uruguay Round obligations and through unilateral 
reductions. State-owned enterprises are being privatized; laws 
on intellectual property protection are being modernized; and 
macroeconomic reforms and realistic exchange rate regimes have 
been introduced. For some countries, these changes have been as 
revolutionary as the changes that occurred in the economies of 
Eastern and Central Europe at the beginning of this decade.
    The greater openness of Latin American economies has 
stimulated a resurgence of activity toward economic integration 
in the region. In fact, no region of the world has a more 
active agenda of free trade area negotiations than Latin 
America. At the sub-regional level during the past year we 
witnessed the conclusion of the Chile-Canada Free Trade Area 
(FTA), the MERCOSUR-Chile FTA, the MERCOSUR-Bolivia FTA, and 
the initiation of negotiations between MERCOSUR and the Andean 
Pact, between Panama and Chile, between Mexico and the Northern 
Triangle of Central America (Guatemala, El Salvador and 
Honduras), and between Central America and the islands of the 
Caribbean.
    Properly done, such sub-regional agreements can contribute 
both to hemisphere-wide liberalization through the Free Trade 
Area of the Americas (FTAA) and to multilateral liberalization 
in the WTO. As firms and farmers face ever widening realms of 
direct competition through sub-regional free trade areas, they 
become better prepared for competing with the entire 
hemisphere. Sub-regional economic cooperation has also helped 
to foster regional and sub-regional political cooperation, 
transforming historical rivals into trading partners and 
political allies. We, therefore, welcome the trend towards sub-
regional cooperation in Latin America and the Caribbean as part 
of the broader process of hemispheric economic and political 
integration that we began in Miami.
    Within MERCOSUR, for example, the expansion of sub-regional 
trade integration has worked to the advantage of U.S. exporters 
and investors by bringing macroeconomic stability to a region 
that has historically faced recurrent high levels of inflation. 
MERCOSUR's emergence and its commitment to lowering tariffs 
over time has also worked to the advantage of many U.S. 
exporters by reducing overall levels of protectionism. U.S. 
exports to MERCOSUR have steadily climbed from $6.6 billion in 
1990 to $18.6 billion in 1996--an increase of 178 percent. Like 
MERCOSUR, the consolidation of Central America's regional 
identity and the impetus to sub-regional integration 
contributes to our broader agenda of hemispheric integration 
and benefits U.S. exporters and investors, who are able to 
project into a single market of 30 million people.
    Nonetheless, the expansion of these sub-regional 
preferential trade arrangements could put many American 
suppliers of goods at a disadvantage in such markets compared 
to suppliers from member countries, even when the arrangements 
are consistent with the WTO. In fact, any time a trade 
agreement is concluded that reduces barriers between the 
parties, and those parties do not include the United States, 
U.S. based producers are put at a competitive disadvantage in 
that market. Over 20 trade agreements have been struck in key 
markets around the world in just the last four years. In other 
words, there is a real and growing commercial cost to U.S. 
inaction that U.S. exporters are discovering every day. In just 
this hemisphere--our largest and fastest growing export 
market--examples are more evident as time passes:
     Canadian firms will now have access to the Chilean 
market (a U.S. export market in 1996 larger in value than 
Indonesia, Russia or India) tariff-free on a range of goods and 
services, as well as preferential access to invest in Chile.
     U.S. apple and pear producers, among others, are 
concerned about the potential loss of their Latin American 
markets due to Chile's preferential tariff-free, or nearly 
tariff-free, access to MERCOSUR, Venezuela, Colombia and other 
South American markets as a result of Chile's FTAs.
     For example, Chilean fresh fruit pays a 2% tariff 
when entering Venezuela, whereas U.S. producers pay a 15% 
tariff. The U.S. Embassy estimates that U.S. market share would 
grow from its current 39% to 67% if U.S. producers had 
equivalent access to the Venezuelan market.
     Brazil, Argentina, Paraguay and Uruguay--the 
MERCOSUR countries--comprise the largest market in South 
America. In the context of negotiating this partially 
implemented customs union, Argentina, for example, 
substantially raised its tariff on imported computer products 
to accommodate Brazil's interests. The net result was that the 
common external tariff affecting U.S. exports is significantly 
higher than the original tariff on these items in Argentina, 
the second largest economy in South America.
     U.S. firms not located and producing within 
MERCOSUR face a competitive disadvantage not only with respect 
to MERCOSUR producers, but Chilean and Bolivian producers as 
well, through MERCOSUR's association agreements with those 
countries. This puts all U.S. producers, including agricultural 
producers which compete with Chilean fruit, Argentine wheat, 
Brazilian soybeans, etc., at a competitive disadvantage in 
these markets. The scope of this disadvantage will grow as 
MERCOSUR expands its association agreements.
     Venezuela, Colombia, Ecuador, Peru and Bolivia--
together constituting the ANDEAN PACT--comprise a market of 100 
million people and a GDP greater than $260 billion. As part of 
its efforts to develop a common external tariff, the import 
tariff on textile goods, for example, was raised from 5 to 15%, 
thus inhibiting the export of U.S. textiles to this growing 
market.
     As part of its integration efforts, the ANDEAN 
PACT negotiated common intellectual property rights (IPR) 
disciplines (Decision 344) that have now been utilized to 
effectively block the Ecuadorian implementation of a bilateral 
IPR agreement with the United States, thus denying U.S. IPR 
owners of the best legal protection possible in the Ecuadorian 
market.
    Of course, it is essential that all sub-regional 
arrangements adhere scrupulously to the disciplines in the WTO 
(GATT Article XXIV and GATS Article V). Basically, this means 
that such arrangements must cover essentially all trade between 
the member countries and must not raise the level of overall 
restrictions on countries outside the arrangement.
    At present most of the FTAs in the hemisphere, other than 
NAFTA, are essentially tariff elimination arrangements. They 
are not as comprehensive as NAFTA in covering other trade and 
trade-related measures, such as government procurement, 
investment, intellectual property protection (IPR), sanitary 
and phytosanitary measures, product standards, and services. 
Thus, there is a danger that various sub-regional arrangements 
could develop incompatible provisions in the non-tariff areas. 
This would not be in anyone's interest. It would be beneficial, 
therefore, to move rapidly to develop FTAA-wide disciplines in 
these areas.
    From the standpoint of U.S. interests, we certainly should 
not stand on the sidelines as sub-regional arrangements are 
negotiated. We don't want to be disadvantaged by standing 
outside preferential agreements in the markets of Latin 
America. Nor do we want to be a bystander as the standards for 
trade behavior in the next century are negotiated.
    Moreover, our ability to engage outward-looking countries 
in negotiations--either in the FTAA or bilaterally--can 
solidify a nascent movement toward the open trade policies that 
we espouse and practice. Central America, for example, is 
demonstrating an impressive willingness to relate to the United 
States on the basis of reciprocal market opening rather than as 
a recipient of unilateral trade preferences. This was the 
unambiguous message of Central American presidents meeting with 
President Clinton last month in San Jose, Costa Rica.
    It would be premature to make specific commitments beyond 
Chile to negotiate FTAs with individual countries in the 
hemisphere, but we should work with like-minded countries on 
the building blocks of more open trade and investment. Among 
these building blocks are: Bilateral Investment Treaties 
(BITs), government procurement agreements, bilateral IPR 
agreements, and closer cooperation on sanitary and 
phytosanitary matters.
    In addition, we should promote accelerated implementation 
of Uruguay Round commitments by the developing countries in our 
region. This would be of great significance in the areas of 
customs valuation, trade-related intellectual property 
protection (TRIPs), and trade-related investment measures 
(TRIMS).
    It is very disappointing in light of the region's generally 
positive record on trade liberalization, therefore, that very 
few countries in Latin America have yet joined the Information 
Technology Agreement (ITA) that was negotiated at the WTO 
Ministerial in Singapore (only Costa Rica, El Salvador and 
Panama have joined the ITA). It makes no sense for a country to 
stand on the sidelines of the information technology 
marketplace. Certainly one of the essential building blocks of 
any country's competitiveness is to eliminate tariffs on IT 
products by the year 2000.
    Active participation in upcoming WTO negotiations on 
financial services, agriculture, and other elements of the 
WTO's ``built-in agenda'' also should be part of each country's 
negotiating agenda.
    Finally, countries should take steps to ensure safe and 
healthful working conditions, as well as the wide dispersion of 
benefits, from expanded trade and investment.

        Free Trade Area of the Americas (FTAA)--U.S. Perspective

    The Miami Summit Declaration and Plan of Action provide the 
overall framework for the construction of the FTAA. It set 2005 
as the latest date to conclude FTAA negotiations, and it 
included the following commitments by all 34 Leaders:
     balanced and comprehensive agreements to maximize 
market openness through high levels of discipline covering 
tariffs; non-tariff barriers (NTBs) in goods and services; 
agriculture; subsidies; investment; intellectual property 
rights (IPR); government procurement; product standards; rules 
of origin; anti-dumping and countervailing duties (AD/CVD); 
sanitary and phytosanitary (SPS) procedures; dispute 
settlement; and competition policy;
     concrete progress by the year 2000;
     to further secure the observance and promotion of 
workers' rights; and
     to make our trade liberalization policies and our 
environmental policies mutually supportive.
    At the Denver Trade Ministerial in June 1995, the 34 
countries agreed that the FTAA will be a ``single 
undertaking,'' i.e., all countries ultimately will assume all 
of the obligations of the FTAA--no free riders.
    It also was agreed at Denver that the FTAA will be WTO-
consistent. Thus, the FTAA will have the WTO obligations as its 
threshold. But there is no reason to negotiate an FTAA if we 
stop at existing WTO provisions. The FTAA needs to go beyond 
the WTO and be future-oriented. It must be responsive to new 
technologies and new ways of doing business, and it should draw 
from the best, most appropriate practice in the sub-regional 
arrangements. In other words, we aim for the FTAA to be ``the 
state of the art'' in trade and investment agreements when it 
is concluded.

                    Belo Horizonte Trade Ministerial

    As I mentioned, the Third FTAA Trade Ministerial meeting 
took place last month in Belo Horizonte, Brazil, and next April 
a Summit of the Americas will be held in Santiago, Chile.
     We must use the period between Belo Horizonte and 
the next Summit to ensure that our Presidents and Prime 
Ministers can initiate the negotiating phase of the FTAA at the 
Santiago Summit. At Belo Horizonte, the countries of the 
hemisphere announced that they are ready to meet this 
objective.
     The Trade Ministers at Belo Horizonte agreed that 
they will recommend that the Leaders at Santiago initiate 
negotiations for the FTAA. We know that negotiations will 
proceed at different paces for different subject matters. Some 
issues are more complicated or politically sensitive than 
others, but we should start on the full range of issues 
included in the Miami Declaration and Plan of Action at the 
same time to signal our seriousness in meeting the 2005 
deadline for concluding negotiations of the FTAA. It was clear 
at the meeting in Belo Horizonte that nearly all countries 
agree on this approach rather than negotiations in stages.
     The Belo Horizonte Ministerial set out a very 
clear work plan for the FTAA countries so that Trade Ministers 
can provide their Leaders with the essential recommendations 
for initiating negotiations.
    --It is not necessary to complete an exhaustive analysis of 
every possible issue in the negotiations before we can start 
the negotiating process. Most issues get clarified and defined 
only through the process of negotiation itself. We experienced 
that in the Uruguay Round as well as in the NAFTA negotiations.
    --The 11 Working Groups of the FTAA (market access; customs 
procedures and rules of origin; investment; services; 
government procurement; intellectual property; sanitary and 
phytosanitary practices; technical barriers to trade; 
subsidies, countervailing duties, and antidumping; competition 
policy; and smaller economies) already have accomplished 
substantial preparatory work, especially in the area of 
identifying current practices in the hemisphere---both in 
national legislation, regulation, and procedures and in 
international obligations. Several of the inventories on 
country practices are now available to the public for the first 
time, and can be accessed through the official FTAA Homepage on 
the Internet (www.ALCA-FTAA.org). Additional output from the 
Working Groups will be published throughout this year.
    --As was agreed at the Cartagena Ministerial last year, the 
Belo Horizonte Ministerial established the Working group on 
Dispute Settlement, to be chaired by Uruguay.
    --The principal task of the 12 Working Groups over the next 
six months is to prepare recommendations on alternative 
possible issues and negotiating approaches in each substantive 
area.
    --The Ministers also created a Preparatory Committee 
(PrepCom) of the 34 Vice Ministers to review the Working Group 
recommendations. The PrepCom has nine months to prepare its 
recommendations on how the negotiations should proceed--
including objectives, approaches, structure and venue--for 
decision by the Trade Ministers at their meeting next February 
in San Jose, Costa Rica. The PrepCom must also offer advice on 
the establishment of Negotiating Groups--how many Negotiating 
Groups should there be, and what should each one cover.
    --The Ministers meeting in San Jose will then make their 
decisions based on those recommendations; so it will be 
essential that the preparatory work has progressed sufficiently 
to initiate negotiations.
    --Our leaders at the Santiago Summit then will outline a 
plan of action directing the course of negotiations in order to 
be able to conclude negotiations by 2005, at the latest.
    --At the same time, the Tripartite Committee (the Inter-
American Development Bank, the Organization of American States 
and the Economic Commission for Latin America and the 
Caribbean) will conduct a feasibility study of a temporary FTAA 
administrative secretariat to support the negotiations at 
minimal cost. Washington and Miami have been included among the 
alternative sites that will be studied as illustrative cities 
for determining relative costs.
     Throughout the construction of the FTAA, we will 
remain sensitive to the vast disparities in economic size among 
the FTAA countries. On the one hand, we have continental-size 
countries with populations in the hundreds of millions. On the 
other hand, we have countries with populations and GDPs the 
size of Arlington County, Virginia.

    --These smaller economies face both enormous opportunities 
and significant challenges in the FTAA negotiations. We must 
ensure that they are able to participate fully in the 
negotiations (e.g., by providing technical assistance). And in 
the negotiations themselves, we must be willing to accept 
appropriate transition measures in those areas of greatest 
difficulty for the smaller economies.
    --However, we must be intellectually rigorous in our 
approach. For example, we cannot have a situation in which 28 
countries out of 34 claim that they are ``smaller economies.''
    --Of course, the United States already provides substantial 
support for expanded trade opportunities for the countries of 
the Caribbean and Central America through the Caribbean Basin 
Initiative (CBI).
    --In addition, the President is working with Congress to 
enactlegislation that will offer eligible CBI countries 
enhanced trade preferences predicated on meaningful policy 
reforms that will help prepare these countries to participate 
in the FTAA.
     We also must be responsive to the various economic 
interests in our societies who wish to express their 
perspectives on the issues in the FTAA.
    --We have seen how the Americas Business Forum has evolved 
since the late Secretary Brown hosted the first Forum in Denver 
in June 1995.
    --We need the advice of the private sector to help us 
define our objectives and priorities in the FTAA negotiations.
    --Of course, we define the private sector broadly, to 
include all of the economic and political interests in society 
with a stake in our trade policy. Thus, in addition to the 
business sector, organized labor and environmental groups have 
an equal right to provide input for Ministers.
    --The Ministers agreed in Belo Horizonte on the importance 
of dialogue and consultation with labor and other groups to 
make the FTAA negotiating process transparent. This will ensure 
all interested members of our societies have the opportunity to 
participate, thereby enhancing the political credibility and 
substantive quality of the process.
    The clear, concrete instructions presented by the Ministers 
in this year's Declaration should be judged a major 
achievement. The United States consistently has pressed for 
rapid movement in carrying out the Miami Declaration's vision 
of the FTAA. We will continue to work toward that end in the 
coming year. We are gratified to note that increasing numbers 
of our trading partners in the hemisphere share the same 
dedication and level of ambition, which bodes well for 
successful negotiations.

                              Conclusions

    The ability of the U.S. to influence the pace, the 
objectives and the content of the FTAA, however, depends on a 
grant of trade agreements implementing authority (the so-called 
fast track authority) that is comparable to the authority 
granted previous Presidents--both Democrat and Republican. As I 
noted before, if we are unable to shape this process and other 
countries continue to forge trade and strategic alliances 
without us, we lose. We lose our credibility; we lose our 
leadership role; and our companies and workers lose their 
competitive advantage. We have already begun to see the real 
costs to our companies and workers of trade agreements 
concluded without us. Fast track authority is essential to 
reverse that trend.
    We have reached the point where the nations of the 
hemisphere share our commitment to democracy and fair 
competition in open markets. They want to work with us to 
create the FTAA in the shared belief that it will expand our 
economies, improve our trade competitiveness in the global 
economy, make our people more prosperous, strengthen democracy, 
and build regional peace. We must seize this opportunity to 
create a solid foundation for peace and prosperity in our 
hemisphere.
      

                                

    Chairman Crane. Secretary Davidow.

  STATEMENT OF JEFFREY DAVIDOW, ASSISTANT SECRETARY FOR INTER-
           AMERICAN AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Davidow. Thank you, Mr. Chairman. I am joined at the 
table by Bryan Samuel, who is the Deputy Assistant Secretary of 
State for Inter-American Affairs, with special responsibilities 
for trade matters.
    Mr. Chairman, I will be brief. I have written testimony to 
submit, but with your permission I will summarize it.
    I want to make the point that the FTAA, the free trade area 
of the Americas, is much more than a trade issue. It is a key 
factor in the creation of a new relationship among the 
countries of this hemisphere.
    We are at a unique historic moment, unique in that 
important factors of the relationship have never come together 
in the same way before. Never before in history, in the 200 
years or so of our relations with this hemisphere, have all the 
countries of this area of the world been functioning 
democracies as they are today, with one glaring exception, 
which is Cuba.
    Never before in the past 200 years has there been such a 
broad-based consensus on economic issues, on the need for free 
and open trading patterns. This is something relatively new, 
and we only have to think back to the decades of the fifties, 
sixties, seventies, eighties, some lost decades in Latin 
America, some decades in which concepts of dependency theory 
held sway.
    We must realize that we really are at a unique moment. The 
future is ours to help mold, along with our like thinking 
colleagues and friends in this hemisphere, if we are up to the 
challenge of doing so.
    The free trade area of the Americas is an essential element 
of U.S. policy. And this U.S. policy toward the hemisphere is 
in itself derivative of, and in accordance with the policy 
goals set by President Clinton and Secretary Albright for our 
international posture in the world.
    First, we have major goals that we pursue everywhere 
internationally. One is to keep the United States economically 
strong, internationally competitive and prosperous, and to 
preserve our position as the hub of an expanding global 
economy.
    Second, we seek to preserve and advance freedom by 
promoting the principles and values upon which this Nation's 
democracy and identity are based.
    Third, we seek to promote and establish a framework of 
cooperation that protects our citizens and friends from the new 
transnational threats of environmental degradation, narcotics 
trafficking, migrant smuggling, terrorism, and international 
crime.
    Construction of the FTAA serves each of these objectives. 
First, by promoting greater efficiency in economic growth in 
all of the participating economies, the FTAA will strengthen 
our economy, providing new opportunities and a better quality 
of life for U.S. workers, businesses, and consumers--as 
Ambassador Lang has pointed out.
    There is no question in my mind, Mr. Chairman, that 
economic growth and development, the strengthening of economies 
in the Western Hemisphere as to our benefit. It helps our 
economy.
    Second, the FTAA will also strongly promote our values. The 
increased pace of the growth and investment in Latin America 
which will be provided by the FTAA will further consolidate 
market-based reforms underway in the region and strengthen 
democracy. Indeed, the commitment by the hemisphere's leaders 
to the principle of free trade has in itself been a catalyst 
accelerating reform and investment in the region.
    The opening of markets and enhanced competition envisioned 
by the FTAA also serve as an impulse to social mobility, a key 
factor in long-term political stability. Closed economies allow 
the well-connected to grab and keep the best opportunities, and 
thus tend to perpetuate the positions of the privileged.
    But economies based on competition reward efficiency, 
innovation, and enterprise, regardless of political or social 
connections. Indeed, the FTAA has come to symbolize Latin 
America's new open economic model. The FTAA's emphasis on 
growth, competition, efficiency, and innovation are exactly the 
qualities which the region's economic reforms are designed to 
encourage.
    Our new relationship with Latin America and the Caribbean 
is based on the spirit of cooperation. This was the theme of 
the Miami summit. It was highlighted in the President's recent 
visits to Mexico, Central America, and the Caribbean.
    As you know, Mr. Chairman, he will be traveling in the 
month of October to Venezuela, Brazil, and Argentina, and then 
early next year to Chile, to attend the second Summit of the 
Americas, this one hosted by the Chilean Government. And 
everywhere, the theme is mutual respect, partnership, and 
cooperation.
    The FTAA will contribute strongly to the cooperative 
framework that we are establishing. Economic vitality is 
indispensable to protecting the environment for future 
generations, and waging an effective fight against illegal 
migration and some of the other ails that I have mentioned.
    It is no wonder the movement to free trade has become one 
of the cardinal points of the United States strategy toward 
Latin America, for both Republican and Democratic 
administrations.
    And in Latin America and the Caribbean, the FTAA, with its 
offer of economic partnership among countries, with juridically 
equal rights and obligations, has become the cornerstone of the 
new relationship that we seek to construct.
    As Ambassador Lang has pointed out, there has been 
considerable progress toward achieving the FTAA goal through 
the technical working groups and ongoing meetings of the 
hemisphere's vice ministers and ministers of trade. We are now 
reaching a critical juncture in this process, moving from the 
preparatory phase to the actual negotiations.
    We expect that at the April meeting in Santiago, the second 
Summit of the Americas, the assembled Presidents there will 
formally announce the beginning of negotiations for the FTAA.
    The ability of the United States to shape the upcoming FTAA 
negotiations and influence the way trade will flow and 
economies will work in the future will depend upon our ability 
to lead, and to negotiate with credibility.
    It is for this reason that I support the points made 
earlier by Representative Kolbe and Ambassador Lang about the 
essential nature, the critical nature, of rapid passage of fast 
track negotiating authority.
    I expect that that legislation will be introduced soon, and 
that we will see a full congressional debate on the matter in 
the fall.
    Mr. Chairman, let me close by pointing out that political 
and economic leadership are inextricably tied in today's world. 
If we lose our ability to lead in the trade arena, we will 
increasingly lose our influence strategically, politically, and 
in other spheres of international relations.
    Thank you very much for this opportunity.
    [The prepared statement follows:]

Statement by Jeffrey Davidow, Assistant Secretary for Inter-American 
Affairs, U.S. Department of State

    Thank you, Mr. Chairman, for this opportunity to join my 
colleague Ambassador Lang in testifying on this critical issue.
    First, I want to emphasize that I agree whole-heartedly 
with Ambassador Lang's testimony that the Free Trade Area of 
the Americas is strongly in the U.S. interest, and will be good 
for U.S. workers, businesses and consumers. What I would like 
to add is that there are equally compelling arguments for the 
FTAA from the perspective of over-all U.S. foreign policy 
toward Latin America and the Caribbean.
    Our policy toward Latin America is derived from three basic 
objectives established by the President and the Secretary of 
State for our overall foreign policy:
     First, to keep the United States economically 
strong, internationally competitive and prosperous, and to 
preserve its position as the hub of an expanding global 
economy.
     Secondly, to preserve and advance freedom by 
promoting the principles and values upon which this nation's 
democracy and identity are based.
     Third, to establish a framework of cooperation 
that protects our citizens and our friends from the new 
transnational threats of environmental degradation, narcotics 
trafficking, migrant smuggling, terrorism and international 
crime.
    Construction of the FTAA serves each of these objectives. 
First, by promoting greater efficiency and economic growth in 
all the participating economies, the FTAA will strengthen our 
economy, providing new opportunities and a better quality of 
life for U.S. workers, businesses and consumers, as 
demonstrated in the previous testimony. Further, the ability of 
the U.S. economy to create jobs, provide opportunities and 
project its strength globally is admired and envied throughout 
the world. That gives credibility to our nation as a model of 
democracy and market economics, and it gives our diplomacy a 
special strength.
    Secondly, the FTAA will also strongly promote our values. 
The increased impulse to growth and investment in Latin America 
which will be provided by the FTAA will further consolidate 
market-based reforms underway in the region and strengthen 
democracy. Indeed, the commitment by the hemisphere's leaders 
to the principle of free trade has in itself been a catalyst 
accelerating reform and investment in the region.
    The opening of markets and enhanced competition envisioned 
by the FTAA also serve as an impulse to social mobility, a key 
factor in long-term political stability. Closed economies allow 
the well-connected to grab and keep the best opportunities, and 
thus tend to perpetuate the positions of the privileged. But 
economies based on competition reward efficiency, innovation 
and enterprise regardless of political or social connections. 
Indeed, the FTAA has come to symbolize Latin America's new open 
economic model; the FTAA's emphasis on growth, competition, 
efficiency and innovation are exactly the qualities which the 
region's economic reforms are designed to encourage.
    This brings me to a criticism often leveled at FTAA and 
trade liberalization in general, namely that freer trade may 
increase growth in the economy overall but only to benefit the 
rich. Recent research shows exactly the opposite. For example, 
an IDB study of 13 countries which significantly opened their 
trade regimes during the period 1985-95 showed that trade 
liberalization was associated with an increase in the real 
incomes of the lower 60% of the population. The increase was 
largest for the poorest 20%, and the richest 20% of the 
population experienced a small drop in real income. These are 
important findings that need to be better understood not only 
by policy-makers but also by the public whose support must be 
maintained or won for free trade policies.
    Thirdly, the FTAA will contribute strongly to the new 
cooperative framework between the United States and Latin 
America. Economic vitality is indispensable to protecting the 
environment for future generations and waging an effective 
fight against illegal migration, the drug trade and other forms 
of transnational crime. Without broadly-shared growth, 
citizens' trust in their governments and institutions 
deteriorate, state legitimacy erodes, the rule of law weakens 
and social ills propagate. The growth and opportunities 
provided by the FTAA will put a strong new weapon in the hands 
of those Latin American leaders who want to work cooperatively 
with us in addressing these problems.
    It is no wonder then that the movement to free trade has 
become one of the cardinal points of U.S. strategy toward Latin 
America. From the very beginning, when President Bush first 
proposed the concept of hemisphic free trade in June 1990, this 
idea captured the imagination of people throughout Latin 
America and the Caribbean. The specific initiative by President 
Clinton and the other 33 democratic leaders of the hemisphere 
to negotiate the FTAA by the year 2005 was the centerpiece of 
the Miami Summit of the Americas in December 1994. Even though 
the Miami Summit endorsed an Action Plan of 23 initiatives, the 
FTAA was clearly one of the boldest and most dramatic 
initiatives and has remained so ever since. Indeed, for many in 
Latin America and the Caribbean, the FTAA--with its offer of an 
economic partnership among countries with juridically equal 
rights and obligations--has become the cornerstone of the new 
relationship between the U.S. and Latin America.
    As you know, there has been considerable progress toward 
achieving the FTAA goal through technical working groups and 
ongoing meetings of the hemisphere's vice-ministers and 
ministers of trade. We are now reaching a critical juncture in 
this process--moving from the preparatory phase to the actual 
negotiations. As noted in Ambassador Lang's testimony, the 
hemisphere's trade ministers at their meeting in May in Belo 
Horizonte recommended to their presidents and heads of 
government that the FTAA negotiations be launched at the 
Santiago Summit in April 1998. The Ministers will meet again in 
February in San Jose, Costa Rica to make recommendations for 
the Summit on the structure, pace and venue of the 
negotiations.
    Our efforts toward the FTAA are complemented by the joint 
effort of the Administration and the Congress to enhance trade 
opportunities for countries which are beneficiaries of the 
Caribbean Basin Initiative. I want especially to express my 
appreciation to this Subcommittee on this point. We have major 
strategic and economic interests in the countries of Central 
America and the Caribbean, which are among our closest 
neighbors and with whom we share many historical and social 
ties. Providing these countries with improved access to the 
U.S. market will stimulate increased trade and growth in their 
economies, which in turn will provide new opportunities for 
U.S. exports and investment, and protect our other interests in 
the region.
    Clearly then, there is forward momentum, both in our 
overall trade relationship with the rest of the hemisphere, and 
in reaching the FTAA goal. But the ability of the U.S. to shape 
the upcoming FTAA negotiations and influence the way trade will 
flow and economies will work in the future will depend on our 
ability to lead, and to negotiate with credibility.
    As has been pointed out by trade negotiators, academic 
experts, politicians and business leaders, this means that U.S. 
negotiators must be backed by fast-track. One of the clearest 
arguments made on this issue comes from one of your 
distinguished predecessors, Mr. Chairman. When he testified 
before your Subcommittee in March, former Congressman Sam 
Gibbons (who as Chairman of this Subcommittee was an official 
advisor to numerous international trade negotiations) said 
that, without fast-track:
    ``No foreign government will make a deal with us in a 
negotiation because they know from experience that Congress 
will ultimately re-write the agreement. No other country 
negotiates like the United States...Their Parliaments only 
accept or reject, so they require us to do the same before they 
will sit down to serious negotiations with us.''
    For the United States to maintain our traditional 
leadership role in global economic policy, it will clearly 
require expeditious Congressional approval of fast-track 
procedures. Without this, our negotiators in effect become 
glorified observers in the negotiating process, and we cede the 
initiative to other countries.
    Let me emphasize also that there has been no lack of 
initiative among hemispheric countries. As Ambassador Lang 
pointed out, over the past few years, a network of free and 
partially free trade agreements has developed covering every 
country in the hemisphere. This network is now expanding beyond 
the hemisphere to include Europe and Asia. The rules and 
structures of these agreements are setting precedents which 
will have an increasing influence on the way trade and 
investment are conducted in this hemisphere, and on the 
internal policies and institutions of participating countries. 
In effect, this ship has already left port. If we want to 
maintain our influence in the hemisphere and protect the 
interest of U.S. workers, businesses and consumers, we must 
have the legislative authority to allow us to act with 
credibility.
    Let me close by pointing out that political and economic 
leadership are inextricable in today's world. If we lose our 
ability to lead in the trade arena, we will increasingly lose 
our influence strategically, politically and in other spheres 
of international relations. This is not just an issue of 
internal Congressional procedures, or of internal U.S. 
politics, this is nothing less than a question of our ability 
to protect our interests, our willingness to keep our 
commitments, and our ability to lead effectively around the 
world.
    Particularly now, when democratic governments of the 
hemisphere have come to an unprecedented consensus, it would be 
tragic if we were to lose this historic opportunity to form a 
true and lasting partnership with our American neighbors.
      

                                

    Chairman Crane. Thank you, Mr. Davidow.
    Mr. Lang, why have so few countries in Latin America joined 
the Information Technology Agreement?
    Mr. Lang. Well, most of them have said they are considering 
the matter, but are not yet ready to make the commitment. I am 
not sure I completely understand all of the reasons they would 
not want to make themselves more attractive investment venues, 
and gain all the other advantages of the agreement.
    Some countries have said to us that they do not believe 
they are significant exporters of telecommunications or other 
information technology products, and therefore they see no 
reason to open their markets to these products.
    I think that is inconsistent with the decisions most of 
them made to make commitments in the telecommunications 
services negotiations. The basic objective of most of those 
governments was to open their markets for telecommunications 
services so that their industries could develop more rapidly 
because telecommunications is essential now to the development 
of an internationally competitive economy.
    I, in fact, raised this issue with some of our Latin 
American trading partners in Geneva last week, and we hope they 
will consider, particularly in the context of ITA-II, which we 
hope will begin to come together this fall.
    So we are working with them, but they do not seem ready to 
take that step, in some cases because they don't feel they have 
a dog in that fight.
    Chairman Crane. The second question, why has Brazil 
resisted an agreement to begin negotiations on all issues 
simultaneously?
    Mr. Lang. Well, I don't know exactly why they have, but I 
must say that one of the outcomes of Belo Horizonte, the 
ministerial meeting there in May, was that it was clear a 
consensus was developing to move everything forward at once.
    Everybody saw that as a practical negotiating strategy. I 
do not know whether the government of Brazil feels it somehow 
would serve the interests of Mercosur or some particular 
Brazilian importing interest or exporting interest not to move 
forward at all at the same time. I did talk to my Brazilian 
colleagues in Geneva last week and my perception is that 
gradually this consensus will become generalized.
    I think we have to be cautious about what we say at this 
point. But I think this will be gradually accepted as the 
appropriate way to move forward, including Brazil.
    Chairman Crane. And my final question. Does the recent 
trade agreement between Chile and Canada set an adverse 
precedent for United States objectives in the FTAA 
negotiations, and could you comment specifically on the 
antidumping and countervailing duty provisions of the Canada-
Chile agreement.
    Mr. Lang. Well, in some sense, I think, aside from the 
things I mentioned in my testimony about our standing on the 
sidelines, that agreement seems useful to me in that it is 
comprehensive. In other words, it covers a lot of the issues 
that have not been covered in the multilateral system, but were 
covered in NAFTA.
    So in that sense, I think it is useful.
    I am afraid I am not familiar in detail with the dumping 
and countervailing duty provisions. If I can either have 1 
minute to consult, or get back to you in writing, I would be 
glad to do that.
    Chairman Crane. Certainly.
    [The following was subsequently received:]

Response from Ambassador Lang to Philip M. Crane

    Question: Do the anti-dumping (AD) and competition law 
provisions of the Chile-Canada Free Trade Agreement provide a 
precedent for what the U.S. may negotiate in the FTAA or with 
respect to a comprehensive trade agreement with Chile?
    Answer: It is first important to understand what Canada and 
Chile agreed to in their free trade agreement: Canada and Chile 
agreed to a process by which the application of each other's AD 
law to imports from the other country would gradually be phased 
out and replaced, in several years' time, by the application of 
competition law with respect to trade between the two national 
markets. Due, in part, to their small domestic markets, each of 
these countries has for some time supported consideration of 
the substitution of AD law with competition law in the context 
of free trade agreements (FTA). Therefore, given the relatively 
small amount of bilateral trade between Canada and Chile, it is 
not surprising to find that they have agreed ultimately to 
eliminate AD law application so as to try to establish a 
precedent of sorts for further economic integration in the 
Americas and with the United States, in particular.
    It is important to remember that in both the U.S.-Canada 
FTA and the NAFTA contexts, the United States has taken the 
position that it is, at best, premature to begin consideration 
of whether any such ``substitution'' would be appropriate. 
Notwithstanding the economic integration which has occurred, 
considerable barriers remain on North American trade which 
argue against the assumption that competition law could 
reasonably be expected to work as it does within national 
borders. There must be a concomitant integration of political 
and national interests such that the elimination of unfair 
trade remedies would be viewed as a natural consequence of the 
broader process of integration. To date, there is little 
evidence to suggest that a consensus exists in the United 
States in favor of such a step now or in the near future with 
respect to trade agreements we may negotiate.
    In addition, on the competition side, there is a 
considerable need for further education, mutual understanding 
and consensus-building with respect to the issue (and 
desirability) of competition laws and policies. Many countries 
in the Americas do not now have a competition law and, 
therefore, are still assessing whether a competition law/policy 
is desirable for them in terms of furthering consumer welfare, 
economic efficiency and, indeed, social and economic 
development. In other instances, there may be important 
divergences in the purposes for which and the enthusiasm with 
which competition laws are enforced. It will first be necessary 
to sort these issues out before even the ``competition law vs. 
antidumping law'' proponents could legitimately acknowledge 
that the time was ripe for considering the substitution of 
trade remedy laws.
      

                                

    Chairman Crane. And just one final question for Mr. 
Davidow. In the absence of fast track negotiating authority, 
and perish the thought, but what are the security implications 
to the United States?
    Mr. Davidow. I think if we define national security in the 
broadest context, in which we are talking about our own 
economic prosperity, we are talking about cooperative action to 
meet the kinds of threats that we are facing in the world 
today--narcotics being one, illegal alien smuggling, 
international terrorism.
    What we need to effectively deal with those problems of 
security is a coordinated and coherent approach to partnership 
in this region. I do not think we can expect full levels of 
partnership and cooperation if at the same time we are not 
moving ahead on all fronts.
    I do see a relationship between fast track negotiating 
authority, strengthening the economies of the United States, 
most importantly, and other countries of the region, which 
helps them develop the ability to help us confront all of the 
other problems.
    Clearly, stronger economies in Latin America and the 
Caribbean will be better capable of dealing with these security 
issues. And that is why I do think there is a true 
interrelationship between this fast track authority, creation 
of the free trade area, and protection of our National 
security.
    Chairman Crane. Would you concur that the same principle 
applies to trade with China?
    Mr. Davidow. Sir, I really do not feel I can comment on 
that.
    Thank you.
    Chairman Crane. All right.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman. I would like to ask 
Secretary Davidow a followup question. You use in your opening 
remarks the word, respect. You have seen a great deal of 
respect between the Latin American countries, the United 
States, Central American countries, and Canada, and probably it 
is a historic level of mutual respect going back and forth.
    And it seems to me that since the fall of the Berlin Wall, 
the issue of trade has become a major tool of diplomacy, and 
obviously that is why the administration, and certainly the 
State Department, has been seeking fast track authority, but 
also expansion of markets and market opportunities.
    Mr. Crane asked about the security issues involved. My 
concern, I guess, is the fact that the American public really 
hasn't gotten that message yet, the one you just communicated 
to us this morning, and I don't know if it has filtered down 
thoroughly to all of our colleagues.
    When we think of fast track, we think of NAFTA, we think of 
trade, and many think of Ross Perot, but the real issue is one 
of finally having some 30-plus democracies in Latin America, 
and all of them are extremely viable now, and certainly we 
would like to see that for decades and decades in the future.
    It is my hope that your department, and the Secretary of 
State in particular, will play a significant role in the entire 
debate on fast track. And I certainly can't seek any assurances 
from you at this hearing.
    But that would be a request that I, and I believe, some of 
my colleagues would make to you.
    Mr. Davidow. I will certainly take that request back to the 
Secretary of State, but I do not think we will have any trouble 
convincing Secretary Albright of this. In fact, she is 
thoroughly committed to involving herself and the State 
Department, and I believe that one of the great communications 
skills that Secretary Albright has, and has demonstrated, is 
that she can go to the American public and show that these 
issues which seem sort of arcane and not terribly well 
understood really have an impact on how we live in the United 
States. What it means for the average American to have strong 
trading relations in this hemisphere, strong security 
relations.
    And I think she will take a very, very active role. She 
will be traveling with the President, of course, to Latin 
America. But also, interestingly, and I think this gives an 
indication of her commitment--in both Central America and in 
the Caribbean during the President's visit, she urged greater 
political collaboration and contact, and she will be meeting 
once again, probably during the U.N. General Assembly, with the 
foreign ministers of Central America and the foreign ministers 
of the Caribbean. She is very much engaged.
    Mr. Matsui. Thank you. I would like to ask Ambassador Lang 
a question. In 1994 when we had the summit declaration signed 
and agreed to, there were 12 major areas, such as 
countervailing duties, dumping, intellectual property 
protection. Market access, I believe, was another one.
    These were 12 areas in which negotiations were to go on and 
then be completed by the year 2005 under the FTAA. If you have 
no fast track authority, what would be the consequences of that 
declaration, the discussions. Would that put the United States 
at a competitive disadvantage in terms of adopting standards?
    For example, intellectual property protection. I would 
imagine there will be more software sent to Latin America as 
time goes on as they develop their middle class. What would 
that do in terms of our ability to protect our interests and 
protect, obviously, our opportunities for market access?
    Mr. Lang. It would be a pretty serious problem, Mr. Matsui. 
There may be areas we could work in among those you have 
mentioned, and the others which are the subject of the working 
groups we now have going on in this area.
    But my perception is that the credibility of what we do in 
trade depends critically on this legislation, not only because 
of its parliamentary significance, in terms of how legislation 
moves through the Congress, but maybe more importantly because 
it represents the decision by the Congress that we should move 
in the direction of trying to protect our interests in these 
markets abroad.
    There is a great deal of understanding about our political 
system in most of the countries I negotiate with. And they 
understand the critical role of the Congress. And I think until 
we have achieved the consensus that such legislation 
represents, our leverage and our ability to be persuasive is 
significantly diminished.
    Now, we are a big country. We have lots of tools we can 
use. I do not want to predict an Armageddon here, but it would 
be a very serious problem, and we would be significantly 
sidelined in all of these areas, some of which are absolutely 
critical to the development of these markets.
    Because these markets are not standing still. They are 
growing, and we have a leg up on them if we can make this FTAA 
process work.
    Mr. Matsui. Thank you. I thank both of you for your 
testimony today.
    Chairman Crane. Mr. Herger.
    Mr. Herger. No questions, Mr. Chairman.
    Chairman Crane. Mr. Nussle.
    Mr. Nussle. No questions, Mr. Chairman.
    Chairman Crane. Well, gentlemen, I want to express 
appreciation to you for your testimony today, and we look 
forward to working closely with you as we move toward our FTAA 
consummation, and hopefully sooner rather than later.
    Thank you so much.
    Mr. Lang. Thank you, Mr. Chairman.
    Mr. Davidow. Thank you, Mr. Chairman.
    Chairman Crane. I would now like to introduce Vince McCord, 
treasurer of the Association of American Chambers of Commerce 
in Latin America; Hon. William Pryce, vice president of 
Washington operations for the Council of the Americas, and a 
former ambassador to Honduras; and Hon. Antonio--aka Tito--
Colorado, executive director of Caribbean/Latin American 
Action, and a former colleague of ours from the Commonwealth of 
Puerto Rico; and Eric Smith, president of International 
Intellectual Property Alliance.
    I would like to welcome you all to the Subcommittee, and 
would ask that you limit your oral testimony to 5 minutes, and 
all written testimony will be inserted in the printed public 
record.
    We will proceed in the order that I introduced you.

STATEMENT OF VINCENT MCCORD, TREASURER, ASSOCIATION OF AMERICAN 
 CHAMBERS OF COMMERCE IN LATIN AMERICA; AND REGIONAL PLANNING 
  AND PUBLIC AFFAIRS MANAGER, ESSO INTER-AMERICA CORP., CORAL 
                        GABLES, FLORIDA

    Mr. McCord. Chairman Crane, thank you very much for this 
opportunity to comment on the free trade area of the Americas 
from the perspective of over 16,000 members of the Association 
of American Chambers of Commerce in Latin America--AACCLA.
    My name is Vincent McCord. I serve as treasurer of AACCLA, 
whose members manage the bulk of U.S. investment in the region, 
and therefore are the best resource for information on the 
impact that U.S. trade and investment policy initiatives have 
on our business in the Americas.
    I am also the planning and public affairs manager for Esso 
Inter-America, which coordinates Exxon's downstream operations 
in Central America, the Caribbean, and the West Coast of South 
America.
    In this statement I would like to discuss, from the 
perspective of United States business operating in the Latin 
American and Caribbean region, how important it is for the 
United States to return to a leadership role in building fast 
track throughout the Americas.
    The United States has historically had one of the most open 
markets in the world, and has long been at the forefront of 
opening foreign markets. NAFTA set a new standard for trade 
agreements in many areas when it was signed and approved in 
1993.
    GATT and NAFTA have helped produce a climate for doing 
business in Latin America which has brought more markets within 
the reach of United States exporters of all sizes. These new 
markets, in turn, allow the U.S. economy to grow at rates that 
would be unattainable if our companies were limited to selling 
their goods and services domestically.
    Since 1994, however, we have seen U.S. leadership in 
opening new markets in the Americas stalled. Because of the 
absence of fast track negotiating authority, our trade 
negotiators have been unable to take advantage of what may be 
unique opportunities to bring about the elimination of the many 
longstanding barriers to trade and investment in Latin America.
    Many people don't realize how much our hemispheric 
neighbors are attracted to U.S. products and culture, and how 
much could be gained if these barriers were removed.
    U.S. engineering firms are usually the preferred source for 
building the highways and railroads of the region. U.S. 
manufacturers' products are known for their craftsmanship and 
dependability. Consumers across the continent have always been 
eager to buy Levis, watch American movies, eat Burger King and 
McDonald's hamburgers, and shop at Penney's in U.S.-style 
malls.
    In most areas, U.S. business has a leg up on competitors, 
unless the playingfield is tilted away from us.
    Today the opportunity exists for increased market access in 
the Americas. The 34 market-based economies in the region have 
in varying degrees come to the realization that open markets 
are the foundation of sustainable economic growth, which in 
turn is the key to ending the chronic poverty which has plagued 
the Americas.
    As economies open, we must be there to participate, or we 
will lose our leadership position. New competitors are 
emerging, thanks to lowered tariff and nontariff barriers. We 
cannot think that consumers will continue to prefer U.S. goods 
at any cost.
    If our negotiators are without authority, American business 
will be disadvantaged precisely when these markets represent 
one of the fastest growing regions in the world.
    In the past, waiting for U.S. leadership might have meant a 
standstill in trade liberalization measures in the hemisphere. 
Instead, we now see the European Union pressing forward in 
negotiations. Trade negotiators have been meeting with their 
counterparts in the Mercosur markets of Argentina, Brazil, 
Paraguay, and Uruguay, and with Chile and Mexico in order to 
gain preferential access.
    Within the region, Argentina, Brazil, Chile, and Mexico are 
proposing their own trade liberalization agendas. Since we are 
not at the table, the rules of the game are often being 
discussed within the frameworks proposed by our competitors.
    The American business community knows the value of building 
the roadmap for hemispheric free trade on terms which would be 
fair to our exporters, importers, and investors.
    Chile's economic success, stemming from lowering tariffs 
and investment barriers, has opened the eyes of many in Latin 
America. And that country's approach has become a model to be 
studied and copied. Chile has signed bilateral agreements with 
both of our NAFTA partners. Duties on nearly 90 percent of 
total bilateral trade have been lowered to nearly zero, with 
the result being that in 1996 trade with these two nations grew 
by 48 percent.
    Chile's free trade agreement with Canada, which went into 
effect July 1, eliminated all duties on 80 percent of all 
Canadian goods entering Chile.
    In the Andean region, Chile and Colombia have agreed to 
lower the duties to zero on 333 products traded between these 
two nations. In 1996 trade between these two nations rose 23 
percent.
    Chile and Venezuela will have tariff-free trade by 1998. 
Trade between the two nations rose 70 percent in 1995 and 28 
percent in 1996. Chile and Ecuador have signed an agreement 
which will lower the tariffs on all items traded between these 
countries by 1998.
    Chile has also struck a deal with Mercosur. Beginning 
October 1 of last year, there has been a 30-percent tariff 
reduction on 73 percent of Chilean exports, and 81 percent of 
Chilean imports.
    Meanwhile, we have been unable to lower the 11-percent duty 
rate. Standing pat clearly disadvantages U.S. exporters in this 
market, as others negotiate preferential access.
    The United States has two choices. By enacting fast track 
negotiating authority this year, and negotiating a free trade 
agreement with Chile, the United States will be able to both 
restore the competitiveness of American exporters to Chile as 
well as lead to the creation of the free trade area of the 
Americas.
    Our second choice is to sit on the sidelines as 
opportunities to negotiate with Chile disappear, and 
hemispheric trade liberalization proceeds without us, 
jeopardizing United States jobs supported by United States 
exporters to the region.
    Chile is a comparatively small example of what will happen 
with the region as a whole. If the larger countries move like 
Chile to open their economies, the growth of trade will be 
phenomenal.
    Our inaction also makes the broader free trade area of the 
Americas more difficult to achieve. For example, the Central 
American nations have indicated they are prepared to enter into 
a reciprocal, comprehensive free trade agreement with the 
United States.
    The long-promised Caribbean Basin enhancement legislation 
will allow these nations to remain competitive with Mexico in 
exchange for further liberalization of their economies, as a 
step toward full free trade with the United States. If Central 
America is ready, we should seize the moment.
    Mr. Chairman, American business in the region urges our 
elected officials to again take the lead in trade matters. When 
U.S. negotiators are not at the table, our prospects for growth 
decline because the rules are being shaped to help others, not 
us.
    Members of AACCLA ask that fast track negotiating 
authority, limited to the resolution of commercial issues, be 
passed without delay.
    Thank you very much.
    [The prepared statement follows:]

Statement of Vincent McCord, Treasurer, Association of American 
Chambers of Commerce in Latin America; and Regional Planning and Public 
Affairs Manager, Esso Inter-America Corp., Coral Gables, Florida

    Chairman Crane, thank you very much for this opportunity to 
comment on the United States' trade negotiating priorities from 
the perspective of the over 16,000 members the Association of 
American Chambers of Commerce in Latin America (AACCLA). My 
name is Vince McCord, and I serve as a treasurer of AACCLA, 
whose members manage the bulk of US investment in the region, 
and are therefore the best resource for information on the 
impact that US trade and investment policy initiatives have on 
American business in the Americas. I also serve as Regional 
Planning and Public Affairs Manager, Esso Inter-America at 
Exxon's regional office in Coral Gables, Florida.
    In this statement, I would like to discuss how important it 
is for the United States to return to a leadership role in 
building free trade throughout the Americas, from the 
perspective of US business operating in the Latin American and 
Caribbean region.

                        Asserting US Leadership

    The United States has long been at the forefront of opening foreign 
markets, and has one of the most open economies in the world. The North 
American Free Trade Agreement (NAFTA) set new standards for trade 
agreements in many areas when it was signed and approved in 1993. Its 
broad coverage of trade and investment issues has been seen as the 
model around which Hemisphere-wide free trade would be built.
    The successful completion and implementation of the Uruguay Round 
of the General Agreement on Tariffs and Trade also demonstrated the 
commitment of the United States to the world-wide trading system. 
Throughout over 8 years of trade negotiations, the US public and 
private sector worked together to forge perhaps the most ambitious 
multilateral trade pacts in history, and the largest global tax cut 
ever.
    In sum, US trade policy objectives created a climate for doing 
business overseas that helped bring new, growing markets within the 
reach of US exporters of all sizes. These new markets, in turn, help 
the US economy grow at rates that would be unattainable if our 
companies were limited to selling their goods and services 
domestically.
    However, since 1994, progress on opening new markets in the 
Americas has been stalled in part because of the absence of fast-track 
negotiating authority. For the past two years, our trade negotiators 
have been unable to take advantage of what may be unique opportunities 
to bring about the elimination of the many long-standing barriers to 
trade and investment in Latin America. American goods, services and 
most of all, know how, have positioned US companies as leaders in the 
varied economies of the region. US engineering firms build the highways 
and railroads that move people across vast distanced; US manufacturers 
create new, cutting-edge products known for their craftsmanship and 
dependability; consumers across Latin America and the Caribbean have 
always been eager to buy blue jeans, watch American movies, eat 
hamburgers and shop in US style malls. In short, US business has a leg 
up on our competitors because we have worked so hard to have a strong 
market presence in virtually every sector of the Latin American 
economy. Over the last several years, this has helped boost bilateral 
trade between the US and Mexico from $100.3 billion in 1994, to $129.8 
billion in 1996, a 29 percent increase since the implementation of 
NAFTA. Overall, US trade in the region has grown from $180.5 billion in 
1994 to an astounding $231.1 billion in 1996, an increase of over 28 
percent.
    Yet we cannot be complacent and think that consumers and business 
leaders will remain inclined to buy US goods and services unless we 
maintain our leadership in setting the trade rules that allow them to 
successfully compete in these markets. New competitors emerge in the 
international market constantly, and if our negotiators are left 
without authority, we cannot take advantage of Latin American markets 
precisely when they constitute one of the fastest-growing regions of 
the world. Today, the opportunity exists for increased market access in 
the Americas. The 34 market based economies of the Americas are in 
agreement that open markets are the foundation of sustainable economic 
growth.

                   US Inaction Means Gains by Others

    Yet while the United States is participating in the 
valuable, pre-negotiation information gathering phase of the 
Free Trade Area of the Americas, we are not in a position to 
negotiate with anyone. In the past, waiting for US leadership 
might have meant a standstill in trade liberalization measures 
in the Hemisphere. Instead, we now see the European Union 
pressing forward to negotiate deals with the many growing 
markets of our own Hemisphere. Trade negotiators have been 
meeting with their counterparts in the Mercosur markets of 
Argentina, Brazil, Paraguay and Uruguay; with Chile; and with 
Mexico in order to gain preferential access.
    Within the region, trade negotiators from Argentina, 
Brazil, Chile and Mexico, for example, are proposing their own 
trade liberalization agenda. Since the US is not at the table, 
our economic interests are not represented, which means that 
the rules of the game are written by our competitors. The 
business community wants the road-map for Hemisphere-wide free 
trade to be built by our negotiators, under terms that are fair 
for our exporters and investors.
    Chile, for example, has been a leader in moving toward free 
trade in the Hemisphere. That nation's increased trade with 
other countries in the region demonstrates the benefits the 
nation has derived from lowering tariffs and investment 
barriers. Chile may be considered a model for how other Latin 
American nations will develop beyond their borders.
    Chile's bilateral and multilateral deals dot the landscape 
of every sub-region within the Americas. Chile signed bilateral 
deals with both of our NAFTA partners. The Chile-Mexico deal 
has lowered the duties on nearly 90 percent of total bilateral 
trade to nearly zero. As a result, 1996 trade jumped between 
the two nations by 48 percent. Chile's free trade agreement 
with Canada, which went into effect on July 1st, eliminated all 
duties on 80% off all Canadian goods entering Chile.
    In the Andean region, Chile has also been actively striking 
deals. Chile and Colombia have agreed to lower the duties on 
333 products traded between the two nations to zero. In 1996, 
trade between those two nations rose 23 percent. Chile and 
Venezuela will have tariff free trade by 1998. Trade between 
the two nations rose 70 percent in 1995, and 28 percent in 
1996. Furthermore, Chile and Ecuador have signed a deal which 
will lower the tariffs on all items traded between the two 
nations to zero by the end of 1998.
    Chile has also struck a deal with the formidable trade 
group of Mercosur, which includes Argentina, Brazil, Paraguay 
and Uruguay. While tariff-free trade will not be in effect 
until 2014, significant market opening steps are already being 
taken. Since October 1, the Mercosur-Chile deal has led to a 
30% tariff reduction on 73 percent of Chilean exports, and 81 
percent of Chilean imports.
    Meanwhile, we have been unable to lower either the 11 
percent duty rate or the numerous other non-tariff barriers 
that US exporters typically face when trying to sell in the 
Chilean market. As a result, the long-term growth of our 
bilateral trade relationship is limited, as are our 
opportunities to beat out our competitors who already have (or 
will soon negotiate) preferential access to the Chilean market.

               Preservation of our Economic Self Interest

    The United States has two choices: By enacting fast trade 
negotiating authority this year and negotiating a free trade 
agreement with Chile, the United States will be able to both 
restore the competitiveness of American exporters to Chile as 
well as lead the creation of the Free Trade Area of the 
Americas. Our second choice is to sit on the sidelines as 
opportunity to negotiate with Chile disappears and hemispheric 
trade liberalization proceeds with out us, jeopardizing U.S. 
jobs supported by U.S. exports to the region
    The status quo clearly disadvantages US exporters. 
Therefore, we must re-insert ourselves into the Hemisphere's 
trade liberalization program, and bring Chile into the NAFTA. 
Only by acting can we stem the potential loss of US market 
share in Latin America.
    By striking trade agreements with countries like Chile who 
are eager to join NAFTA, we have the opportunity to not only 
``lock-in'' market access, but also set forth clear ground 
rules for doing business--not only trade, but also investment 
rules and institutional treatment for existing US investors. By 
setting forth clear, understandable rules for conducting trade, 
we can create a business environment in which economic growth 
can flourish, and companies of all sizes can grow and create 
jobs.
    A good example of the need for clear rules was demonstrated 
by Mexico's reaction to the 1995 peso devaluation. During the 
1995 economic downturn--which shrunk the Mexican economy by 
nearly 9%--the government raised duties on goods from European 
and Asian nations, causing Mexico's imports from these two 
regions to drop 20 and 30 percent, respectively. However, 
because of the NAFTA rules, Mexico was unable to reimpose 
duties on American exports, and our shipments to Mexico fell 
less than 9%.
    Yet when the U.S. is not at the table shaping the rules of 
international trade, our prospects for growth decline because 
the rules are made to help others, not us.

  Shaping The FTAA: Critical Decisions to be Made Before The Santiago 
                         Summit of The Americas

    The next nine months will be a critical period in the Free 
Trade Area of the Americas process. A number of pivotal 
decisions must be made as we lead up to the second Summit of 
the Americas gathering of the region's heads of states in 
Santiago, Chile next April 18-19, 1998 including:
    Launching the formal FTAA negotiations at Santiago
    Deciding the shape, timing and format these negotiations 
will take, including the role of existing sub-regional groups
    Establishing the maximum levels of discipline to strive for 
in each of the areas to be negotiated.
    Agreeing on concrete steps to be taken in the short-term as 
a down payment toward achieving the FTAA
    Determining the role of the private sector in shaping and 
building support for this process.
    If the United States arrives in Santiago without fast track 
trade negotiating authority, it will simply not have the 
credibility to successfully influence these decisions. Indeed, 
without U.S. engagement, as symbolized by the vote on fast 
track, countries whose markets most interest U.S. business will 
put the FTAA negotiations on the back burner and instead 
prioritize expanding subregional trading blocks or advancing 
negotiations with the European Union.

Role of the Private Sector in Shaping and Building Support for the FTAA

    In order to build support for the FTAA throughout the 
region, it is important that there be a close relationship 
between governments and the private sectors of participating 
countries. It is to the credit of the governments that they 
have arranged for private-sector meetings to be held in close 
proximity to the meetings of trade ministers. This has 
permitted interaction among the private sectors of various 
countries as well as with government representatives.
    But more needs to be done. The private sector and the 
governments share a joint responsibility for educating the 
peoples of the hemisphere about the benefits of liberalized 
trade and investment and the proposed FTAA. Private-sector 
efforts in that regard are hampered when the flow of 
information coming out of governments is restricted.
    The region's Trade Ministers should enhance the flow of 
information between governments and the private sector by 
making it a top priority to release the wealth of background 
information on existing trade and investment rules collected by 
the Working Groups and supporting agencies such as the 
Organization of American States and the Inter-American 
Development Bank. Transparency has been among the highest 
priorities of the private sector since the start of FTAA 
discussions. Release of the background information gathered by 
the Working Groups and supporting agencies would serve an 
important educational process.
    The second major task is to institutionalize the role of 
the private sector in the FTAA process. We urge both the U.S. 
government and the host governments where we do business to:
    Ensure frequent and substantive communication with the 
private sector in the context of hemispheric trade 
ministerials. The private sector devotes considerable resources 
to formulate recommendations to governments in preparation for 
trade ministerials and summits. At the hemispheric level, it 
would facilitate the private sector's continuing work if there 
were an established process by which the ministers reacted to 
private-sector recommendations emanating from the Business 
Forum of the Americas.
    Establish a process to ensure that private-sector views are 
taken into account in the FTAA negotiations.
    Organize industry/government sectoral roundtables.
    For its part, the private sector should organize itself to 
provide substantive input to governments on the issues in the 
negotiation.

                               Conclusion

    For two and a half years, in the absence of fast-track in 
the United States, little progress has been made toward 
building the FTAA. It is time to deal with the reality of that 
undertaking. Distracted by internal politics and economic 
crises since 1994, governments in the region now need to 
refocus on the principal task at hand and the negotiation of 
the FTAA. The private sector is eager to work with you to make 
free trade a reality in the hemisphere.
    Mr. Chairman, to ensure that U.S. companies and workers 
maximize our opportunities in this hemisphere, the members of 
AACCLA ask only that our Executive and Legislative leaders pass 
long term fast-track negotiating authority that is limited to 
the resolution of commercial issues.
    With the United States largely on the side-lines, our 
competitors from other nations have strengthened their position 
versus US exports and in-country investors. An international 
trade policy that gives our negotiators the authority to strike 
deals while also allowing the Congress to maintain its 
traditional oversight role is not only important to US 
business, but also essential for a prosperous United States.
      

                                

    Chairman Crane. Thank you very much.
    Our next witness is Mr. Pryce.

   STATEMENT OF WILLIAM T. PRYCE, VICE PRESIDENT, WASHINGTON 
 OPERATIONS, COUNCIL OF THE AMERICAS; AND  FORMER  AMBASSADOR  
                          TO  HONDURAS

    Mr. Pryce. Good morning, Mr. Chairman, and Members of the 
Subcommittee. I am Bill Pryce, vice president of the Council of 
the Americas, in charge of our Washington operations.
    I very much appreciate this opportunity to testify before 
you today regarding the free trade area of the Americas.
    The Council of the Americas is a business organization 
dedicated to promoting regional economic integration, free 
trade, open markets and investment, and the rule of law 
throughout the hemisphere. The Council supports these policies 
in the belief that they provide the most effective means of 
achieving the economic growth and prosperity on which the 
business interests of its members depend, and on which the 
United States depends.
    The Council has been a strong proponent of both NAFTA and 
the free trade area of the Americas. And in an effort to 
provide additional information on the results of the most 
recently negotiated free trade agreement, the Council 
commissioned reports to review the impact that NAFTA has had on 
the economies of 21 individual States.
    The results are in. They show that NAFTA has produced 
benefits for every State studied. Exports to Mexico and Canada 
have grown significantly since the NAFTA was implemented, 
despite the peso devaluation in Mexico.
    Let me quote just a few figures. Between 1993 and 1996, 
Michigan's exports to Mexico grew 146 percent. In 1996 Michigan 
sold 3.2 billion dollars' worth of goods. Iowa's exports to 
Mexico increased 78 percent, including 171 million dollars' 
worth of agricultural and food products.
    Louisiana's exports increased 136 percent. California's 
exports to Mexico grew 38.9 percent, reaching $9.1 billion. 
Exports from New York and New Jersey to both Canada and Mexico 
represented almost 30 percent of their 1996 exports, while 
Illinois' exports to these countries accounted for 34.8 percent 
of its total 1996 exports.
    Despite these very positive figures, we are concerned. Why? 
Because somehow the perception among significant elements of 
the American population is that NAFTA has been an economic 
failure, and at the end of the day, the United States and the 
majority of Americans have suffered economically.
    Our studies show that this is a mistaken conclusion. 
However, perceptions are important, and misconceptions like the 
one cited above could impede the President's ability to 
negotiate additional free trade agreements to benefit the 
American consumer and strengthen our economy, and that is why 
we are worried.
    If there were no NAFTA, and if there were no free trade 
agreement of the Americas, the United States would not stop 
trading. With NAFTA and with a free trade area of the Americas, 
we would trade with these countries on a basis that is more 
beneficial to the vast majority of Americans, because it is 
less encumbered by tariffs and other nontariff barriers.
    What are some of the benefits? First and perhaps most 
important, the benefits enable any American to buy a multitude 
of goods for lower prices. Second, our producers have a larger 
market for their goods. The market is not limited to the 50 
States. For example, because Mexico has lowered or eliminated 
its taxes on United States imports, our goods can more easily 
be made available to the very attractive market of 92 million 
Mexicans.
    With an FTAA, the potential market is 800 million people. 
That's good for our producers, both the large producers, like 
Ford Motor Co. in Michigan, and small producers, like Milagro 
Trading Co. in Florida and O.G. Bell in Ohio.
    Ford's sales to Mexico increased 1,600 percent in 1 year, 
from 1,700 automobiles to 30,000. Also after 1 year, Milagro 
Trading increased to the point where they were able to add two 
people to their three-person payroll.
    Now, these are success stories which affect both large and 
small companies.
    I would like to point out two additional aspects. First, 
since our tariffs are lower than most countries, our trading 
partners generally take much greater cuts than we do. For 
example, under NAFTA, United States tariffs averaged 2 percent, 
while Mexico's average rate was about 10 percent. With the 
implementation of NAFTA, Mexico reduced its tariffs 7.1 
percent, while we reduced ours only 1.4 percent. That's a darn 
good deal.
    In order for the United States to get more good deals like 
this in the future, the President needs to have the authority 
to negotiate them effectively, and that is why he and our 
country need fast track.
    The second point is that many of the goods we sell abroad 
are high-tech or manufactured products. These products give 
workers higher paying jobs.
    In May of this year, at Belo Horizonte, 34 trade ministers 
met for the third time following the Summit of the Americas.
    In Belo Horizonte, business representatives from Latin 
America warned us repeatedly that they seriously doubted 
whether the United States was going to be able to negotiate 
seriously any time soon. And while their first choice for 
business partnerships is the United States, they are looking in 
other directions. We are getting left out, and we will be more 
left out if the President does not have fast track authority.
    Countries in the hemisphere are negotiating free trade 
agreements without us. Just this month Canada and Chile 
implemented a free trade agreement eliminating an 11-percent 
across-the-board tariffs. And as this Subcommittee has heard, 
Canada's Northern Telecom won a $200 million telecommunications 
equipment contract over United States companies partly as a 
result.
    In addition, United States-based Caterpillar and other 
world manufacturers have been put at a competitive disadvantage 
to Canadian mining truck and motor grader manufacturers who can 
now offer these goods without the duty.
    Fast track authority leading the way to FTAA negotiations 
will enable U.S. producers to receive the benefits accruing to 
other countries in the hemisphere who are moving ahead with 
free trade arrangements.
    In conclusion, I want to emphasize that this free trade 
debate is about more than NAFTA, and it's about more than FTAA. 
It is about American leadership. Is the United States going to 
act with the confidence it should as the strongest, most 
productive economy in the world, ready to compete across the 
board in the global marketplace with the conviction that it 
will do well?
    Are we going to keep our mantle as the world leader in 
promoting open, healthy competition which benefits our 
consumers and consumers worldwide? Or is the United States 
going to shrink from its leadership role, turn timid and inward 
in the belief that its economic growth can be fostered without 
the global economy.
    We at the Council of the Americas hope the answer is that 
the United States will continue to be at the forefront of trade 
liberalization for the benefit of American consumers and 
American producers, and we hope that this Subcommittee will 
recommend that the President be given the authority to make 
that happen, that he will be given fast track authority, and 
soon.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of William T. Pryce, Vice President, Washington Operations, 
Council of the Americas; and Former Ambassador to Honduras

    Good morning, Mr. Chairman and Members of the Committee. I 
am Bill Pryce, Vice President of the Council of the Americas in 
charge of our Washington operations. I appreciate the 
opportunity to testify before you today regarding a Free Trade 
Area of the Americas.
    The Council of the Americas is a business organization 
dedicated to promoting regional economic integration, free 
trade, open markets and investment, and the rule of law 
throughout the Western Hemisphere.
    The Council of the Americas supports these policies in the 
belief that they provide the most effective means of achieving 
the economic growth and prosperity on which the business 
interests of its members depend--and on which the United States 
depends.
    The Council of the Americas has been and is a strong 
proponent of both NAFTA and a Free Trade Area of the Americas. 
In an effort to provide additional useful information on the 
results of the most recently negotiated free trade agreement, 
the Council commissioned reports to review the impact that 
NAFTA has had on the economies of 21 individual states.
    The results are in. They show that NAFTA has produced 
benefits for every state studied. Exports to Mexico and Canada 
have grown significantly since NAFTA was implemented--despite 
the peso devaluation in Mexico.
    Let me just quote a few figures. Between 1993 and 1996, 
Michigan's exports to Mexico grew 146 percent. In 1996, 
Michigan sold $3.2 billion worth of goods, including 
transportation equipment, industrial machinery, fabricated 
metal products and electronic equipment to Mexico. Iowa's 
exports to Mexico increased 78.3 percent, including $171 
million worth of agricultural and food products; and, 
Louisiana's exports to Mexico increased 136.8 percent. 
California's exports to Mexico grew 38.9 percent, reaching $9.1 
billion in 1996. Exports from New York and New Jersey to both 
Canada and Mexico represented 1996 exports.
    Despite these very positive figures, we are concerned. Why? 
Because somehow the perception among significant segments of 
the American population is that NAFTA has been an economic 
failure and that, at the end of the day, the United States and 
the majority of Americans have suffered economically. Our 
studies show that this is a mistaken conclusion.
    However, perceptions are important, and misconceptions like 
the one cited above could impede the President's ability to 
negotiate additional free trade agreements to benefit the 
American consumer and strengthen our economy. That is why we 
are worried.
    If there were no NAFTA and if there is no Free Trade Area 
of the Americas, would the United States stop trading? No!
    But, with NAFTA and a Free Trade Area of the Americas, we 
would trade with countries in the Hemisphere on a basis that is 
more beneficial for the vast majority of Americans because it 
is less encumbered by tariffs and other non-tariff barriers. As 
a result, we--the American people--would reap the benefits of 
free trade.
    What are those benefits? First and perhaps most important, 
the benefits enable any American to buy a multitude of goods 
for lower prices.
    Second, our producers have a larger market for their goods. 
The market is not limited to the 50 states. For example, 
because Mexico has lowered or eliminated its taxes on U.S. 
imports, our goods can more easily be made available to the 
very attractive market of 92 million Mexicans.
    With a FTAA, the potential market is 800 million people. 
That is good for our producers--both the large producers like 
Ford Motor Co. in Michigan and the small producers like Milagro 
Trading Co. in Florida and O.G. Bell Company in Ohio.
    Ford's sales to Mexico increased 1,600 percent in one 
year--from the export of only 1,762 automobiles in 1993 to the 
export of 30,138 automobiles in 1994. And, after just one year, 
Milagro Trading now has a $1.2 million relationship with a 
shoe-part manufacturer in Mexico, which has enabled that firm 
to add two new people to its three-person payroll. O.G. Bell 
manufactures machine tools, which it started to export to 
Mexico in December 1995. Now, Mexico makes up one quarter of 
its total sales, and the company's workforce was increased 25 
percent in 1996, when the company hired three new people. These 
are success stories, which affect both large and small 
companies.
    And, I would like to point out two related aspects involved 
in this lowering of tariffs and increased markets.
    First, since our tariffs are lower than most countries, our 
trading partners generally make much larger cuts than we do. 
For example, prior to implementation of NAFTA, U.S. tariffs 
averaged 2.07 percent, while Mexico's average tariff rate was 
10 percent. With NAFTA's implementation, Mexico reduced its 
tariffs 7.1 percent to 2.9 percent, while we reduced our 
tariffs only 1.4 percent to 0.65 percent. That's a darned good 
deal!
    U.S. tariffs were not affected as dramatically because they 
were not as high to begin with. However, on the day NAFTA went 
into effect, Mexico eliminated tariffs on 70 percent of U.S. 
exports of computer equipment and software, on 55 percent of 
U.S. exports of pharmaceuticals, on 58 percent of U.S. exports 
of chemical products and on 80 percent of U.S. exports of 
telecommunication equipment. These reductions especially 
benefited states like Florida, Massachusetts and New Jersey.
    In order for the United States to be able to get more good 
deals like this in the future, the President needs to have the 
authority to negotiate them effectively and that is why he and 
our country need Fast Track.
    A second point is that many of the goods we sell abroad are 
high technology or manufactured products. Broadening the 
markets for these goods translates into the need for more 
workers in these industries. And, according to the U.S. 
Department of Commerce, wages for U.S. workers in the export 
sector are 12-15 percent higher than overall wages. Therefore, 
growing export markets for a country like the United States 
mean more jobs in the higher paid industries.
    In May of this year in Belo Horizonte, Brazil, the 34 trade 
ministers from the Western Hemisphere met for the third time 
since the 1994 Summit of the Americas in Miami to prepare the 
way for the beginning of negotiations for a FTAA in Santiago 
next April.
    At the Americas Business Forum held concurrently in Belo 
Horizonte, Brazil, our members had a unified and clear message 
for the U.S. Government and the 33 other trade ministers 
meeting in Brazil. They are excited about the prospect of FTAA 
and would like the negotiations to begin as soon as possible. 
Frankly, our members are eagerly looking to the Administration 
and the other democracies in the Hemisphere to make a 
commitment to FTAA by initiating the negotiations and making 
some limited commitments now--such as promising not to raise 
any new barriers to trade.
    But, in Brazil, business representatives from Latin America 
warned us repeatedly that they seriously doubted whether the 
United States was going to be able to negotiate seriously any 
time soon. And, while their first choice for business 
partnerships is the United States, they are looking in other 
directions.
    We are getting left out, and we will be even more left out 
if the President does not have fast track authority. The 
countries of the Hemisphere are negotiating free trade 
agreements without us. Just this month, Canada and Chile 
implemented a free trade agreement that eliminates Chile's 11 
percent across-the-board tariff on imports from Canada. As this 
subcommittee learned in March, Canada's Northern Telecom won a 
$200 million telecommunications equipment contract over U.S. 
companies partly as a result. In addition, U.S.-based 
Caterpillar and other world manufacturers have been put at a 
competitive disadvantage to Canadian mining truck and motor 
grader manufacturers who now can offer goods to Chile at 
prices, which do not include the 11 percent duty.
    Similarly, Brazil has waived some of its non-tariff 
barriers for its MERCOSUR partners--Argentina, Paraguay and 
Uruguay--and associate members--Chile and Bolivia. But, in the 
meantime, American producers function without these same 
privileges.
    Fast track authority leading the way to FTAA negotiations 
will enable U.S. producers to receive the benefits accruing to 
other countries in the Hemisphere who are moving ahead with 
free trade arrangements.
    In conclusion, I want to emphasize that this free trade 
debate is about more than NAFTA and more than FTAA. It is about 
American leadership. Is the United States going to act with the 
confidence it should as the strongest, most productive economy 
in the world, ready to compete across the board in the global 
marketplace and with the conviction that it will do well? Are 
we going to keep our mantle as the world leader in promoting 
open healthy competition, which benefits our consumers and 
consumers worldwide? Or, is the United States going to shrink 
from this leadership role and turn timid and inward in the 
belief that its economic growth can be fostered without the 
global economy?
    The Council of the Americas hopes that the answer is that 
the United States will continue to be at the forefront of trade 
liberalization--for the benefit of American consumers and 
American producers. And, the Council of the Americas hopes that 
this committee will recommend that the President be given the 
authority to make it happen--that he will be given fast track 
authority--and soon. Thank you.
      

                                

    Chairman Crane. Thank you.
    And now we go to our distinguished former colleague from 
Puerto Rico, Tito Colorado.

  STATEMENT OF HON. ANTONIO J. COLORADO, EXECUTIVE DIRECTOR, 
CARIBBEAN/LATIN AMERICAN ACTION; FORMER MEMBER OF CONGRESS; AND 
  FORMER RESIDENT COMMISSIONER FOR THE COMMONWEALTH OF PUERTO 
                              RICO

    Mr. Colorado. Thank you, Mr. Chairman. Thank you for the 
opportunity to participate in this important hearing.
    I am Antonio Colorado, executive director of C/LAA, 
Caribbean/Latin American Action, a private, nonprofit 
organization promoting private sector-led development in the 
Caribbean and Latin America.
    C/LAA is governed by an international board of trustees 
made up of primarily private sector leaders from the United 
States, the Caribbean, and Latin America. C/LAA has been at the 
forefront of each stage of the FTAA process since the Summit of 
the Americas in 1994.
    Throughout the business fora in Denver, Cartagena, and Belo 
Horizonte, we organized private sector companies to provide 
recommendations on the most important aspects of hemispheric 
integration. This includes private sector consultation 
involving some 200 companies, resulting in major policy 
recommendations to trade ministers.
    C/LAA divides its program of work by sector, each one 
represented by a business team that addresses common issues 
affecting business in the region and generates the substance of 
our recommendations.
    I am here today to urge you to move ahead on two priority 
tasks: approving fast track authority and passing CBI 
enhancement legislation.
    First, we must go forward with fast track authority as a 
signal of our sincerity about the reform process. Fast track 
authority is extremely important, not only for Chile, but also 
for the Caribbean Basin countries.
    Trade with the large United States market provides a strong 
incentive for reform in all of the developing countries of the 
hemisphere, particularly our neighboring countries in the 
Caribbean Basin.
    Second, we must not hesitate another moment with CBI 
enhancement. Ever since NAFTA came into being, these countries 
have been operating at a disadvantage that discourages 
investment.
    Happily, the long needed legislative remedy is now within 
reach. Making this happen now will not only restore trade and 
investment, but it will in turn greatly support the economic 
reform efforts of the Caribbean Basin countries.
    Mr. Chairman, while we are in a unique position to point 
out the importance of progress in the FTAA to the Caribbean and 
Central American countries, the fact is that the United States 
itself has the most to gain from recapturing the leadership in 
the process, and the most to lose by abdicating it to others.
    Many other countries are aggressively advancing on free 
trade agendas. The South American countries are already 
advancing under Mercosur, and they are willing and able to take 
the leadership of the FTAA process if the United States fails 
to do so.
    Similar advances are made by the Central American 
countries, as well as by the Andean group. Moreover, the 
CARICOM countries, with Haiti as a new member, have embarked on 
a process of trade negotiations which incorporate negotiations 
with the Dominican Republic and the Andean countries just this 
week, and with Central America in August.
    These countries are doing everything possible to ensure 
they achieve effective market access and provide the foundation 
for greater trade and investment. Canada and Mexico are also 
aggressively taking this route, as is Chile. The sole absent 
player in this new game of free trade advancement, Mr. 
Chairman, is the United States, thus seriously jeopardizing its 
role as the hemispheric leader.
    Moreover, recent overtures toward the Caribbean and Latin 
America from the European Union and Asia lead us to believe 
that unless the administration is able to advance aggressively 
with the free trade agenda to which it committed itself at the 
Summit of the Americas in 1994 in Miami, United States business 
and the United States economy will face greater challenges both 
from this hemisphere and worldwide.
    Trade negotiations require strong public sector leadership. 
Chile, Argentina, Brazil, and the Central American countries 
are providing that leadership. The hemisphere looks to the 
United States as the key player in the process.
    Not having a singular trade position emanate from the 
United States is putting businesses in this country at a severe 
disadvantage. Who stands to suffer the most? We believe the 
U.S. consumers and the U.S. workers do.
    The U.S. Government needs to retake the hemispheric 
leadership position on the FTAA, and reconfirm the level of 
hemispheric confidence in the U.S.-led process. To the degree 
that the U.S. leadership on this issue is firm and forward 
looking, then to that degree, the business alliance which 
exists between the United States and the countries of the 
hemisphere will strengthen and will result in economic 
prosperity for all.
    Mr. Chairman, the region has made it clear to President 
Clinton that they are committed to free trade and to 
hemispheric integration. Our business communities have also 
made that commitment. At this moment the United States needs to 
take the leadership initiative once again, and move forward to 
pursue and secure economic development and growth in the 
region.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Antonio J. Colorado, Executive Director, Caribbean/
Latin American Action; Former Member of Congress; and Former Resident 
Commissioner for the Commonwealth of Puerto Rico

    Mr Chairman, Members of the Committee:
    Thank you for the opportunity to participate in this 
hearing on the Free Trade Area of the Americas (FTAA). My name 
is Antonio J. Colorado, Executive Director of Caribbean/Latin 
American Action (C/LAA), a private, non-profit organization 
dedicated to promoting private sector-led development in the 
Caribbean and Latin America. C/LAA is governed by an 
international Board of Trustees made up of primarily private 
sector leaders from the U.S., the Caribbean, and Latin America 
and is financed 100% by the hemisphere's private sector. We are 
also honored to have on our Board former members of government 
from the hemisphere, as well as active public sector officials 
such as yourself Mr Chairman and your colleagues Congressman 
Gilman, and Senators Graham and Torricelli.
    C/LAA's tripartite mission for more than twenty (20) years 
has been to (1) serve as a catalyst to stimulate and facilitate 
external trade and investment; (2) strengthen and assist local 
private sector institutions in the Caribbean and Latin America; 
and, (3) to advocate and promote sound public economic 
policies, on the part of the United States and regional 
governments that serve to advance development. I come to you 
today as a representative of the an organization supported by 
the private sector which has a vested interest in seeing this 
hemisphere grow and develop.
    C/LAA has been at the forefront of each stage of the Free 
Trade Area of the Americas (FTAA) process since the Summit of 
the Americas in 1994. We produced a White Paper on 
Telecommunications Policy for the Summit of the Americas as 
well as for the first Business Forum Meeting held in 
conjunction with the Trade Ministerial Meeting in Denver in 
1995. For the following two Business Fora; in Cartagena, 
Colombia in 1996, and Belo Horizonte, Brazil in 1997, we 
organized private sector companies in key sectors to provide 
recommendations on what they see as the most important aspects 
of an hemispheric free trade agreement. This exercise consisted 
of a hemispheric private sector consultation involving some 200 
companies, and resulted in major trade policy recommendations 
from the private sector to the Trade Ministerial, and their 
subsequent incorporation into the Declarations of the Belo 
Horizonte Trade Ministerial and Business Forum.
    C/LAA has grown from its early focus on the island 
Caribbean to an organization today that retains a significant 
Caribbean Basin focus, but embraces a mandate throughout the 
hemisphere. C/LAA divides its program of work by sectors. 
Currently, C/LAA has seven formal sectoral groups including: 
Agribusiness, Apparel & Textiles, Energy, Financial Services, 
Telecommunications, Tourism, Transportation, and a separate 
task force on Haiti. Each sector is represented by a C/LAA 
Business Team that meets periodically to address common issues 
and barriers affecting business in the region. These Business 
Teams generate the substance of the policy recommendations C/
LAA has put forth at each stage of the FTAA process, and it is 
the concerns raised by these teams that I would like to address 
to this Subcommittee.
    I am here today to urge we make sure that the FTAA process 
works for the smaller countries of this hemisphere. How do we 
do this? We move ahead swiftly by supporting the 
Administration's future request for fast-track authority and we 
provide a more level playing field for the Caribbean Basin 
countries as they compete in the global economy.
    Fast-track authority, which could be used first for Chile's 
accession to the NAFTA, is extremely important for the 
Caribbean Basin countries. The offer of free trade with the 
large U.S. market provides a strong incentive for reform in all 
developing countries of the hemisphere and particularly with 
our neighboring countries in the Caribbean Basin.
    Enhanced trade for the Caribbean Basin countries will 
provide added incentive to the region as it prepares for the 
full FTAA. Countries of the Caribbean Basin need expanded trade 
opportunities. Help exists in the possibility of providing, on 
a temporary basis, some of the benefits Mexico negotiated. 
Making this happen now will also greatly support the economic 
reform efforts of the Caribbean Basin countries.
    Furthermore, these incentives for reform fall far beyond 
the sectors given enhanced preferences to trade. For example, 
increased US trade with Mexico and its accession to NAFTA 
served as the catalyst for telecom liberalization. NAFTA 
addressed value added services and equipment, and the Mexican 
government advanced its own strong program to privatize and 
modernize its telephone system to support a more open trading 
economy. Providing enhanced trade for the Caribbean Basin and 
the prospect of future negotiated arrangements, would encourage 
movement towards efficiency and competition across all business 
sectors. This alone serves as a tremendous impetus for telecom 
liberalization and opportunities for companies like Global One.
    I cannot stress enough the importance of our encouragement 
as the region under goes the process of reform. For countries 
facing difficulty in political and economic reform, such as 
Haiti and Nicaragua, agencies such as the Overseas Private 
Investment Corporation (OPIC) can facilitate much needed 
private sector investment. We cannot underestimate the 
importance of private sector investment at this stage of the 
game--without it there is little or no incentive for reform. 
Unfortunately many services such as private financing and 
political risk insurance are not fully available in the 
region's emerging markets, thus an institution such as OPIC can 
create a safer business climate for the private sector to 
invest. This is an important support link to reform in light of 
the political and economic problems that exist in parts of the 
region.
    Hence, we recognize two priorities that we urge the members 
of this committee to work on diligently with their colleagues. 
First, we must go forward with fast track authority and use 
this authority to bring Chile into the NAFTA as a signal of our 
sincerity about the reform process in the region. Second, we 
must not hesitate another moment with CBI enhancement--without 
it we are paralyzing the subregion's capacity to negotiate 
adherence to any hemispheric agreement. With it, we help to 
insure that everyone is in a position to move forward when the 
time comes.
    C/LAA's work with regards to advancing the private sector 
component of work for the FTAA has been extremely successful 
and has resulted in specific private sector input into the 
trade policy debate. This is resulting in a synergy of business 
initiatives between the U.S. private sector and counterparts in 
the Caribbean, and Central and South America. Such initiatives 
are providing U.S. companies with the chance to maximize 
business opportunities in other countries of the hemisphere, as 
their markets are opening up to external trade and investment. 
This is a critical change from the past in the Caribbean and 
Latin America, and the FTAA initiative to-date is setting the 
foundation upon which such market access opportunities develop 
and under which restrictive sub-regional trade regimes become 
more open for participation from U.S. companies. To the degree 
that the U.S. Administration is given the opportunity in this 
term to consummate the goals and objectives of the FTAA, then 
to that degree U.S. businesses, as well as their counterparts 
in the rest of the hemisphere, will be able to maximize 
business opportunities throughout the Caribbean and Latin 
America.
    These business opportunities are manifesting themselves 
everyday, Mr Chairman, as already many countries of the 
Caribbean and Latin America are aggressively advancing on free 
trade agendas, thus providing the proper business-enhancing 
environment in which their private sectors can compete and 
prosper. The South American countries are already advancing 
under the aegis of the MERCOSUR (South American Common Market) 
and it is ``vox populi'' that they are willing and able to take 
the leadership of the FTAA process if the U.S. fails to do so. 
Similar advances are made by the Central American countries, as 
well as the Andean Group countries. Moreover, the CARICOM 
countries, now having accepted Haiti as a member, have already 
embarked on a process of trade negotiations strategy which 
incorporates trade negotiations with the Dominican Republic and 
Andean countries just this week, and then with Central America 
in early August.
    In addition, all of these countries are embarking on a 
series of key bi- and multi-lateral free trade agreements 
(FTA's) amongst themselves in order to ensure that they achieve 
effective market access and provide the foundation for greater 
trade and investment, leading to greater economic growth. Our 
NAFTA partners, Canada and Mexico, are aggressively taking this 
route, as is our potential NAFTA partner Chile. The sole absent 
player in this new game of free trade advancement, Mr Chairman, 
is the United States, thus seriously affecting the performance 
of its business in the rest of the hemisphere, and seriously 
jeopardizing its role as the hemispheric leader. Moreover, 
recent overtures towards the Caribbean and Latin America from 
the European Union and individual European states (France, 
Spain, United Kingdom), as well as from Asia, lead many of us 
to believe that unless the Administration is able to advance 
aggressively with the free trade agenda and leadership it 
committed itself to at the Summit of the Americas of 1994 in 
Miami, U.S. business and the U.S. economy will face greater 
challenges from abroad in this hemisphere.
    The FTAA provides for the opportunity to advance a 
``seamless'' economy throughout the hemisphere in which trade 
and investment flows are rationalized and become more efficient 
and effective, and under which trade and investment in the 
provision of goods and services also grow. This will lead to 
better and higher paying jobs in the United States. Markets 
which have hitherto been closed or highly restricted will now 
open up and the trade and investment synergies between the U.S. 
economy and the rest of the hemisphere's economies will be 
stimulated into greater growth and productivity. The fast track 
and CBI enhancement initiatives are the policy stepping stones 
for the advancement of the FTAA, with the real foundation being 
the Administration's willingness and ability to fulfill its 
leadership role at the forthcoming IVth Trade Ministerial and 
Business Forum of the Americas in San Jose;, Costa Rica in 
February 1998. This event will provide substantial 
recommendations for the IInd Summit of the Americas in 
Santiago, Chile on April 18-19, 1998, after which it is 
expected that a full-fledged FTAA negotiation and 
implementation schedule will be set in place between then and 
the 2005 goal of an FTAA.
    While we have been at the forefront of providing U.S. 
business leadership in this process, thus identifying business 
opportunities from free trade and from greater hemispheric 
market access, trade negotiations are a governmental matter and 
require strong public sector leadership. Chile, Argentina, 
Brazil, and even the small Central American countries are 
providing that leadership as they strengthen their regional 
trade alliances while also expanding their extra-regional trade 
linkages. All of these, as with the rest of the hemisphere, 
look to the U.S. market and government as the key player in 
this process and are developing their trade strategies with 
this as the final goal and objective: greater access to an 
already open U.S. economy. Not having a similar trade position 
emanate from the U.S. is putting businesses in this country at 
a severe disadvantage vis-a-vis their competitors from the 
hemisphere.
    It is because of this that the U.S. government needs to re-
take the hemispheric leadership position on the FTAA and 
reconfirm the level of hemispheric confidence in a U.S.-led 
FTAA process. We are confident that with such a policy mandate 
we in the private sector can work with our counterparts in the 
Administration (White House, USTR, State, and Commerce 
Departments), as we do with our government counterparts in the 
rest of the hemisphere, to set the foundations for a strong 
FTAA process which will result in more open markets, greater 
flows of trade and investment, and stronger growth for all 
countries of the hemisphere. The lack of such policy authority 
could lead, as has happened already, to a decline in the 
hemispheric legitimacy of the U.S. as a trade partner and to 
the strengthening of sub-regional restrictive trade agreements 
unwilling to advance on greater trade liberalization without a 
guarantee of participation and leadership from the U.S. This in 
turn can lead to a strengthening of the potential leadership 
role of other hemispheric actors such as Brazil, Argentina and 
the MERCOSUR. Already Chile has, partly as a response to the 
lack of U.S. fast track and promotion of NAFTA accession, 
advanced on its trade agreement and membership with MERCOSUR 
and is strengthening its bilateral trade ties through similar 
agreements with Canada and Mexico, as well as the European 
Union and the Asian-Pacific Economic Cooperation (APEC) group. 
U.S. leadership in the FTAA is critical to ensure that these 
initiatives are fully incorporated into the FTAA process and do 
not result in trade and investment deviation.
    In sum, I would like to reassert to the Chairman and the 
Subcommittee how important it is for U.S. businesses to be able 
to have the U.S. government as a strong presence in hemispheric 
trade negotiations leading to an FTAA in 2005. To the degree 
that U.S. leadership on this issue is firm and forward-looking, 
then to that degree the business alliance which exists between 
the U.S. and the countries of the Caribbean Basin will be 
strengthened and will result in economic prosperity for all.
    The countries of the region have made it clear to President 
Clinton during his visits in May past that they are committed 
to free trade and to the hemispheric integration movement. Our 
business communities have made the commitment. At this 
opportune moment the U.S. needs to take the leadership 
initiative once again and move forward to pursue and secure 
economic development and growth in the region.
    We at C/LAA will continue our work with the hemispheric 
business communities and will continue to support and advance 
our assistance to the initiatives of this Congress and this 
Administration.
    Thank you Mr Chairman.
      

                                

    Chairman Crane. Thank you.
    And now Mr. Smith.

     STATEMENT OF ERIC H. SMITH, PRESIDENT, INTERNATIONAL 
                 INTELLECTUAL PROPERTY ALLIANCE

    Mr. Smith. Thank you, Mr. Chairman. My name is Eric Smith. 
I am president of the International Intellectual Property 
Alliance, a coalition of seven trade associations representing 
approximately 1,350 companies in the business software, 
entertainment software, motion picture, music and recording and 
book publishing industries.
    Mr. Chairman, Latin America is one of the fastest growing 
regions in the world. It is also a fast growing region for the 
copyright-based industries. Trade liberalization in this region 
has changed the entire climate in the hemisphere. Lowering of 
tariff and nontariff barriers to trade and products, like 
computers and consumer electronic equipment, have established 
an infrastructure in the region that significantly enhances the 
ability of our members to serve the vastly growing demand in 
the region.
    The potential for copyright-based companies to enjoy the 
revenue and job gains here in the United States from trade 
growth in the FTAA region is enormous. Yet, while sales and 
licensing of copyrighted products in the region is indeed 
growing--for example, the business software industry estimates 
an annual rate of growth in software sales of 35 percent in 
1997 and 34 percent in 1998--this potential will not be 
realized until the biggest barrier to trade in the region, 
piracy, is very significantly reduced.
    Piracy rates in Latin America--that is, the percentage of 
illegal product in the marketplace--are higher in Latin America 
than in any other region except Eastern Europe, Russia, and the 
CIS states. Our industries lose an estimated $2.3 billion in 
just 19 of these 34 countries in the region, and this reflects 
only a fraction of the damage inflicted on both United States 
and domestic right holders in the region.
    IIPA strongly supports the FTAA process. Yet while our 
industries are focused on the FTAA, that deadline is a distant 
2005. We look to an even earlier deadline, that of full 
implementation of the TRIPs agreement in the year 2000 for the 
most significant benefits to our industries to kick in.
    This is when most of our important trading partners will 
become fully obligated under that agreement, and particularly 
its enforcement provisions.
    Already the FTAA process has borne fruit in the FTAA IPR 
Working Group, working right now on interim measures to fight 
piracy and counterfeiting in the region.
    Improved enforcement is our top priority. The TRIPs 
agreement contains specific enforcement obligations, which are 
not currently being met in the region, and will not be met 
unless countries start immediately to improve their enforcement 
and judicial machinery.
    These improvements will benefit not just our industries--
judicial reform throughout the region is a critical element to 
improving the economic climate in the region as a whole. The 
``carrot'' of the FTAA has assisted in this important process 
already, as has, of course, the ``stick'' of continuing 
pressure from the U.S. Government through the special 301 
process.
    Lowering piracy levels in the region through improved 
enforcement is critical to U.S. trade in creative products. The 
Business Software Alliance, an IIPA member, representing the 
major PC software producers in the United States, recently 
released a study which demonstrates graphically the 
interrelationship between piracy and revenue and job growth.
    The study covered 15 Latin and Caribbean countries, and 
found that if the level of software piracy in the region, which 
averaged 68 percent in 1996, were reduced by 15 percent only, 
an additional, approximately 30,000 jobs, and additional $300 
million in tax revenue would have been generated in that year 
in those local economies alone.
    By 2000, if illegal copying were 15 percent lower than in 
1996, the software industry could account for a total of 
275,000 more jobs and close to $5 billion in tax revenue.
    These gains to these local economies are more than matched 
by gains to the U.S. economy. It is a win/win situation. And 
while these figures are impressive, they represent only one 
part of our collective industries. By including all of them, 
the figures would be much higher.
    IIPA goals for FTAA and TRIPs are straightforward: 
Effective enforcement; adopting and implementing the two new 
WIPO copyright treaties negotiated in December covering digital 
uses of works; improvements in market access; adoption by the 
FTAA countries of the ITA, the Information Technology 
Agreement; ensuring open markets for new services, like direct 
to home and direct broadcast satellite services; and 
harmonizing customs valuation practices.
    To achieve these objectives, Congress can help in the 
following ways: Clearly adopting fast track legislation as soon 
as possible--and before the Santiago summit in April 1998--is 
critical. The United States has lost the initiative in the 
region. No country will negotiate lowering barriers with the 
United States without fast track in place.
    Also improving trade programs in the region that leverage 
better IP protection, programs like the GSP, the Caribbean 
Basin Initiative, and the Andean Trade Preference Agreement are 
also critical. These programs offer significant leverage for 
improving IP protection.
    Thank you very much, Mr. Chairman.
    [The prepared statement follows:]

Statement of Eric H. Smith, President, International Intellectual 
Property Alliance

    Mr. Chairman and distinguished Members of the Subcommittee: 
I am Eric Smith, President of the International Intellectual 
Property Alliance (IIPA). We greatly appreciate the opportunity 
to present the views of the copyright-based industries on 
progress in the negotiations for the Free Trade Area of the 
Americas (FTAA) and on the economic interests of our industries 
in the FTAA process.
    The International Intellectual Property Alliance (IIPA) is 
a coalition of seven associations representing U.S. copyright-
based industries in bilateral and multilateral efforts to open 
up foreign markets closed by piracy and market access barriers. 
Our member associations represent more than 1,350 U.S. 
companies which produce and distribute materials protected by 
copyright laws throughout the world, including all types of 
computer software including business software and entertainment 
software (such as videogame CDs and cartridges, personal 
computer CDs and multimedia products); motion pictures, 
television programs and home videocassettes; music, records, 
CDs and audiocassettes; and textbooks, tradebooks, reference 
and professional publications and journals (in both electronic 
and print media). In short, these industries represent the 
leading edge of the world's high technology, entertainment and 
publishing industries and are among the fastest growing and 
largest segments of the U.S. economy.\1\
---------------------------------------------------------------------------
    \1\ In a report released in March 1997 entitled Copyright 
Industries in the U.S. Economy: The 1996 Report which was prepared for 
IIPA by Economists Incorporated, we outlined the importance of these 
industries to the U.S. economy. For example: the core copyright 
industries accounted for 3.78% of U.S. Gross Domestic Product (GDP) or 
$254.6 billion in value added in 1994 (the year for which the more 
recent data was available) between 1987 and 1994 the core copyright 
industries grew twice as fast as the rest of the U.S. economy--4.6% vs. 
2.3%; and created new jobs in the U.S. more than twice as fast as the 
economy as a whole between 1987 and 1994--2.85% vs. 1.25%. In 1995, the 
U.S. core copyright industries achieved foreign sales and exports of 
$53.25 billlion, surpassing every other export sector except automotive 
and agriculture.
---------------------------------------------------------------------------
    The goal of the FTAA negotiations is to eliminate trade 
barriers in the Hemisphere by 2005. The U.S. copyright-based 
industries are also focused on an earlier date: 2000. That is 
when the WTO TRIPS (Trade Related Aspects of Intellectual 
Property Rights) Agreement is scheduled to fully enter into 
effect, in the area of copyright protection, for the 
``developing'' countries in the Hemisphere. While the FTAA 
promises ever greater benefits in the future, the first order 
of business is for all countries to meet all their TRIPS 
obligation no later than 2000 and, to the extent possible, 
before that date. This Committee was instrumental in including 
as a further U.S. negotiating objective in the Uruguay Round 
Agreements Act (URAA) the ``acceleration'' of TRIPS objectives 
throughout the world.
    Enforcement is a top priority. Nations in the Hemisphere 
must take immediate action to improve enforcement against 
copyright piracy--now, not years from now. While the economic 
harm caused by copyright piracy in this region is daunting, the 
possibility for growth both in terms of foreign investment and 
local economic development is high.
    Let me turn to the economic impact of copyright piracy in 
this Hemisphere. I will then briefly outline IIPA's major 
objectives to accomplish improved copyright protection and 
enforcement in the FTAA.

        The Economic Impact of Copyright Piracy in the Americas

    Latin America represents the second largest trading region 
for the United States. In testimony to Congress last month, 
Ambassador Jeffrey Lang stated that U.S. exports to Latin 
America and the Caribbean grew by 14.5%, reaching $109 billion 
in 1996. We believe that high levels of copyright protection 
and enforcement are critical to the growth of the cultural, 
entertainment and high technology industries in each country in 
the Hemisphere--regardless of its level of development. Here in 
the U.S., the copyright-based industry is this nation's third 
largest industry in foreign sales and exports. Every nation in 
this Hemisphere has an interest in nurturing the economic 
development of its local copyright industries. Not only will 
this provide local income and jobs, it will encourage foreign 
and domestic investment in this fast-growing sector.
    Copyright piracy casts a pall over all these bright 
prospects. Let me spend a moment or two providing the 
Subcommittee with some key statistics which demonstrate this 
fact.
     Copyright piracy is the number one trade barrier 
affecting the health and growth of local and U.S. copyright 
industries in the Hemisphere. The IIPA estimates that the U.S. 
creative industries lost $2.3 billion last year due to 
copyright piracy of U.S. copyrighted materials in just 19 of 
the 34 FTAA member countries (not including the U.S.). These 
losses represent only a fraction of the total damage inflicted 
upon both foreign and domestic copyright owners by copyright 
piracy throughout the region.
     Lowering these losses due to piracy will not only 
mean increased private sector employment and sales revenue in 
this fast growing sector. It will also bring much needed new 
tax revenue to governments in the region. Modes and methods of 
piracy vary, but one feature never changes: pirates do not pay 
taxes.
    The Business Software Alliance (BSA), an IIPA member, 
recently released a study on Latin America which was produced 
by Price Waterhouse. This study on the packaged software 
industry, covering 15 Latin American and Caribbean countries, 
found:
    --If the level of software piracy in the region (which 
averaged 68% in 1996) were 15% lower, an additional 29,557 jobs 
and an additional $300 million in tax revenue for the local 
countries could have been generated last year alone.
    --By 2000, if illegal copying were 15% lower than in 1996, 
the software industry could account for a total of 275,181 more 
jobs and over $4.86 billion in tax revenue.
    If these figures, which cover only part on one copyright-
based industry software--were expanded to cover the entire 
copyright-based sector, the costs of piracy in lost revenue and 
foregone jobs would be substantially larger.

            IIPA Goals for Copyright Protection in the FTAA

    IIPA has focused much of its attention on the efforts of 
the FTAA Intellectual Property Rights (IPR) Working Group, one 
of the dozen working group set up by the Ministers. The IPR 
Working Group is not waiting until 2005; it is now beginning to 
develop an action plan which will address piracy and 
counterfeiting problems in the near term. We hope that the 
Working Group will recommend to the Trade Ministers specific 
measures for government-led actions supporting effective 
enforcement efforts on-the-ground, and that the Ministers will 
urge the region's leaders to support such plans at the Santiago 
Summit in April 1998.
    IIPA has several goals for progress in copyright protection 
and enforcement within the FTAA.
     Effective Enforcement: Governments in this 
Hemisphere should take immediate action to enforce their 
current copyright laws (including criminal laws) to reduce high 
levels of piracy and encourage the development of legitimate 
cultural, entertainment and high technology industries which 
depend on copyright protection. These efforts will involve 
working with police, prosecutors, judges, customs, tax, 
administrative and other authorities to ensure that every 
country's enforcement system complies with TRIPS; in other 
words, that it (1) permits effective action against 
infringements; (2) provides expeditious remedies which 
constitute a deterrent; (3) is fair and equitable; (4) is not 
unnecessarily complicated or costly; and (5) does not entail 
any unreasonable time-limits or unwarranted delays.
    As I mentioned, the FTAA IPR Working Group has accepted the 
importance of creating a hemispheric action plan to combat IPR 
infringements. We understand that this proposal will be 
discussed in more detail at the next IPR Working Group meeting 
in October 1997. While it is important that this work continue 
at a swift pace within the Working Group, it is essential that 
countries begin (or in some cases, continue) efforts to stop 
the theft of intellectual property, both domestically and at 
its borders.
    There are already some promising developments. For example, 
since the recording industry launched a Latin regional anti-
piracy campaign last year, over 1,100 raids have taken place 
against audio pirates in selected countries in Latin America, 
according to FLAPF (the Latin American Federation of Producers 
of Phonograms and Videograms). The value of the resulting 
seizures of pirated cassettes and equipment was over $21 
million. The equipment seized and destroyed had the capacity to 
produce 67 million cassettes per year.
     Improve Copyright Laws to Address Digital Issues: 
Governments should ensure high levels of copyright protection 
for valuable works and recordings traveling in digital format 
on the ``Information Superhighway'' throughout the Hemisphere 
and the world. This means going beyond the minimum obligations 
set out in the TRIPS Agreement, and in some cases, even beyond 
the higher levels of copyright protection found in the North 
American Free Trade Agreement (NAFTA).
    Fortunately, FTAA countries have already voted to adopt two 
new ``digital'' copyright treaties. These countries should now 
take action to ratify immediately the World Intellectual 
Property Organization (WIPO) Copyright Treaty and the WIPO 
Performances and Phonograms Treaty. These new pacts contain 
rights and obligations which will allow authors, performers, 
and producers the ability to better protect the products of 
their creativity in the information age. In addition, the 
Treaties contain provisions safeguarding technological measures 
of protection and protecting electronic rights management 
information from alteration or removal. These new provisions 
are essential for the efficient exercise of rights in the 
digital age. IIPA was pleased that President Clinton set the 
goal of achieving ratification of these treaties by as many 
nations as possible by next July.
     Market Access: Governments also should provide 
non-discriminatory access for information and entertainment 
services to all markets through the reduction of tariff and 
non-tariff barriers, and other measures which affect the free 
circulation of information, education and entertainment-based 
goods and services.
     The Information Technology Agreement: FTAA 
countries are conspicuously absent from the long list of 
countries which have subscribed to the Information Technology 
Agreement (ITA), which eliminates tariffs on key information 
technology products, including many protected by copyright.
     New Services: In addition, countries should have 
open regulatory regimes for Direct-To-Home/Direct Broadcasting 
Satellite services that allow programming to freely circulate 
within the Hemisphere. By taking advantage of this new 
technology, diverse programming reflecting the cultural wealth 
of the region can be disseminated through this multi-channel 
environment.
     Customs Valuation: It is important for Governments 
to ensure that customs valuation is based on the physical 
medium embodying the copyrighted work, and not the value of the 
copyrighted work itself. The overwhelming international trend, 
including in the U.S., is toward assessing duties only over the 
value of the physical media.

                          What the U.S. Can Do

    We see several ways for Congress and the Administration to 
continue to support progress on the FTAA negotiations.
    First, we believe it is critically important that the 
Administration receive Fast Track authority as soon as 
possible, and definitely before the Santiago Summit in April 
1998. This authority is an essential tool for the negotiations 
of agreements--like the FTAA that will open foreign markets for 
U.S. copyrighted materials. We urge Congress to grant the 
President broad Fast Track authority promptly, so that these 
new opportunities to dismantle export barriers can be seized. 
Mr. Chairman, the U.S. is losing the initiative in this 
important region of the world.
    Second, the U.S. must continue to closely monitor 
developments in the four other sub-regional groups--Mercosur, 
the Andean Pact, the Caribbean Community and Common Market 
(CARICOM) and the Central American Common Market (CACM). 
Tension between the U.S. and the Mercosur bloc on FTAA issues 
is not a secret. We hope, however, that progress on the 
negotiations will occur at a swifter pace. As we have shown 
already, the looming deadline for copyright issues is 2000 or 
earlier, not 2005.
    Third, we urge continued Congressional support for the 
current trade programs which contain intellectual property 
criteria. These programs are the Generalized System of 
Preferences (GSP), the Caribbean Basin Economic Recovery Act 
(CBERA, or CBI) and the Andean Trade Preferences Act (ATPA). 
The Administration has made effective use of the tool Congress 
has provided. Currently, the U.S. Trade Representative is 
reviewing IPR practices in both Panama and Paraguay under the 
GSP program. Facing a loss of $5 million in GSP and CBI 
benefits this fall unless television piracy is halted, Honduras 
has announced its first set of measures that promise to control 
television piracy. Although the final proof will not be 
available until the end of this summer, we believe that this 
cases demonstrates how effective GSP and CBI leverage can be to 
motivate countries to comply with their IPR obligations. 
Earlier this year the Administration withdrew 50% of GSP 
benefits against Argentina for inadequate patent protection.

                               Conclusion

    In brief, IIPA will actively participate in the FTAA 
process. The future of our industry in this region is at stake. 
While IIPA will continue to work in various bilateral and 
multilateral fora to strengthen copyright protection and 
enforcement, we believe that the FTAA process does have great 
potential. It offers the prospect of a regional partnership, 
and a forum through which member nations can be persuaded that 
strong copyright protection combined with effective enforcement 
supports both local economic development and fosters foreign 
investment. In other words, it's a ``win-win'' situation for 
every nation.
    We look forward to working with both the Administration and 
the Congress to achieve a strong FTAA.
    Thank you, Mr. Chairman, for your invitation today.
      

                                

    Chairman Crane. Thank you, Mr. Smith, and thanks to all of 
you.
    I would like to direct a generic question to any or all of 
you, and it deals with the fundamental issue between Brazil and 
the United States over how to proceed on FTAA talks. Brazil, I 
believe, wants to focus first on business facilitation issues, 
such as customs and transport issues, and leave market opening 
concerns like tariffs and other barriers for much later in the 
process.
    Was there any progress made at Belo Horizonte with regard 
to the differing positions?
    Mr. Pryce.
    Mr. Pryce. Mr. Chairman, I think what impressed me so much 
in Brazil, at least on the part of private Brazilian 
businessmen, was the temerity, the surprising temerity they all 
seemed to exhibit regarding free trade. They really were afraid 
to move ahead, very cautious, sort of hoping it wouldn't happen 
for quite a while.
    I think their government's position reflects this attitude. 
Most of the private enterprise representatives of other 
countries were much more willing to move ahead, but they felt 
that since we do not have fast track, we cannot really play, so 
they have to look to, as we have said earlier, other countries.
    But there was some progress. You could sense that other 
countries were much more willing to move ahead. I think Mr. 
Lang was alluding to the fact that the majority want to move 
ahead. Brazil, for whatever reasons, seems to want to go slow.
    Chairman Crane. Anyone else have any input?
    [No response.]
    Chairman Crane. What is the role of the private sector in 
building support for the FTAA?
    Mr. McCord. Mr. Chairman, I would say the private sector is 
waiting for legislation to be introduced into Congress to 
marshal its forces and begin to work. As you well know from 
your visits to Chile, the American Chamber of Commerce has a 
number of mechanisms and processes in place which are ready to 
move.
    It is a little bit of a chicken and an egg. We are waiting 
for the right moment to be able to get head offices working 
with affiliates in the Latin American countries to come to 
Washington and explain what this means to all of us. Many 
industries, large and small, will participate.
    Chairman Crane. Yes, Tito.
    Mr. Colorado. Well, I believe the stronger the perception 
is by Congress and by the rest of the different sectors in the 
United States of the importance of this process for the private 
sector, the more successful we will be.
    So I do believe that the private sector represented herein, 
and you have heard what we have had to say, should be much 
stronger. I think we need more participation from the private 
sector. I think more communication from the private sector to 
the Congress and to the administration so that they realize how 
important it is.
    Many of the things that are happening right now have been 
mentioned here. The private sector itself, most of the 
companies can produce those products here, in Canada, or in 
Mexico. So I think those that really stand to lose are the 
consumers and the workers which otherwise would have a job, and 
if this work is done somewhere else, they will not.
    So I think the consumers should be involved. The workers 
should be involved in a positive way, and the private sector 
should do much more in leading that message, get to the 
Congress, the administration, and to the other sectors of the 
economy.
    Chairman Crane. Mr. Smith.
    Mr. Smith. Mr. Chairman, I think you will find at least the 
U.S. private sector getting much more active with respect to 
the FTAA when the Congress deals effectively with fast track. I 
think that is the key to everything.
    Obviously, our industries have been working very 
consistently throughout the region to organize our copyright 
colleagues in the region to push for improved protection, which 
will open markets for us. And we will continue to do that.
    But to move this to a new level is going to require all of 
the region south of us believing that the United States is 
truly committed to negotiating a free trade area, and without 
fast track I am not sure they will be convinced that we will be 
there.
    So I think you will find in our group--in the intellectual 
property industries--considerable effort and support for moving 
fast track forward.
    Chairman Crane. Well, I agree wholeheartedly with your 
concerns about fast track and we did report fast track out 
favorably in September 1995, as perhaps you are aware, but on a 
straight party line vote. And that was the first time we had a 
straight party line vote in this Committee on a trade issue.
    And sad to say, we need bipartisan support to get any trade 
legislation forward. And we have been trying to work with the 
administration, so I would hope you would communicate to them, 
too.
    We had hoped, and in fact thought, there was a realistic 
possibility of getting fast track in April. But we were not 
getting participation at the other end of Pennsylvania Avenue, 
and then Charlene reported with a certain sense of despair to 
us in May that the secretaries and the President had met and 
they felt their table was too full, and they wanted to put this 
off until sometime between October and Thanksgiving.
    At any rate, we thank you for all of your participation 
thus far, and please continue to provide input, and communicate 
not just with the administration, but with all of our 
colleagues here in Congress. Because I think it is something 
that is vitally important, and it is important not just to us 
but I think for our entire hemisphere, with all kinds of 
mutually beneficial consequences.
    And thank you, and with that I will recess you and bring 
our next panel together. I would like to invite Jeffrey Schott, 
senior fellow at the Institute for International Economics; 
JayEtta Hecker, Associate Director for International Relations 
and Trade Issues at the U.S. General Accounting Office; John 
Sweeney, policy analyst for international trade and Latin 
American issues at the Heritage Foundation; and Stephen Lande, 
senior adjunct research associate for the North-South Center at 
the University of Miami.
    And we will proceed in the order in which I introduced you.
    Mr. Schott, you go first.

 STATEMENT OF JEFFREY J. SCHOTT, SENIOR FELLOW, INSTITUTE FOR 
                    INTERNATIONAL ECONOMICS

    Mr. Schott. Thank you, Mr. Chairman. I greatly appreciate 
the opportunity to come before the Subcommittee today, and hope 
the Subcommittee will find the written statement which I have 
prepared and submitted for the record to be useful for your 
very important efforts in this area.
    By way of introduction, I would like to emphasize two 
critical prerequisites for the successful development of a free 
trade area of the Americas. The first is fast track. U.S. 
participation in FTAA negotiations depends on the restoration 
of fast track authority and on congressional approval for the 
use of such authority for the hemispheric talks.
    If fast track fails or is limited to talks with specific 
countries, such as a ``Chile-only'' fast track authority, the 
FTAA process and the negotiations will quickly collapse.
    I am honored that Chairman Gibbons is here today. I know 
that he devoted extensive energies to developing a bipartisan 
approach to fast track during his last term in office, and I 
hope that the Subcommittee will devote similar energies and 
spirit to achieving that goal.
    The second prerequisite is the successful implementation 
and continued strengthening of domestic economic reforms 
throughout Latin American. I cannot overemphasize this point 
too much.
    Most countries in Latin America are not yet ready to 
undertake and sustain the obligations of a reciprocal free 
trade agreement, but they are making tremendous progress. The 
FTAA negotiations and the support we have been giving to our 
neighbors in Latin America will help them grow and develop the 
capabilities needed to make these substantial commitments.
    The testimony you have heard so far this morning has made 
many of the arguments that are included in my testimony. In the 
interest of time, I would like to highlight just a few points 
with regard to U.S. interests in an FTAA and the costs of 
continued inaction.
    The United States has an important stake in the economic 
health and political reform of our southern neighbors. First, 
the United States has substantial and growing trade and 
investment interests in the region. This has been documented by 
a number of witnesses this morning.
    The Latin American and Caribbean region is becoming an 
increasingly important market as a result of a decade of 
economic reform that has produced regionwide GDP growth of 3.5 
percent in 1996, and lowered inflation to 22 percent, down from 
the triple-digit levels of just a few years ago.
    And if one looks at the forecasts for this year, things 
look even better, with GDP growth expected to expand by 4.4 
percent and inflation to fall to 12 percent. The region has 
made tremendous progress in just a few years; if this growth 
rate can be sustained, Latin America will comprise a market of 
about $2.4 trillion by the time the FTAA is due to be completed 
in the year 2005.
    These figures underscore the importance to the business 
community, and to U.S. firms and workers, of continuing to 
expand our already good trade relations with our hemispheric 
partners.
    Second, the negotiation of an FTAA would not require 
substantial changes in U.S. law or trade practices. Indeed, 
like NAFTA, a prospective FTAA would require much more of our 
trading partners--in terms of trade liberalization and 
regulatory reform--than of the United States.
    Now, why would they agree to such asymmetric 
liberalization? The short answer is that they have very little 
choice if they want to compete in global and regional markets. 
The FTAA would provide an insurance policy against new 
protectionist impulses, as well as locking in their domestic 
reforms through international obligations, thereby 
substantially raising the cost of policy reversals. In so 
doing, the FTAA would provide strong incentives for both 
domestic and foreign investment in the region.
    Third, and most important, the United States benefits when 
its neighbors prosper and democratic processes take root. I 
think Assistant Secretary Davidow made this point very clearly.
    The cost of inaction has been spelled out by other 
witnesses today. First, without fast track, our trading 
partners will understandably question U.S. commitment to the 
FTAA talks and our willingness to deepen regional trade 
relations.
    Second, the United States loses when negotiations take 
place without us. Congressman Kolbe and others have noted the 
trade discrimination that affects U.S. companies doing business 
in the region when we do not benefit from trade preferences 
included in other trade agreements.
    Third, there is the problem that you noted in your question 
to Ambassador Lang concerning special arrangements, such as the 
antidumping provisions of the Chile-Canada free trade agreement 
that are included in other countries' trade pacts, and that 
might be put forward by these countries as precedents for FTAA 
negotiations. I would be happy to go into this issue in more 
detail later on, if you would like.
    In sum, regional trade pacts affect U.S. trading interests. 
When we are not engaged in the talks, we cannot influence the 
outcome and lose an opportunity to build a consensus for U.S. 
objectives for the FTAA. And, of course, restoration of fast 
track authority is crucial to the achievement of these 
important goals.
    I have concluded my testimony with lessons from the U.S. 
experience with NAFTA. I would be happy to discuss these 
lessons later with the Subcommittee, but I think the key point 
to make is that the United States has important political and 
foreign policy interests in the region, and both sets of 
objectives can be advanced through the conduct of FTAA 
negotiations.
    Thank you very much.
    [The prepared statement follows:]

Statement of Jeffrey J. Schott, Senior Fellow, Institute for 
International Economics

    At the Summit of the Americas in Miami in December 1994, 
the United States and 33 other democratic countries in the 
Western Hemisphere committed to complete negotiations on a Free 
Trade Area of the Americas (FTAA) by the year 2005, and to make 
substantial progress toward that goal by 2000. Hemispheric 
leaders are expected to officially launch the trade talks when 
they reconvene for a second Summit of the Americas in Santiago, 
Chile, in April 1998.
    To be sure, actual US participation in FTAA negotiations 
depends on the restoration of fast track authority to implement 
trade agreements in US law and Congressional approval for the 
use of such authority for the hemispheric talks. If fast track 
fails, or is limited to talks with specific countries (e.g., 
Chile only), the FTAA negotiations will quickly collapse.
    In related testimony before this committee and subsequently 
before the Senate Finance Committee, my colleague C. Fred 
Bergsten has argued why expeditious passage of fast track 
authority is critical to the achievement of US policy goals.\1\ 
My statement today fully supports those views and recommends 
that the FTAA talks should be among the important US 
initiatives covered by that authority.
---------------------------------------------------------------------------
    \1\ See C. Fred Bergsten, ``The Case for Fast Track,'' Statement 
before the Senate Finance Committee, 3 June 1997, and ``The Imperative 
and Urgency of New Fast Track Legislation,'' Statement before the 
Subcommittee on Trade, House Committee on Ways and Means, 18 March 
1997.
---------------------------------------------------------------------------
    By way of introduction, I will first discuss the possible 
scope and coverage of an FTAA, given developments to date since 
the Miami Summit. I then turn to US interests in an FTAA and 
the cost of inaction or delay in pursuing those talks. I 
conclude with a few lessons regarding hemispheric integration 
based on the experience of NAFTA and other subregional economic 
initiatives.

                       FTAA: Coverage and Process

    Free trade agreements (FTAs) come in all shapes and sizes. 
The NAFTA represents one of the most comprehensive pacts in 
terms of coverage of trade and investment in goods and services 
sectors, and incorporates extensive disciplines on domestic 
policies that can distort trade and investment flows. Other 
FTAs are more limited and some simply involve the removal of 
tariffs on merchandise trade (often with some sectoral 
exceptions such as agriculture).
    The Plan of Action issued at the Miami Summit endorses an 
FTAA that is ``balanced and comprehensive'' and proposes an 
agenda for the FTAA talks that includes virtually all of the 
subjects covered by the NAFTA.\2\ While the proposed FTAA 
agenda is comparable to the broad scope of the NAFTA, it does 
not follow that the NAFTA will necessarily be the model for 
hemispheric trade obligations, nor will the FTAA involve 
accession to NAFTA (although NAFTA expansion to some countries 
in the hemisphere may be part of the integration process 
leading up to the FTAA). Rather the process of building the 
FTAA will likely be an eclectic one, involving concurrent 
negotiations among bilateral and subregional partners as well 
as hemisphere-wide talks. However, the experience of NAFTA and 
the MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay) 
undoubtedly will help inform the FTAA talks and provide useful 
precedents for the eventual agreement.\3\ Trade negotiators 
``learn by doing.''
---------------------------------------------------------------------------
    \2\ Labor issues are not included among the topics for negotiation, 
but governments committed to ``further secure the observance and 
promotion of worker rights, as defined by appropriate international 
conventions'' (Summit of the Americas Plan of Action, Section II:9(2)).
    \3\ Since the NAFTA region represents more than 85 percent of 
hemispheric GDP, it is likely that NAFTA provisions will carry great 
weight in the FTAA talks because companies that want to do business in 
the predominant market in the hemisphere will tailor their policies and 
standards to NAFTA norms.
---------------------------------------------------------------------------
    To date, trade ministers from the 34 countries have met 
three times to discuss areas of existing and potential 
cooperation, and have established 12 working groups to prepare 
for the FTAA negotiations in three broad areas: market access 
reforms (including liberalization of trade barriers and the 
removal of discrimination against foreign suppliers in the 
application of domestic regulations); rules covering trade and 
investment in goods and services sectors; and trade 
facilitation measures (e.g., customs reform; business visas 
etc.).
    All of the issues included in the FTAA negotiations will be 
considered as a package. Some agreements may be reached early 
in the process, and could be implemented by 2000 to satisfy the 
``early harvest'' commitment of the Miami Summit declaration. 
Customs reforms and other trade facilitation measures endorsed 
by the Americas Business Forum may be achievable in this 
timeframe; an investment accord comparable to the Multilateral 
Agreement on Investment being developed in the OECD is also 
possible.
    Interestingly, such an approach would be consistent with 
Brazil's proposal to emphasize trade facilitation measures at 
the outset of the FTAA talks. Brazil's argument that market 
access reforms should be deferred for several years, however, 
does not make sense and, indeed, is inconsistent with Brazil's 
own economic policy. Brazilian officials seem to be pushing a 
``go slow'' approach to FTAA trade liberalization to avoid 
additional adjustment pressures that could upset the noteworthy 
but fragile progress to date of their Real Plan--even though 
continuing trade reform is a critical component of their 
macroeconomic stabilization policy. I regard the Brazilian 
proposal as a tactical ploy to assuage their domestic 
constituencies and not as a roadblock to the launch of 
substantive FTAA negotiations.
    One additional and important point deserves mention. During 
the past 30 months, the viability of the FTAA commitments has 
been tested by the Mexican peso crisis, which erupted just 10 
days after the Miami Summit and generated a ``tequila effect'' 
in a few other Latin American economies, and by a number of 
political concerns involving inter alia drug trafficking and 
large income disparities both between and within countries in 
the region. These problems are difficult and immune to quick 
fixes via trade or other policy initiatives. Rather they 
require a long-term commitment to improve education and create 
viable alternatives to illegal commerce. In that regard, the 
Miami Summit process, which comprises not only trade but 
important cooperative efforts in areas such as strengthening 
democracy, combatting drug trafficking, and promoting 
sustainable development, should be a constructive part of 
national responses to these problems.\4\
---------------------------------------------------------------------------
    \4\ For a discussion of the evolution of the Summit of the Americas 
and its immediate aftermath based on analysis by one of the senior US 
participants, see Richard Feinberg, Summitry in the Americas, 
Washington: Institute for International Economics, 1997.
---------------------------------------------------------------------------

                        US Interests in an FTAA

    When prospective US-Mexico free trade talks were first 
broached, few people realized how closely integrated our two 
economies already were or how closely our interests coincided 
with the promotion of economic growth and political stability 
in the region. To a somewhat lesser extent, the same situation 
holds today with respect to US interests in Latin America and 
the Caribbean. The United States has an important stake in the 
economic health and political reform of our southern neighbors.
    First, the United States has substantial and growing trade 
and investment interests in the region. The Latin America and 
the Caribbean region is becoming an increasingly important 
market as a result of a decade of economic reform that has 
produced region-wide GDP growth of 3.5 percent in 1996 and 
lowered inflation to 22 percent, down from the triple digit 
levels of just a few years earlier. Forecasts for 1997 look 
even better, with GDP growth expected to expand the 4.4 percent 
and inflation to fall to 12 percent.\5\ This growth does not 
rival that of the Asian ``tigers,'' but it is vastly superior 
to the performance in the region in the debt-laden 1980s. 
Moreover, if this growth rate can be sustained, the region 
would comprise a market of about $2.4 trillion (or one-third 
the size of the current US economy) by the time the FTAA is due 
to be completed in 2005.
---------------------------------------------------------------------------
    \5\ Data from Shahid Javed Burki and Guillermo E. Perry, The Long 
March: A Reform Agenda for Latin America and the Caribbean in the Next 
Decade, Washington: The World Bank, 1997.
---------------------------------------------------------------------------
    Latin America already is an important market for US 
companies and has become increasingly attractive for direct 
investment as their economic reforms have taken root. The 
region (including Mexico) now accounts for about 18 percent of 
total US merchandise exports and 16 percent of US imports; and 
regional sales to the US market represent about half of all 
merchandise exports by Latin American and Caribbean countries. 
US-Mexico trade accounts for more than half of those totals, 
even though Mexico produces only about a quarter of regional 
output. US exporters have a growing and underdeveloped market 
for their goods in South America, and have been rapidly 
expanding their presence in those markets over the past five 
years. US exports to and imports from the region, excluding 
Mexico, have increased by about 50 percent since 1993, with the 
United States running a small trade surplus with the region 
each year (about $5 billion at an annual rate so far in 1997). 
During that period, US direct investment in the region 
increased by 30 percent on a historical-cost basis to a 
cumulative $92.5 billion in 1995, representing 13 percent of 
total US foreign direct investment.
    Second, the negotiation of an FTAA would not require 
substantial changes in existing US law or trade practices; 
indeed, like NAFTA, a prospective FTAA would require much more 
of US trading partners in terms of trade liberalization and 
regulatory reform than of the United States. Latin American 
economies have significantly reduced their trade barriers in 
recent years down to an average range of 10 to 20 percent 
through unilateral liberalization and reforms negotiated in 
their subregional pacts and in the GATT/WTO. These efforts have 
removed much of the ``water'' in their protection, but the 
``muscle'' remains intact and will require a broader 
negotiation to get it removed.
    Overall, an FTAA bargain will likely entail substantial new 
liberalization by Latin American countries in return for 
guarantees of continued good access to the US market and the 
removal over a long transition period of a few notable US 
barriers in textiles and agriculture (comparable to what was 
done in the NAFTA). Whether some specific barriers will be 
exempted from the FTAA liberalization commitments and the 
length of the phaseout periods for remaining trade barriers 
will undoubtedly be left hanging until the end of the talks.
    Why would Latin American countries agree to such asymmetric 
liberalization? The short answer is that they really have 
little choice if they want to compete in global and regional 
markets. The FTAA would provide an insurance policy against new 
protectionist impulses in the US and other regional markets, as 
well as ``locking in'' their domestic reforms through 
international obligations and thus substantially raising the 
cost of policy reversals. In so doing, the FTAA would provide 
strong incentives for both domestic and foreign investors to 
develop their markets and bring in new technology and 
management skills.
    What was remarkable about the Miami Summit commitments was 
that the developing countries were in the forefront pressing 
for trade reforms, even though they maintain much higher trade 
barriers than the United States and face the daunting challenge 
of competing openly against the advanced industrial economies 
of North America. The reason is clear: they regard their FTAA 
commitments as a complement and integral component of domestic 
economic policies designed to spur competition in their 
markets, dampen inflation, promote investment (from both 
domestic and foreign sources), and generate robust and durable 
growth. Their focus was not on the prospective change in their 
bilateral trade balance but rather on the impact free trade 
could have on promoting economic growth in conjunction with the 
broad array of domestic economic reforms that they had been 
implementing for several years
    Third, as evidenced at the Miami Summit, the prospect of 
improved trade relations can act as a magnet for attracting 
support among our hemispheric neighbors for other important US 
political and foreign policy goals, including cooperation on 
drug interdiction, improving environmental and labor 
conditions, and reinforcing democratic reforms. An FTAA will 
thus have important spillover effects on overall US relations 
with the region. This point is well illustrated by the recent 
Mexican election, which demonstrates the salutary effect of 
economic integration on political reform.
    Fourth, and perhaps most important, the United States 
benefits when its neighbors prosper and democratic processes 
take root. The FTAA process would support the important 
economic and political reforms that have been achieved 
throughout Latin America over the past decade. To be sure, the 
process of economic integration in the hemisphere was already 
engaged well before the Miami meeting as a result of ongoing 
domestic economic reforms and the negotiation of subregional 
trade pacts such as NAFTA and the MERCOSUR. Ongoing and 
deepening implementation of these policies is a prerequisite 
for the developing countries in the Western Hemisphere to be 
able to undertake and sustain the reciprocal obligations of a 
free trade pact with industrial countries.

                        The Cost of US Inaction

    Since the Miami Summit, US trade initiatives in the region 
have been significantly hampered by the absence of fast-track 
authority to implement trade agreements in US law. Free trade 
talks with Chile, advocated by Presidents Bush and Clinton, 
seized up; negotiations to remedy the potential adverse impact 
of certain NAFTA provisions on trade and investment in the 
Caribbean Basin were placed on a back-burner; and US 
participation in the preparatory meetings for the launch of the 
FTAA negotiations has been seriously constrained.
    To date, the cost of US inaction has been modest. If US 
negotiators stay on the sidelines much longer without fast 
track authority, however, the adverse impact on US trading 
interests in the region could grow significantly. Three related 
problems bear mention.
    First, without fast track authority, our trading partners 
will understandably question the US commitment to the FTAA 
talks and our willingness to deepen regional trade relations. 
The United States accounts for about 75 percent of total 
economic output in the hemisphere. If the United States backed 
away from its Miami Summit commitments, or even rode the fence 
for another year or more pending fast track approval, we would 
both undermine the credibility of the hemispheric negotiations 
and encourage a protectionist backlash against the reform 
policies introduced in Latin America during the past decade--
thus making it more difficult for Latin American countries to 
maintain and extend the liberalization already implemented. The 
Venezuelan experience of the early 1990s is instructive in how 
costly a political backlash against economic reforms can be.
    Second, most countries in the hemisphere continue to pursue 
bilateral and regional free trade pacts without us. In most 
instances, the new agreements are designed as way stations to 
an eventual FTAA, but the tariff preferences are accorded only 
to member countries and thus discriminate against US-based 
exporters. Both Mexico and Canada have concluded free trade 
pacts with Chile; Mexico also has agreements with Costa Rica, 
Colombia, and Venezuela, and is talking with other Central and 
South American countries about similar deals. In addition, the 
MERCOSUR is solidifying its customs union and has entered into 
or is negotiating free trade ``association'' arrangements with 
Chile, Bolivia, and countries in the Andean Community.
    What this means for US firms is that they often are 
handicapped in competing for sales in South American markets 
because they have to pay sizable tariffs and their regional 
competitors do not. Sometimes US firms can source from foreign 
plants in countries that receive tariff preferences, but this 
is costly both for the company and their US workers.\6\ Besides 
tariff preferences, these bilateral and subregional trade pacts 
contain trade rules (e.g., rules of origin; special safeguards) 
that can impose significant transaction costs for US companies. 
The proliferation of different customs procedures and content 
requirements in these arrangements can create a paperwork 
nightmare for businessmen.
---------------------------------------------------------------------------
    \6\ Paul Magnusson reports anecdotal evidence of such trade 
diversion in ``Beyond NAFTA: Why Washington Mustn't Stop Now,'' 
Business Week, 21 April 1997, p. 46.
---------------------------------------------------------------------------
    Third, recently concluded regional agreements create 
precedents involving practices significantly different from 
those inscribed in US law that member countries may want to 
extend to the broader FTAA. For example, the Chile-Canada FTA 
prohibits the use of antidumping laws with respect to bilateral 
trade as soon as tariffs are removed (i.e., within six years); 
and several pacts include relatively simple value-based origin 
rules that do not afford the protection of industry or sector-
specific rules such as the triple transformation test for 
apparel in the NAFTA.
    Furthermore, US firms compete in regional markets not only 
with other hemispheric producers but also with European and 
other overseas companies. While we have been digesting the 
NAFTA and Uruguay Round results, many of our southern neighbors 
have entered into trade talks with the European Union. The 
European Union has actively pursued discussions with the 
MERCOSUR countries, Mexico, the Andean Community, and others 
because of both strong trade and investment linkages with the 
region and longstanding political and cultural ties with the 
MERCOSUR in particular. The European Union is the leading 
trading partner and investor in the MERCOSUR and wants to 
maintain its lead in that fast-growing market.
    To date, EU initiatives in the region have resulted in 
agreements similar to the ``framework'' or consultative 
arrangements that the United States negotiated with virtually 
all the countries in the region in the 1980s and early 1990s; 
the promise of future free trade pacts is somewhat suspect, 
however, since the Europeans refuse to consider farm trade 
reforms in their negotiations with Latin American countries and 
thus exclude a large share of MERCOSUR exports to Europe. In 
the first half of the 1990s, EU exports to the MERCOSUR grew by 
an annual average of more than 20 percent, while EU imports 
from that region increased by less than 1 percent annually. EU 
agricultural restrictions blunted MERCOSUR exports, almost half 
of which were raw and processed foodstuffs. Nonetheless, 
bilateral EU-MERCOSUR talks have proceeded apace, despite the 
substantive trade problems, in hopes of attracting additional 
EU direct investment in the MERCOSUR region and strengthening 
political relations.
    In sum, regional trade pacts affect US trading interests. 
When we are not engaged in the talks, we can't influence the 
outcome and lose an opportunity to build a consensus for US 
objectives for the FTAA.\7\ And, of course, restoration of fast 
track authority is crucial to the achievement of these goals.
---------------------------------------------------------------------------
    \7\ These lessons are drawn from my analysis, ``NAFTA: An Interim 
Report,'' paper prepared for the World Bank Conference in Montevideo, 
Uruguay, 29 June-1 July 1997.
---------------------------------------------------------------------------

                   Lessons from the NAFTA Experience

    As the first comprehensive and reciprocal free trade pact 
between developed and developing countries, the NAFTA has 
illustrated several important aspects of free trade pacts that 
should help inform the FTAA process. I conclude with five 
critical trade policy lessons derived from the NAFTA experience 
that are relevant for an understanding of the prospective FTAA:
    1. Macro matters most. Trade agreements create 
opportunities; they do not guarantee sales. To promote 
sustained growth and take full advantage of those 
opportunities, macroeconomic policy must be prudent--at home 
and in the partner countries.
    2. Trade pacts provide an insurance policy against new 
protectionism at home and abroad. They deter abrupt policy 
reversals and help governments withstand the protectionist 
demands of their domestic lobbies. Mexico's response to the 
peso crisis is evidence of this salutary effect.
    3. Free trade pacts involve asymmetric obligations which 
fall heavier on developing than developed country partners. The 
benefit for developing countries is that the pact locks in the 
domestic reforms needed to reinforce growth and represents a 
``good housekeeping'' seal of approval for those policies--thus 
making them more attractive to foreign investors and promoting 
the transfer of technology and management skills.
    4. Trade pacts are not engines of job creation, but they do 
support jobs that provide a substantial wage premium over 
earnings in the non-exporting sector.
    5. Integration is an iterative process. Not all issues of 
importance in bilateral or regional relations are covered ab 
initio in trade pacts; but as countries become more integrated, 
new issues which span domestic and international concerns often 
are added to the common agenda. Indeed, as the Summit of the 
Americas process has demonstrated, trade talks can serve as a 
magnet for attracting support on a wide array of initiatives 
including strengthening democracy, combating drug trade, and 
promoting better environmental conditions and labor rights.
      

                                

    Chairman Crane. Thank you.
    Ms. Hecker.

      STATEMENT OF JAYETTA Z. HECKER, ASSOCIATE DIRECTOR, 
INTERNATIONAL RELATIONS AND TRADE ISSUES, NATIONAL SECURITY AND 
 INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Hecker. Thank you, Mr. Chairman. It is a pleasure to be 
here before you this morning. As you know, GAO is releasing a 
report that we have prepared for you on Western Hemisphere 
trade issues, cataloging the many agreements that have been 
concluded in the past few years.
    I think you will find this report codifies a lot of what 
you have heard today.
    In the interests of time, since so much of my statement 
really underscores and reiterates points we have heard today, I 
will just highlight a couple of areas--some important recent 
developments, including the significance of regional trade 
arrangements in the hemisphere, and the status and significance 
of progress toward the FTAA.
    I think the main news about the recent developments is that 
nearly all the countries in the hemisphere have either 
concluded or deepened trade arrangements in the last few years, 
since fast track expired. The result is an increasingly complex 
web of subregional and bilateral trade groupings.
    As you have heard, some of this is good news. The good news 
is that countries are liberalizing, increasing their commitment 
to opening their markets, and market-oriented reforms.
    However, the bad news is that the United States has been 
excluded, disadvantaging U.S. business. Moreover, the resulting 
spaghetti patchwork of different rules and procedures and 
tariffs for every country, depending on where you are importing 
from or exporting to, is really a nightmare for business.
    That aggregate of dozens of free trade agreements really is 
not free trade at all. The first point is that the increase in 
regional trade agreements is good news in some sense, but the 
overall impact is that the United States has been left out of 
it. U.S. businesses are disadvantaged by many of these 
agreements, and in the long run, it could have serious 
consequences for the United States.
    Now, the status of the FTAA negotiations is an interesting 
story, because in some sense the progress parallels the first 2 
years of negotiations under the Uruguay round. The working 
groups that have been held, the conferences of ministers and 
vice ministers, the dozens of meetings over the last few years, 
means a substantial amount of the preparatory work to kick off 
meaningful negotiations has already been done.
    There are, however, different levels of readiness or 
quality in the work of the different groups. Some working 
groups of interest to the United States are ranked low by many 
in their level of preparation for full negotiations, most 
notably the market access group and the subsidies group.
    Now, the next major step, as you know, is the meeting of 
the heads of state in Santiago, the first one since the Miami 
summit. That is when the FTAA negotiations are expected to be 
launched.
    However, the reality is, and I think people are 
uncomfortable emphasizing it, but already the United States has 
lost leverage and leadership without fast track. I think as we 
have tracked this issue for you, expectations for both the 
discussions of vice ministers meetings in February in Recife, 
and in April in Belo Horizonte had been that major progress 
would be made in concluding what the charge and the objectives 
of FTAA negotiations could be in each of the working groups.
    But from the discussions we have had, due to the lack of 
fast track, no closure has been reached. So these critical 
decisions of what the negotiations will be, how they will be 
organized, what the substantive goals will be, are now put off 
until the very last minute before the Santiago conference.
    In sum, basically, from the discussions we have had, 
observers believe that the FTAA will not move forward and will 
likely collapse if the United States does not have fast track 
in time for the Santiago summit.
    However, the momentum and the commitment of the countries 
of the hemisphere to forge forward with their own trade 
agreements will not subside. In fact, in the absence of active 
FTAA negotiations, the plethora of regional trade agreements is 
likely to increase.
    That concludes my summary, and I will be happy to take any 
questions.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of JayEtta Z. Hecker, Associate Director, International 
Relations and Trade Issues, National Security and International Affairs 
Division, U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to talk about various issues 
regarding Western Hemisphere trade liberalization. As you know, 
the United States is proceeding with discussions leading to a 
Free Trade Area of the Americas (FTAA) by the year 2005, a goal 
established at the Miami Summit of the Americas in December 
1994. My statement will focus on (1) the principal existing 
subregional trade arrangements in the Western Hemisphere, (2) 
the current status of FTAA discussions, and (3) recent 
developments in regional trade liberalization outside the FTAA 
process and their possible implications for the United States.
    My testimony summarizes our observations in a report to you 
on these issues being released today.\1\ This work was based on 
(1) our past and ongoing work on Western Hemisphere trade 
issues; (2) a review of documents on subregional multilateral 
and bilateral trade arrangements; (3) reports from the FTAA 
working groups; (4) analyses of regional trade developments 
from academic and technical publications; and (5) interviews 
with officials from the Office of the U.S. Trade Representative 
(USTR), the Organization of American States (OAS), the U.S. 
International Trade Commission, and representatives from five 
other Western Hemisphere nations at the forefront of regional 
trade negotiations.
---------------------------------------------------------------------------
    \1\ Trade Liberalization: Western Hemisphere Trade Issues 
Confronting the United States (GAO/NSIAD-97-119, July 22, 1997).
---------------------------------------------------------------------------
    Before I discuss the specifics of my presentation, let me 
give you a brief overview.

                                Summary

    While trade agreements in the Western Hemisphere are not 
new, they have recently been revitalized as more countries in 
the region have committed to liberalizing their trade regimes. 
Almost all countries in the region participate in at least one 
subregional trade grouping, and many have concluded numerous 
bilateral agreements. There are now six major subregional 
multilateral trade groupings in the Western Hemisphere. Among 
these trade blocs, the two most significant are the North 
American Free Trade Agreement (NAFTA) and the Common Market of 
the South, known as Mercosur. In addition to these multilateral 
trade groupings, there are more than 20 bilateral trade 
agreements involving countries in the hemisphere.
    The FTAA, which was called for at the 1994 Miami Summit of 
the Americas, represents the most ambitious effort in regional 
trade liberalization to date. At the Miami Summit regional 
leaders agreed to establish a free trade agreement encompassing 
the entire Western Hemisphere by the year 2005.\2\ In the last 
2-1/2 years, countries have taken numerous steps to prepare for 
formal negotiations. Trade ministers from participating 
countries have met three times and have established a number of 
working groups to address substantive issues, such as market 
access, services, and investment. The United States has been 
active in all FTAA meetings and working groups, and chairs the 
Working Group on Government Procurement.
---------------------------------------------------------------------------
    \2\ All 34 democratically elected governments in the Western 
Hemisphere were represented at the Miami Summit and are involved in the 
FTAA. Cuba is the only major country in the region that has not 
participated in the FTAA process.
---------------------------------------------------------------------------
    Substantial agreement has been reached on several key 
issues in preparation for formal FTAA negotiations. For 
example, countries have agreed that formal negotiations should 
be launched by the Western Hemisphere leaders at their next 
summit scheduled to take place in Santiago, Chile, in April 
1998, and that an agreement encompassing the entire hemisphere 
should be concluded by 2005. Consensus has also been reached on 
the right of countries to negotiate independently or, if 
members of subregional trade groupings, as a unit. Moreover, 
countries agreed to establish a Preparatory Committee at the 
vice-ministerial level to complete recommendations on the FTAA 
negotiations early next year. Disagreement remains, however, 
regarding the pace and direction of negotiations. The United 
States and most other countries favor immediate negotiations on 
all issues beginning in 1998. In contrast, Mercosur countries 
would delay negotiations on certain issues, such as market 
access, until 2003.
    Since the Mexican financial crisis, which surfaced only 
days after the Miami Summit, the United States has not actively 
pursued further trade liberalization efforts in the hemisphere. 
At the same time, other countries have moved forward with a 
wide range of new free trade inititiatives. For example, Canada 
and Chile recently concluded a free trade agreement. Mexico has 
also negotiated an extensive network of free trade agreements 
with countries in the region, including Columbia, Chile, Costa 
Rica and Venezuela. Similarly, the Mercosur countries have 
concluded free trade arrangements with Chile and Bolivia, and 
they are now entering into trade negotiations with Mexico and 
the European Union. U.S. exporters' access to markets in the 
region is starting to be adversely affected by these new trade 
agreements. Their impact is starting to be felt by U.S. firms 
in various sectors, such as agriculture, telecommunications, 
and the pharmaceutical industry. Whether or not the United 
States participates in shaping future trade liberalization 
efforts, representatives of several countries in the hemisphere 
generally agree that their countries will continue to advance 
their own regional free trade initiatives.

                               Background

    As the largest regional market for U.S. products, 
accounting for approximately $242 billion or 40 percent of U.S. 
exports in 1996, the Western Hemisphere has assumed growing 
importance for U.S. commercial interests. Canada and Mexico are 
by far the largest U.S. trade partners in the hemisphere, 
accounting for approximately two-thirds of total U.S. exports 
to the region. The United States is the largest source of 
foreign investment in the Western Hemisphere, accounting for 
about 30 percent of total U.S. foreign direct investment.
    By the late 1980s, most Latin American countries instituted 
market-oriented economic reforms to stimulate economic growth 
and development. Although these reforms were primarily intended 
to address domestic economic problems, they also facilitated 
trade liberalization efforts. The 1988 U.S.-Canada Free Trade 
Agreement, which coincided with Latin America's opening to 
international trade, signalled a new commitment on the part of 
North American countries to regional trade liberalization. 
Currently, almost all countries in the hemisphere are involved 
in some form of free trade arrangement in what is becoming an 
increasingly complex web of subregional and bilateral trade 
groupings.
    In launching the FTAA discussions, Western Hemisphere 
leaders sought to capitalize on the momentum toward regional 
trade liberalization, bringing together all countries in the 
hemisphere under a single and comprehensive free trade 
agreement by 2005. The Summit declaration committed 
participating governments to negotiate the elimination of 
barriers to trade in goods and services as well as investment 
and to provide rules in such areas as intellectual property 
rights and government procurement. Since the summit, trade 
ministers from participating countries have met three times--in 
Denver, Colorado (1995), Cartagena, Colombia (1996), and Belo 
Horizonte, Brazil (1997)--and have effectively laid the 
foundation for formal FTAA negotiations to begin in 1998.

                 Western Hemisphere Trade Arrangements

    The six major multilateral trading arrangements among 
countries of the Western Hemisphere are NAFTA, MERCOSUR, the 
Andean Pact, the Caribbean Community, the Central American 
Common Market, and the Latin American Integration Association. 
The United States is only a party to NAFTA. There are also over 
20 smaller multilateral and bilateral free trade accords among 
countries in the region.

                                 NAFTA

    NAFTA, the most comprehensive trade arrangement in the 
region, was concluded in 1992 by Canada, Mexico, and the United 
States and became effective in January 1994. NAFTA created the 
world's largest free trade area, with a combined population of 
nearly 400 million and a combined GDP of $8 trillion. NAFTA 
provides for the gradual elimination of tariff barriers on most 
goods over a 10-year period. It covers trade in services, 
provides protection for investment and intellectual property 
rights, applies rules to government procurement, and contains a 
dispute settlement system. A distinct feature of NAFTA is the 
two side agreements on labor and the environment.

                                MERCOSUR

    Mercosur was created in March 1991 by Argentina, Brazil, 
Paraguay, and Uruguay. Comprising a population of approximately 
200 million and with a combined GDP of about $851 billion, 
Mercosur is the world's third largest integrated multinational 
market after NAFTA and the European Union. Mercosur currently 
functions as a customs union, providing not only for a free 
trade area but also for the establishment of a common external 
tariff.\3\ Mercosur countries are committed to coordinate 
macroeconomic policies and to agree on a common foreign trade 
policy. Unlike NAFTA, Mercosur lacks agreements on intellectual 
property rights \4\ and government procurement.
---------------------------------------------------------------------------
    \3\ According to a USTR official, the World Trade Organization 
(WTO)'s Committee on Regional Trade Agreements is currently reviewing 
Mercosur to ensure that it conforms with article 24 of the General 
Agreement on Tariffs and Trade. Article 24 lays out conditions under 
which member countries may form preferential trading arrangements, such 
as customs unions and free trade areas. This official noted, however, 
that without detailed information on Mercosur's implementation and 
schedule for liberalization, it is difficult to fully evaluate the 
agreement under the criteria set forth by article 24.
    \4\ An August 1995 protocol among Mercosur countries, however, 
provides limited common terms of reference on intellectual property 
rights.
---------------------------------------------------------------------------

                     Other Multilateral Agreements

    Besides NAFTA and MERCOSUR, which were established in the 
1990s, there are four older subregional multilateral trade 
groupings in the Western Hemisphere. Three of these groupings--
the Andean Group, the Caribbean Community, and the Central 
American Common Market--are customs unions at varying stages of 
implementation. They have all recently taken steps to further 
liberalize trade and promote economic integration. The fourth 
subregional trade arrangement, the Latin American Integration 
Association, is a network of agreements granting tariff 
preferences for certain product categories to member countries.
    In addition to the larger trade blocs, there are more than 
20 smaller multilateral and bilateral trade accords among the 
countries of the Western Hemisphere. Many of these have been 
established in this decade.

                       Status of FTAA Discussions

    At the FTAA meetings of ministers in Denver, Cartagena, and 
Belo Horizonte, 12 working groups were established for the 
purpose of collecting information to prepare for FTAA 
negotiations. The areas of responsibility assigned to the 12 
FTAA working groups reflect some of the priorities of the 
United States and other countries in the hemisphere. For 
example, there are working groups on intellectual property 
rights and government procurement, issues of key interest to 
the United States; on subsidies, antidumping, and 
countervailing duties, areas of special concern to Argentina; 
and on smaller economies, a priority for Caribbean countries. 
The United States chairs the Working Group on Government 
Procurement.
    The working groups were established to collect basic 
information on key issues in preparation for FTAA negotiations. 
U.S. and OAS officials explained that the working groups have 
been the mechanism for accelerating progress on the priorities 
of participating countries. Progress in meeting the information 
mandates set forth at the ministerials differs for each of the 
12 working groups. The Working Group on Investment, for 
example, is particularly advanced, having prepared a 
comprehensive technical compendium on investment treaties in 
the region. According to both U.S. and OAS officials, the 
Working Group on Investment has also made considerable 
progress, exchanging views on elements that could be included 
inhapter, including investor protection, national treatment, 
and dispute settlement. Progress in other working groups has 
been more modest. For example, the Working Group on Market 
Access reported in February 1997 that many countries had yet to 
submit the schedules and statistics required to prepare a 
hemispheric data base on tariff structures and nontariff 
measures.
    A Tripartite Committee, made up of the OAS, the Inter-
American Development Bank (IDB), and the United Nations 
Economic Commission on Latin America and the Caribbean, was 
formed after the first ministerial in Denver to provide 
analytical support to the working groups as requested. Each 
organization in the Tripartite Committee is responsible for 
providing technical support to the FTAA process through the 
working groups. For example, the IDB is collecting trade 
statistics to assist the Working Group on Market Access, while 
the OAS has provided support to other groups on trade policy 
issues, such as subsidies and competition policy. At this time, 
the Tripartite Committee's role in support of the FTAA is 
anticipated to be transitory. The countries are considering the 
possibility of establishing a temporary FTAA secretariat during 
the negotiations.

          Different Strategies for Pursuing FTAA Negotiations

    At Belo Horizonte, consensus was reached on several key 
issues advanced in these proposals. A joint declaration was 
issued that called for formal FTAA negotiations to be launched 
by the next summit of Western Hemisphere leaders scheduled to 
take place in Chile in April 1998. In the declaration, 
countries agreed that the FTAA would be consistent with member 
countries' commitments under the WTO and that the FTAA. 
Moreover, countries agreed that the FTAA would co-exist with 
rather than supplant existing subregional trade arrangements, 
such as NAFTA or Mercosur, to the extent that rights and 
obligations under these agreements are not covered or go beyond 
rights and obligations under the FTAA. The declaration also 
recognized the right of participating countries to negotiate 
independently or as members of subregional trade groupings, and 
the need to establish a temporary administrative secretariat to 
support future negotiations. Finally, the declaration 
reiterated the commitment of participating countries to 
conclude a trade agreement encompassing the entire hemisphere 
by 2005 at the latest.
    At Belo Horizonte, participating countries also agreed to 
set up a Preparatory Committee at the vice-ministerial level 
that will make recommendations for FTAA negotiations. The 
Preparatory Committee is supposed to meet at least three times 
between May 1997 and February 1998, when the next FTAA 
ministerial is scheduled to take place in San Jose, Costa Rica. 
At San Jose trade ministers are committed to reach agreement on 
the objectives, approaches, structure, and location of the FTAA 
negotiations, based on the recommendations of the Preparatory 
Committee.
    Still, there is disagreement among participating countries 
on the pace and direction of formal negotiations. Most 
countries, including the United States, would prefer that 
formal FTAA negotiations on all issues begin during the next 
summit of regional leaders in 1998 and conclude no later than 
2005. The members of Mercosur, however, have proposed that 
negotiations proceed in three phases: (1) in 1998 and 1999, 
countries would agree on and begin to implement ``business 
facilitation'' measures, such as adopting common customs 
documents or harmonized plant and animal health certificates; 
(2) from the year 2000 to 2002, work would begin on ``standards 
and disciplines,'' including antidumping and countervailing 
duty rules, and market access for services; and (3) from 2003 
to 2005, other disciplines and market access issues would be 
negotiated, including tariff reductions, a key concern of the 
United States.

 Recent Developments in Regional Trade Liberalization Outside the FTAA 
                                Process

    In launching the FTAA discussions at the Miami Summit, the 
United States was building on the momentum for free trade 
generated by the passage of NAFTA a year earlier. At that time, 
NAFTA was generally regarded as a blueprint for further trade 
liberalization in the region. This expectation was also 
grounded on the anticipated Chilean accession to NAFTA. Only 
days after the summit, however, Mexico was hit by a serious 
financial crisis, with spillover effects in other Latin 
American economies. The commitment by the U.S. government of 
significant resources to stem and resolve the crisis raised 
concerns in the United States about further regional trade 
liberalization efforts. In the intervening period, fast track 
authority lapsed, and, although U.S. participation in the FTAA 
preparatory process continued, the executive branch has been 
constrained from pursuing other tariff liberalization 
negotiations in the region. Formal negotiations on Chilean 
accession to NAFTA, for example, were suspended in 1995.

  Other Countries Have Moved Forward With Their Own Trade Initiatives

    While debate continues in the United States regarding 
further regional trade liberalization efforts, other countries 
in the region have proceeded to negotiate new trade agreements 
and deepen their participation in existing arrangements. Chile 
has been at the forefront of this trend; it has negotiated a 
network of free trade agreements with several countries in the 
region, including Colombia and Venezuela. In 1996, Chile 
concluded a free trade arrangement with Mercosur, becoming in 
effect an associate member of that trade bloc.
    Chile's pursuit of free trade is not limited to South 
America. The Canada-Chile Free Trade Agreement, which became 
effective on July 1 of this year, is modeled on NAFTA and is 
intended as a provisional agreement to facilitate Chilean 
accession to NAFTA. Nevertheless, there are some notable 
differences between this bilateral agreement and NAFTA, 
reflecting some of the areas where Chilean and Canadian 
interests differ from those of the United States. For example, 
under their bilateral agreement, Chile and Canada are committed 
to forgo imposing antidumping and countervailing duties within 
6 years after the agreement goes into effect.
    Mexico has also been extending its own web of bilateral 
trade agreements throughout the hemisphere. It has concluded 
bilateral free trade agreements with Costa Rica and Bolivia, 
and has a trilateral arrangement with Columbia and Venezuela. 
Mexico is also negotiating free trade agreements with Ecuador, 
El Salvador, Guatemala, Honduras, Panama, and Peru. In 
addition, it plans to negotiate a transitional agreement with 
Mercosur that will cover key areas, such as market access, 
government procurement, intellectual property rights, and 
investment.
    Mercosur has also been active in subregional trade 
initiatives since the Miami Summit. In addition to its 
arrangement with Chile, Mercosur has concluded a free trade 
agreement with Bolivia and is engaged in negotiations to widen 
its reach to other Andean Group countries. Mercosur has also 
concluded a framework agreement on trade with the European 
Union and is scheduled to begin formal trade negotiations with 
Mexico in December 1997.
    Mercosur has not only been broadening its network of 
agreements with other countries, it has also been deepening the 
level of economic integration among the four original member 
countries. In 1995 Mercosur countries instituted a common 
external tariff, which is currently applied to about 85 percent 
of imports from outside the bloc. Trade among Mercosur member 
countries has almost tripled, from approximately $5 billion in 
1991 to $14.5 billion in 1995.

   Some U.S Sectors Feel Impact of Other Subregional Trade Agreements

    Lack of U.S. participation in shaping emerging Western 
Hemisphere trade agreements has created disadvantages for some 
U.S. exporters' access to these markets.\5\ By lowering or 
eliminating tariffs among participating countries, subregional 
free trade agreements that exclude the United States result in 
comparatively higher duties for U.S. exports. For example, 
Chile's network of bilateral trade agreements has given Chilean 
agricultural products an edge over U.S. exports in South 
America. Thus, while Chilean apples enter many South American 
markets duty free, Washington State apples face 10 to 25 
percent tariffs. In recent years, Washington growers have seen 
their share of these markets dwindle as Chile capitalizes on 
its tariff preferences.
---------------------------------------------------------------------------
    \5\ These examples of select sectors illustrate cases where U.S. 
export opportunities have been adversely affected by subregional trade 
agreements. A broader evaluation of the costs and benefits of increased 
trade and specific trade agreements requires a consideration of both 
U.S. export and import-competing sectors. While trade liberalization 
has historically created net benefits to the aggregate economy through 
improvements in efficiency, it creates costs that fall more directly on 
certain sectors of the economy and labor force.
---------------------------------------------------------------------------
    Like Chile's arrangements with other South American 
countries, the Canada-Chile agreement has already yielded 
benefits for Canadian firms not enjoyed by U.S. companies. 
Recently, Canada's Northern Telecom won a nearly $200-million 
telecommunications equipment contract in Chile. According to 
the State Department, the choice of Northern Telecom over U.S. 
companies was at least in part due to the fact that buying from 
a U.S. producer would have meant an additional $20 million cost 
in duties relative to purchasing from Canada.
    While U.S. exports to Mercosur countries have been growing, 
U.S. exporters will likely face increasing difficulties in 
penetrating markets in Mercosur countries as commitment to 
common bloc trade policies deepens. For example, a USTR 
official noted that Mercosur is currently considering adopting 
product safety standards that are quite different from U.S. 
standards. This official explained that if these standards are 
adopted, U.S. auto manufacturers could be at a disadvantage in 
accessing the growing markets of Mercosur member countries.
    Mercosur's position on the recent WTO Information 
Technology Agreement also provides an indication of how the 
bloc's common foreign trade policy will complicate U.S. efforts 
to promote its economic interests in the region. The 
Information Technology Agreement, which was signed by 28 WTO 
members in Singapore in December 1996, provides important 
tariff concessions in an industry where the United States 
enjoys a considerable competitive advantage. Brazil did not 
join in the Information Technology Agreement, seeking to 
protect its own emerging information technologies industry. 
Brazil's position on the agreement has now been adopted as an 
element of Mercosur's common external trade policy, while other 
partners like Argentina, if acting individually, might have 
taken a different position.
    The difficulties faced by the U.S. pharmaceutical industry 
in the Argentine market also illustrate some of the drawbacks 
encountered by U.S. firms as countries in the region drift away 
from the longstanding U.S. concern regarding intellectual 
property protection. In a recent statement before the Trade 
Subcommittee of the House Ways and Means Committee,\6\ the 
President of the Pharmaceutical Research and Manufacturers of 
America estimated that annual losses by member companies due to 
patent infringement in Argentina amount to several hundred 
million dollars. This official noted that NAFTA has the 
strongest safeguards for intellectual property rights of any 
trade agreement. He concluded that if Argentina had been 
brought into NAFTA, that government would have had to seek to 
curtail patent infringement more decisively than it does now. 
It is worth noting that Argentina's former Finance Minister 
favored joining NAFTA rather than integrating further within 
Mercosur. However, after NAFTA negotiations with Chile were 
suspended, it became clear that prospects for Argentine 
accession to NAFTA were rather distant, and Argentina proceeded 
to cement its position within Mercosur.
---------------------------------------------------------------------------
    \6\ March 18, 1997.
---------------------------------------------------------------------------

  Regional Trade Liberalization Likely to Continue Regardless of U.S. 
                             Participation

    Other Western Hemisphere leaders have indicated their 
countries will continue their initiatives toward free trade and 
economic integration. For example, a Chilean trade official 
told us that, like the United States, Chile would like to see 
the widest and most comprehensive agreement possible on free 
trade for the Western Hemisphere. However, this official noted 
that whether through NAFTA or the FTAA, with or without the 
United States, Chile intends to continue to pursue trade 
liberalization because it is seen as furthering Chile's own 
interests. Chile still wants to join NAFTA, but NAFTA is now 
less critical to Chile than it was in 1995.
    Like Chile, Canadian interests in regional trade 
liberalization generally coincide with those of the United 
States. However, the recent Canada-Chile free trade agreement 
demonstrates that Canada is pursuing its commercial interests 
in the region. According to a Canadian government spokesman on 
trade policy, Canada's free trade agreement with Chile was not 
only meant to expedite Chilean accession to NAFTA, but it was 
also intended to keep alive the momentum for free trade in 
anticipation of FTAA negotiations. Canada would like to see 
decisive U.S. participation in FTAA negotiations because the 
two countries share many interests with regard to trade.
    Mexico's interests in regional trade liberalization 
parallel those of Chile and Canada. According to Mexican 
government trade officials, all of Mexico's agreements and 
negotiations with other countries in the hemisphere have sought 
to encourage the adoption of trade disciplines consistent with 
NAFTA. These officials explained that Mexico has actively 
supported Chilean accession to NAFTA and the concept of a free 
trade agreement that would encompass the entire hemisphere. 
Moreover, they noted that Mexico is committed to the principles 
of free trade and will continue to pursue free trade 
arrangements with other countries in the hemisphere and other 
regions.
    In contrast to our NAFTA partners and Chile, the Mercosur 
countries' vision of the FTAA differs significantly from that 
of the United States. As the largest member of Mercosur, Brazil 
has sought to shape the FTAA process to make it consistent with 
its distinct trade priorities. Since the FTAA would entail 
broadening Brazil's ongoing market-opening efforts, Brazil 
favors a slower managed approach to hemispheric trade 
liberalization. Thus, Brazil has proposed that FTAA 
negotiations on market access be deferred until 2003, while the 
United States would like to see this matter addressed as soon 
as negotiations begin in 1998. A Brazilian government spokesman 
noted that, at a minimum, FTAA negotiations in 1998 could 
include items such as common customs documents, which would not 
require legislative approval. However, if that is the extent of 
the negotiations, discussions on market access would be 
deferred, as favored by Mercosur.
    In conclusion, it appears that trade liberalization among 
countries in the Western Hemisphere will continue in the near 
future regardless of U.S. involvement. U.S. exporters' access 
to markets in the region is already being adversely affected by 
these new trade agreements. U.S. involvement in shaping the 
FTAA and other regional trade arrangements is likely to play a 
key role in determining how U.S. exporters will fare in Western 
Hemisphere markets in the future.
    Mr. Chairman and Members of the Subcommittee, this 
concludes my prepared statement. I will be glad to answer any 
questions you may have.
      

                                

    Chairman Crane. Thank you very much.
    Mr. Sweeney.

  STATEMENT OF JOHN P. SWEENEY, POLICY ANALYST, INTERNATIONAL 
      TRADE AND LATIN AMERICAN ISSUES, HERITAGE FOUNDATION

    Mr. Sweeney. Mr. Chairman, thank you for the opportunity to 
address this hearing today. The road to the free trade area of 
the Americas must begin here in Washington, DC, and the first 
step down that road is to renew the executive's fast track 
negotiating authority. Without a fast track negotiating 
authority, the United States cannot undertake any new trade 
initiatives anywhere in the world--not just in Latin America.
    Without fast track, U.S. trade policy is effectively 
stalled, and U.S. leadership is diminished around the world. 
Moreover, while the United States watches from the sidelines, 
other countries are negotiating free trade agreements 
throughout the Western Hemisphere and American business is 
losing export and investment opportunities in these opening 
foreign markets. As a result, American workers are hurt, 
because less American trade means fewer American jobs.
    Except for special extensions granted by Congress for the 
specific purposes of completing the NAFTA and Uruguay round 
negotiations, President Clinton has been without an effective 
fast track negotiating authority since May 1993.
    In the specific case of the Latin American region, the 
administration's lack of fast track negotiating authority has 
clearly hurt United States credibility and leadership. With 
trade off the United States-Latin American agenda, the United 
States today finds itself in growing disagreement with 
important Latin American countries in many issues, including 
Cuba policy, immigration, and fighting drug traffickers.
    Moreover, the lack of fast track authority has been a 
direct causal factor in the change dynamics of the FTAA 
process, which have been eloquently commented today by the 
witnesses who appeared previously.
    The FTAA process did not stop when the Clinton 
administration benched the United States more than 30 months 
ago. For example, our NAFTA partners, Mexico and Canada, have 
signed bilateral trade agreements with Chile.
    Mercosur, the South American customs union, has grown 
internally and externally, deepening its trade disciplines, and 
gaining new associates in Chile and Bolivia. Other countries in 
line for Mercosur membership this year include Peru, Venezuela, 
and Colombia.
    Today, the Brazilians are clearly challenging the United 
States for leadership of the FTAA process, and they are making 
progress. It is not that Mercosur is a more attractive pathway 
to an FTAA, but rather that Mercosur right now is the only game 
in town, because without fast track authority, NAFTA expansion 
to Chile and other countries is simply impossible.
    The Western Hemisphere accounted for 39 percent of U.S. 
goods exports in 1996, and it was the only region in the world 
in which the United States recorded a trade surplus in both 
1995 and 1996. As a market for United States goods, the Western 
Hemisphere today already is nearly twice as large as the 
European Union, an nearly 50 percent larger than Asia.
    Moreover, while United States goods exports to the world 
generally increased 57 percent from 1990 to 1996, United States 
exports to Latin America and the Caribbean, excluding Mexico, 
increased by 110 percent during that same period.
    If those trends continue, Latin America alone will probably 
exceed Japan and Western Europe combined as an export market 
for United States goods by the year 2010. However, without fast 
track authority, the FTAA process could stall, and possibly 
collapse, and the United States would lose markets abroad and 
growth and employment at home.
    Now, President Clinton recently provided Congress with a 3-
year NAFTA report. This report, I hope, in the coming weeks 
will come under intense congressional scrutiny, because many 
Members of Congress have indicated that their willingness to 
renew the President's fast track negotiating authority will 
depend on their perception of how well NAFTA has performed 
during its first 3 years.
    If the Clinton administration's report is objective and 
accurate, it will show that NAFTA has been clearly quite 
successful. Trade flows have increased during NAFTA's first 3 
years by 43 percent. North American trade increased by 43 
percent in NAFTA's first 3 years, to $420 billion.
    In 1996 United States exports to Canada and Mexico, at $190 
billion, exceeded United States exports to any other area of 
the world, including the entire Pacific rim or all of Europe. 
United States exports have increased significantly in the last 
3 years to Canada and Mexico.
    In Canada's case, exports went up 33 percent in 3 years, 
and in the case of Mexico, 37 percent in 3 years.
    What we feel, however, is most important about NAFTA is 
that it has shattered the myth that trade deficits destroy 
jobs. The combined United States trade deficit with Canada and 
Mexico increased during the first 3 years of NAFTA's 
implementation from $9 billion in 1992 to $39.9 billion in 
1996.
    Since 1992, however, the U.S. economy has created 12 
million net new jobs. Moreover, manufacturing employment grew 
from a low of 16.9 million jobs in 1992 to 18.3 million in 
1993. Clearly, NAFTA has been very good for the U.S. economy.
    In conclusion, Congress should have no doubts about the 
success of NAFTA and the future success of an FTAA in which the 
United States is centrally involved as a leader, as the key 
economy in the FTAA.
    Although NAFTA is only 3 years old, it clearly is 
performing remarkably well. And even though 3 years may seem 
like too little time to judge NAFTA, it is clear the critics of 
NAFTA have been wrong on every count.
    Congress will be acting in American's best national 
interest when it approves a new, broad, fast track negotiating 
authority so that the Clinton administration can put United 
States trade policy back on track in Latin America and around 
the world.
    Thank you.
    [The prepared statement follows:]

John P. Sweeney, Policy Analyst, International Trade and Latin American 
Issues, Heritage Foundation

    The Heritage Foundation is an educational, 501(c)(3) public 
policy research organization, or a ``think tank.'' It is 
privately supported, and receives no funds from any government 
at any level, nor does it perform any government or other 
contract work.
    The Heritage Foundation is the most broadly supported think 
tank in the United States. During 1996 it had more than 240,000 
individual, foundation, and corporate supporters representing 
every state in the U.S. Its 1996 contributions came from the 
following sources: individuals 52%, private foundations 21%, 
corporations and company foundations 7%, investments 15%, and 
publications sales and other 5%.
    No corporation provided The Heritage Foundation with more 
than 2% of its 1996 annual income. The top five corporate 
givers provided The Heritage Foundation with less than 5% of 
its 1996 annual income. The Heritage Foundation's books are 
audited annually by the national accounting firm of Deloitte 
and Touche. A list of major donors is available from the 
foundation upon request.
    Members of The Heritage Foundation staff testify as 
individuals discussing their own independent research. The 
views expressed are their own, and do not reflect an 
institutional position for The Heritage Foundation or its board 
of trustees.
    What are the prospects for achieving a Free Trade Area of 
the Americas (FTAA) by 2005? The White House will answer that 
question in September, when it finally sends Congress its 
formal request for a new fast-track negotiating authority. The 
Administration claims that it has no need for fast-track 
authority until March 1998, when President Clinton will travel 
to Chile for the second Summit of the Americas to launch formal 
FTAA negotiations. However, the Administration's view that 
fast-track is not needed yet is both naive and misleading.
    The road to the FTAA begins in Washington, D.C., and the 
first step down that road is to renew the Executive's fast-
track negotiating authority. Without a fast-track negotiating 
authority, the president cannot undertake any new trade 
initiatives anywhere in the world. Without fast-track, U.S. 
trade policy is effectively stalled, and U.S. leadership is 
diminished around the world. Moreover, while the U.S. watches 
from the sidelines, other countries are negotiating free trade 
agreements throughout the Western Hemisphere, and American 
business is losing export and investment opportunities in these 
opening foreign markets. As a result, American workers are hurt 
because less American trade means fewer American jobs.
    Except for special extensions granted by Congress for the 
specific purposes of completing the NAFTA and Uruguay Round 
negotiations, President Clinton has been without an effective 
fast-track negotiating authority since May of 1993. In the 
specific case of the Latin American region, the 
Administration's lack of a fast-track trade authority has 
clearly hurt U.S. credibility and leadership. With trade off 
the U.S.-Latin America agenda, the U.S. today finds itself in 
disagreement with Latin America on many issues, including Cuba 
policy, immigration, and fighting drug traffickers.
    Moreover, the lack of fast-track authority has been a 
direct causal factor in the changed dynamics of the FTAA 
process, which did not stop when the Clinton Administration 
benched the U.S. more than 30 months ago. For example, our 
NAFTA partners, Mexico and Canada, have signed bilateral trade 
agreements with Chile. Mercosur, the South American customs 
union, has grown internally and externally, deepening its trade 
disciplines and gaining new associates in Chile and Bolivia. 
Other countries in line for Mercosur membership include Peru, 
Venezuela, and Colombia. Today, the Brazilians are challenging 
the U.S. for leadership of the FTAA process, and making 
progress. It's not that Mercosur is a more attractive pathway 
to an FTAA, but rather that Mercosur right now is the only game 
in town--because without fast-track authority, NAFTA expansion 
to Chile and other countries is impossible.
    The Western Hemisphere accounted for 39 percent of U.S. 
goods exports in 1996 and was the only region in which the 
United States recorded a trade surplus in both 1995 and 1996. 
As a market for U.S. goods, the Western Hemisphere already is 
nearly twice as large as the European Union and nearly 50 
percent larger than Asia. Moreover, while U.S. goods exports to 
the world generally increased 57 percent from 1990 to 1996, 
U.S. exports to Latin America and the Caribbean (excluding 
Mexico) increased by 110 percent during the same period. If 
current trends continue, Latin America alone will exceed Japan 
and Western Europe combined as an export market for U.S. goods 
by the year 2010.

                  NAFTA at Three Years Is Working Well

    President Clinton is legally required to provide Congress 
with a detailed ``report card'' by July 1, 1997, covering the 
first three years of implementation of the NAFTA. This report 
will come under intense congressional scrutiny because many 
Members of Congress have indicated that their willingness to 
renew the President's fast-track negotiating authority will 
depend on their perception of how well NAFTA has performed 
during its first three years. If the Clinton Administration's 
report is objective and accurate, it will show NAFTA to be a 
success.
    Indeed, if NAFTA were to be graded on its effects after 
only three years, it would receive an ``A'' for enhancing the 
level of trade between the United States and its North American 
neighbors; an ``A'' for increasing the number of U.S. jobs that 
support this increased trade; an ``A'' for its positive impact 
on manufacturing and on the personal income of American 
workers; and a ``B'' both for encouraging U.S. compliance with 
implementation of NAFTA's deadlines and for improving U.S. 
relations with Mexico in general. Finally, although much more 
can be done, NAFTA has been instrumental in the strides Mexico 
has made in liberalizing its economy, and is one reason Mexico 
is taking steps to reform its political system. With this kind 
of report card, Congress should have no doubts about the 
success that NAFTA has achieved.
    Trade Flows Have Increased. Total North American trade 
increased from $293 billion in 1993 to $420 billion in 1996, a 
gain of $127 billion or 43 percent during NAFTA's first three 
years. If that gain had been with a single country, it would 
have made that country the fourth-largest trading partner of 
the United States. In 1996, U.S. exports to Canada and Mexico, 
at $190 billion, exceeded U.S. exports to any other area of the 
world, including the entire Pacific Rim or all of Europe. 
Mexico and Canada purchased $3 of every $10 in U.S. exports and 
supplied $3 of every $10 in U.S. imports in 1996. Overall, 
total U.S. exports of goods and services grew from $602.5 
billion in 1993--the last year before NAFTA was implemented--to 
$825.9 billion in 1996, a gain of $223.4 billion.\1\
---------------------------------------------------------------------------
    \1\ The U.S. Department of Commerce estimates that every $1 billion 
increment in U.S. exports creates 22,800 new jobs in the United States. 
This would mean that U.S. export growth from 1993 to 1996 was 
responsible for creating over 5 million U.S. jobs, or 57.7 percent of 
the 8.8 million net new payroll jobs created by the U.S. economy during 
this three-year period.
---------------------------------------------------------------------------
    U.S. Exports to Mexico and Canada Have Increased. Thanks to 
NAFTA, Mexican tariffs--which had averaged 10 percent before 
the trade agreement was implemented--now average less than 6 
percent, while average U.S. tariffs have fallen from 4 percent 
to about 2.5 percent. As a result, U.S. exports to Mexico grew 
by 37 percent from 1993 to 1996, reaching a record $57 
billion.\2\ During this period, U.S. exports to Canada also 
increased by 33 percent, to $134 billion. Total two-way trade 
between the United States and Canada was $290 billion in 1996, 
while total two-way trade between the United States and Mexico 
was nearly $130 billion. According to the U.S. Department of 
Commerce, U.S. exports to Mexico in the fourth quarter of 1996 
were growing at an annualized rate of $64 billion. Moreover, 
U.S. market share in Mexico increased from 69 percent of total 
Mexican imports in 1993 to 76 percent in 1996. During NAFTA's 
first three years, 39 of the 50 states increased their exports 
to Mexico; moreover, 44 states reported a growth in exports to 
Mexico during 1996 as the pace of U.S. exports to that country 
accelerated.
---------------------------------------------------------------------------
    \2\ Exports of U.S. components to Mexico's duty-free component 
assembly industry made up approximately 28 percent of total U.S. 
exports to Mexico in 1996, according to a report for the USTR by the 
U.S. International Trade Commission (ITC). The ITC found that the use 
of U.S. components in Mexican assembly plants had grown at an average 
yearly rate of 15.8 percent since NAFTA was implemented in 1994.
---------------------------------------------------------------------------
    NAFTA has shattered the myth that trade deficits destroy 
jobs. The combined U.S. trade deficit with Canada and Mexico 
increased during the first three years of NAFTA's 
implementation--from $9 billion in 1992 to $39.9 billion in 
1996--because Canada and Mexico suffered economic recessions. 
Since 1992, however, the U.S. economy has created 12 million 
net new jobs. Moreover, manufacturing employment grew from 16.9 
million jobs in 1992 to 18.3 million in 1993, an increase of 
1.4 million net new jobs.\3\ The general unemployment rate 
declined from 7.5 percent in 1992 to 5.3 percent in 1996. U.S. 
exports to NAFTA countries currently support 2.3 million U.S. 
jobs.
---------------------------------------------------------------------------
    \3\ As of February 24, 1997, 110,408 U.S. workers had been 
certified as eligible for training assistance under NAFTA's Trade 
Adjustment Assistance Program, administered by the U.S. Department of 
Labor. The U.S. economy, however, currently creates this many net new 
jobs in about two weeks. The general U.S. unemployment rate declined 
from 7.5 percent in 1992 to 5.3 percent in 1996.
---------------------------------------------------------------------------
    The largest post-NAFTA gains in U.S. exports to Mexico have 
been in such high-technology manufacturing sectors as 
transportation and electronic equipment, industrial machinery, 
plastics and rubber, fabricated metal products, and chemicals. 
NAFTA also has been a boon for major U.S. agricultural states 
like Montana, Nebraska, and North Dakota, and traditional 
southern textile states like North Carolina and Alabama. NAFTA 
has encouraged U.S. and foreign investors with apparel and 
footwear factories in Asia to relocate their production 
operations to Mexico. This diversion of investment from Asia to 
Mexico ``saved the heavier end of clothing manufacture in the 
U.S.: the textile mills,'' as Rich Nadler, a journalist who has 
covered NAFTA's progress since 1992, recently observed.\4\
---------------------------------------------------------------------------
    \4\ Rich Nadler, ``NAFTA: Jobs, Jobs, Jobs,'' K. C. Jones, Overland 
Park, Kansas, April 1997.
---------------------------------------------------------------------------
    According to Nadler, who has reviewed pre-and post-NAFTA 
growth rates in U.S. standards of living, the rate of increase 
in personal wealth has more than tripled since NAFTA was 
implemented. His review measured the improvement in three ways: 
(1) inflation-adjusted gross domestic product (GDP) per capita 
grew by 1.79 percent annually in 1994 and 1995, compared with 
only 0.23 percent from 1990 to 1993; (2) disposable personal 
income growth, adjusted for inflation, averaged 1.89 percent 
annually in 1994 and 1995, compared with 0.25 percent annually 
from 1990 to 1993; and (3) personal consumption expenditures 
grew by an inflation-adjusted 1.76 percent annually during 1994 
and 1995, compared with 0.56 percent a year from 1990 to 1993.
    The data on trade, production, and employment growth for 
NAFTA's first three years quantify objectively that NAFTA is 
good for the United States. Moreover, a recent economic 
analysis published by the U.S. Federal Reserve Bank of Chicago 
concludes that NAFTA will lead to output gains for all three 
participant countries. These gains are roughly twice as large 
as those predicted by previous forecasts of NAFTA's potential 
for accelerated growth in North American trade, output, and 
employment growth.
    The Federal Reserve study, based on a dynamic economic 
model, also predicts that the adjustment to NAFTA should be 
virtually completed by 2004 (although NAFTA will not be fully 
phased in until 2009) and that NAFTA will greatly expand the 
flow of all goods, both from Canada and the United States to 
Mexico and from Mexico to the United States and Canada. In 
general, bilateral Mexican-North American trade should increase 
about 20 percent as a result of NAFTA. This projected growth 
also means more U.S. jobs and a higher standard of living for 
American workers.
    In his State of the Union speech on February 4, 1997, 
President Clinton called on Congress to approve new fast-track 
negotiating authority in order to pursue new trade initiatives 
in Asia and Latin America during 1997 and 1998. ``Now we must 
act to expand our exports,'' the President said, ``especially 
to Asia and Latin America--two of the fastest growing regions 
on earth--or be left behind as these emerging economies forge 
new ties with other nations.''
    Congress should have no doubts about the success of NAFTA. 
Although only three years old, this international trade 
agreement is growing rapidly. Even though three years may seem 
like too little time to reach any final judgments about NAFTA, 
it already is clear that critics of this agreement have been 
wrong on all counts. Congress will be acting in the U.S. 
national interest when it approves a new fast track negotiating 
authority so that the Clinton Administration can put U.S. trade 
policy back on track around the world.

                   Free Trade Is Important to America

    Free trade makes good economic sense. Free trade creates 
jobs and maximizes personal economic liberty; it gives American 
consumers access to a greater diversity of goods at lower 
prices, and provides a larger market in which American 
companies can sell their products. Moreover, free trade enables 
firms to import crucial components to manufacture products in a 
cost-competitive manner. Today, over 90 percent of American 
manufacturing companies import components used in final 
products sold to American consumers. American companies 
continue to export goods and services to other countries 
because of the great demand for American products, and because 
they can produce more than Americans want. Free trade and sound 
investment policies have proven to be undeniably good for 
America, and for the American people, which the following facts 
substantiate:
    America is the world's largest exporter of goods and 
services. In 1996, America sold $830 billion in goods and 
services worldwide. Global U.S. trade in 1996 (exports plus 
imports) totaled $1.76 trillion--over 23 percent of America's 
gross domestic product, whereas in 1970, trade accounted for 
barely 13 percent of America's GDP. Moreover, the USTR's office 
estimates that by 2010, trade will represent 36 percent of 
America's GDP.
    The value of U.S. merchandise exports has grown more than 
600 percent over the last 25 years. Since 1988, almost 70 
percent of the growth in the U.S. economy was derived solely 
from exporting goods and services.
    One out of every five American jobs is supported by trade. 
In 1996, export-oriented manufacturing and service companies 
supported 11.3 million American jobs that paid an average of 13 
percent to 16 percent more than U.S. jobs overall. Nearly half 
of the manufacturing jobs created in the U.S. in recent years 
have been in foreign-owned companies.
    Since 1965, unemployment has declined every year that the 
U.S. trade deficit expanded (more imports came into the U.S. 
than goods were exported). Conversely, unemployment increased 
in years in which the trade deficit shrank (fewer imports came 
into the U.S.). Increased exports mean more jobs for Americans, 
and increased imports adds to the national wealth.
    America is as much an industrial giant today as it has been 
in the past. The manufacturing base of the United States is not 
shrinking because of free trade, as trade protectionists 
contend. In fact, it is not shrinking at all. According to the 
U.S. Department of Commerce, manufacturing accounts for 21 
percent of GDP, which is the same percentage of the economy 
today as in 1967. Employment in manufacturing has remained 
relatively stable over the last three decades. The number of 
Americans working in manufacturing today (about 10.5 million) 
is about the same as it was in the early 1960s. While that 
number is a smaller percentage of a growing U.S. population, it 
proves that Americans are still finding jobs in manufacturing.
    The 105th Congress and the Clinton Administration should 
seek to achieve very specific objectives to reestablish 
America's leadership role in the process of worldwide expansion 
of free trade. The general objectives policymakers should use 
as guidelines throughout the next presidential term are to:
    (1) Put American trade expansion back on track;
    (2) Expand the North American Free Trade Agreement to 
Chile.
    (3) Enlarge and deepen the World Trade Organization;
    (4) Support the Asia-Pacific Economic Cooperation (APEC) 
forum to make it a better vehicle for liberalizing Asian trade;
    (5) Improve U.S. trade relations with China;
    (6) Strengthen America's transatlantic relations with the 
European Union; and,
    (7) Build congressional and public support for free trade 
and investment.
    Strong presidential leadership and fast-track negotiating 
authority are essential for maintaining American leadership in 
the global economy. To expand America's international trade 
interests, strong and sustained presidential leadership is 
essential. If strong Executive leadership is lacking, even the 
wisest and best-intentioned congressional leadership will find 
it nearly impossible to advance America's trade interests. 
Similarly, fast-track negotiating authority is essential for 
the swift approval by Congress of trade agreements negotiated 
by the executive branch of government. Without fast-track 
negotiating authority, the balance of pressure from 
congressional constituencies with a direct interest in trade 
will likely shift toward a stance increasingly supportive of 
protective intervention. Clearly, then, the foundations for 
restoring a bipartisan congressional consensus in support of 
trade expansion are first, strong leadership from the executive 
branch, and second, the renewal by Congress of fast-track 
negotiating authority that limits the Executive's scope of 
action to tariff and non-tariff trade negotiations.

             Putting American Trade Expansion Back on Track

    Although America's international trade priorities and 
commitments span the globe, the Western Hemisphere is the 
region where U.S. trade negotiators scored the most impressive 
gains during the first half of the 1990s. Therefore, the 
process of putting American trade expansion back on track 
should begin in the Western Hemisphere. Between 1980 and 1992, 
the Reagan and Bush Administrations forged the closest 
relationship with Latin America that the U.S. has enjoyed in 
more than a century. This new hemispheric partnership was based 
on both democracy and the creation of a hemispheric free trade 
area as established in the Enterprise for the Americas 
Initiative (EAI) and the North American Free Trade Agreement 
(NAFTA), which was conceived as the base upon which U.S.-led 
trade expansion in the Western Hemisphere over the next decade 
would result in the creation of a Free Trade Area of the 
Americas (FTAA) by 2005.
    During the period from 1990 to 1996, U.S. exports to the 
world increased 57 percent, while U.S. exports to Latin America 
and the Caribbean Basin (excluding Mexico) increased by 110 
percent. The Western Hemisphere accounted for 39 percent of 
U.S. merchandise exports in 1996. Not only are Canada and 
Mexico the first and third largest U.S. trading partners, but 
the rest of Latin America and the Caribbean Basin has been one 
of the fastest growing U.S. export markets in recent years. 
During 1995 and 1996, it was the only major region with which 
the U.S. recorded a trade surplus. In 1995 the total gross 
domestic product (GDP) of Latin America and the Caribbean Basin 
was $1.5 trillion, Moreover, Latin America intra-regional trade 
more than doubled from $41 billion to $88 billion during the 
period from 1990 to 1995. The U.S. exported more to Chile in 
1995 and 1996 than it did to Russia, India, or Indonesia.
    To put American trade expansion back on track in the 
Western Hemisphere and around the world, the 105th Congress and 
the Clinton Administration should strive to agree on the 
following specific objectives:
    Congress needs to renew the Executive's fast-track 
negotiating authority. The 105th Congress should grant the 
Executive a new fast-track negotiating authority quickly, in 
order to facilitate Chile's accession to NAFTA. The enlargement 
of NAFTA to include Chile would reaffirm America's commitment 
to creating a Free Trade Area of the Americas (FTAA) by 2005. 
One of the greatest mistakes made recently by U.S. policymakers 
was postponing the inclusion of Chile in NAFTA until after the 
1996 elections. The failure to add Chile to NAFTA weakened 
American leadership and influence in the FTAA process. There is 
no reason to delay the admission of Chile to NAFTA. Chile's 
total gross national product is equivalent to about 1 percent 
of the American economy. Chile has enjoyed positive economic 
growth for 14 consecutive years. Growth during the past six 
years under a democratic civilian government has averaged 7.5 
percent annually. Chile has pre-paid a large chunk of its 
external public-sector debt, has no balance-of-payments 
problem, and has enjoyed single-digit inflation since 1994. Its 
investment and savings rates are approaching those of the Asian 
tigers. The inclusion of Chile in NAFTA would confirm America's 
commitment to leading the FTAA process and open a new gateway 
for U.S. exports to markets in South America and APEC (of which 
Chile is a member).
    The renewal of a broad fast-track negotiating authority, 
without any language linking trade issues to labor standards 
and the environment, also would facilitate the expansion of 
NAFTA to other countries in Latin America and the negotiation 
of free trade agreements with countries in Asia. Without a 
fast-track negotiating authority in hand, the Administration 
cannot enter into serious trade negotiations with Chile or any 
other country. Suggestions that fast-track is not necessary to 
enter into trade negotiations are mistaken. No country will 
invest the time or resources in negotiating with the U.S. if 
American negotiators cannot guarantee that any agreement 
reached will not be mutilated beyond recognition by the U.S. 
Congress.
      

                                

    Chairman Crane. Thank you.
    Mr. Lande.

STATEMENT OF STEPHEN LANDE, ADJUNCT SENIOR RESEARCH ASSOCIATE, 
           NORTH-SOUTH CENTER, UNIVERSITY  OF  MIAMI

    Mr. Lande. Thank you very much for keeping your eye, or for 
the Subcommittee keeping its eye on the long range as well as 
the short range. Given the pressure in Washington in terms of 
day-to-day decisions, it is refreshing to be invited to a 
hearing where we can talk about the future of U.S. trade 
policy, particularly as reflected in the free trade area of the 
Americas.
    I am also very pleased to be here on behalf of the North-
South Center of the University of Miami. The mission of the 
North-South Center is to promote better relations and serve as 
a catalyst for change among the United States, Canada, and the 
nations of Latin America and the Caribbean.
    Most recently, the center submitted a detailed set of 
policy recommendations and issue papers to the third Business 
Forum of the Americas, meeting in Belo Horizonte, Brazil. The 
papers were based on a thorough analysis of current FTAA and 
Latin integration policy implications and their implications 
for business. The input was provided by a series of private 
sector shadow groups.
    Similar papers were also provided for the Cartagena 
ministerial meeting.
    We believe very strongly, and perhaps this is the first 
point we would like to make in the testimony, that the 
involvement of the private sector, particularly at the 
hemispheric level, is very important in terms of the success of 
the process.
    The private sectors of Latin America, the Caribbean and the 
United States have already been more involved in the FTAA 
process than they have been involved in any previous 
extraregional trade negotiation. Credit for this phenomenon is 
in part due to the leadership of the late U.S. Commerce 
Secretary Ron Brown, the head of the Colombia national export 
promotion agency, Jorge Ramirez Acampo, and the efforts of the 
Brazilian national confederation of industries, Senator 
Fernando Brazera and Jose Augusto Quello Fernandez.
    At the meeting of Belo Horizonte, the trade ministerial, 
for the first time the private sectors of the region, of each 
of the countries who were represented at that meeting, made 
specific recommendations as to how they would like to see the 
FTAA proceed. As Mr. Pryce of the Council of the Americas 
indicated, there was some friction or some differences between 
the Brazilian point of view at the beginning of many of these 
talks and the American private sector point of view. But they 
did put together specific recommendations.
    It is extremely important that these recommendations not 
fall on deaf ears. They were delivered to the ministers' 
meeting in Belo Horizonte, and it's extremely important that 
the hemispheric working groups that are currently preparing a 
negotiating program for the 11 functional areas should 
carefully review these inputs that they have received from the 
private sector.
    To the extent that the U.S. Government has influence in 
this process, it should insist that each of the working groups 
which have received advice from the private sector should look 
at this advice and at least come back with some 
recommendations, either for immediate attention or in terms of 
future policy.
    Currently, there had been no regular contact between the 
provider sector and government officials. It makes no sense to 
have businesspeople who bear the brunt of barriers to trade, 
who perhaps have the most to gain from removal of these 
barriers of trade, not to be involved in some way in the day-
to-day consideration of these issues.
    The compendium of trade issues which was referred to 
earlier and which was developed by the free trade area of the 
Americas is a good compendium. It would have been better if the 
private sector had been involved in helping to identify 
specific problems and perhaps have developed some 
recommendations for dealing with these particular issues.
    I would like to make a third recommendation where perhaps 
the Subcommittee can be helpful as it pertains to increasing 
the role of the private sector in this negotiation. What the 
negotiation is really about is, How do you go beyond Uruguay 
round obligations?
    Yet there is a complete lack of knowledge, particularly 
among private sectors, not only in the United States, but 
throughout Latin America and the Caribbean, except for perhaps 
a few very specialized individuals, of what the obligations 
were in the Uruguay round. How do you go beyond them? How do 
you make things more detailed perhaps in the Uruguay round?
    There are a lot of discussions on procedures for 
establishing standards, for establishing sanitary issues and 
phytosanitary regulations, for allowing accreditation of 
various providers of services.
    How do you put them into effect so you can have true, free 
movement of goods between and within the hemisphere? If you 
expect a product in one country, how do you assume that it can 
transit the whole hemisphere?
    It is the need to identify these specific possibilities for 
going beyond the Uruguay round which must be addressed, and my 
suggestion is that perhaps the Subcommittee itself, perhaps the 
USITC, the GAO, possibly USTR, could prepare a very simple, 
easy to understand review of obligations that were undertaken 
in the Uruguay round, and how you can go beyond these 
obligations in terms of what you can accomplish in the free 
trade area of the Americas.
    A second issue I would like to address is the question of 
concrete results. Given early concrete results, or what we 
commonly refer to as an early harvest, given the prolonged 
nature of the hemispheric talks, the fact that they will 
continue into the year 2005, the negotiating countries must 
demonstrate that they recognize how essential it will be to 
achieve substantive agreements in commercially significant 
areas early on. Or else, let's face it, there will not be a 
political interest. There will not be a business interest in 
terms of the process.
    I have already mentioned the importance of identifying 
specific sectors where you can make progress on business 
facilitation issues, whether those issues be in standards, 
whether sanitary or phytosanitary, or whether they be in 
service accreditation and so on.
    Several of the working groups have already indicated they 
are willing to address these issues. However, none of the 
working groups have yet identified specific sectors where we 
can make progress.
    A useful precedent is offered by the U.S.-EU Transatlantic 
Dialog, where agreements were worked out on covering seven 
sectors in terms of developing uniform standards, particularly 
medical equipment, pharmaceutical, and certain electronic 
products.
    The WTO has adopted guidelines for the mutual recognition 
of qualifications to the accounting sectors. We would urge that 
this could be a prime candidate for the type of early concrete 
results, all of which would be appreciated by business, and 
keep momentum in the process.
    All the working groups should also make recommendations on 
opportunities to harmonize regulatory processes, tender and bid 
submission procedures, procurement situations, handling of 
customs related protests, and so forth.
    This would be consistent with a substantial majority of the 
recommendations of the Business Forum. They want to have 
harmonized regulations in the hemisphere. This comes before 
trade liberalization. It is easier to do, and the most 
interesting part of this issue, this is one of the areas where 
Brazil and the United States agree that there is a possibility 
of concrete progress.
    There is no better way to maintain interest in the FTAA 
process than to borrow a leaf from the APEC experience. In 
addition to trade liberalizing groups, as exists in the FTAA, 
APEC has 13 groups pursuing economic and technical cooperation 
as a way to encourage increased investment and trade among its 
members.
    These groups are considering joint activities in such areas 
as science and technology, small and medium enterprises, 
energy, transportation, telecommunications, and so forth.
    Similar groups which are interested in actually making 
business deals could be established under the FTAA rubric, and 
would be a very positive development in terms of moving the 
process along.
    Finally, we would like to address how the President's 
negotiating team might treat undertakings on nontrade issues, 
including workers' rights and environmental protection. That 
is, topics integral to the terms of the final trade and 
investment agreement, constituting the FTAA, without allowing 
these issues to become obstacles to the expansion of 
hemispheric trade.
    I think in this regard, the example of NAFTA could be very 
useful. The recent NAFTA report that was released by the USTR 
indicated there was significant progress made in the labor and 
environmental issues. This progress, however, did not come 
about because of the threat of sanctions.
    The best proof of this is that there were 11 areas under 
the labor rubric which NAFTA identified as possibilities for 
making significant progress. Only three of these areas were 
actually subject to sanctions. Sanctions were never brought 
into play.
    Yet the progress that was made in terms of enforcement, in 
terms of education, in terms of improvement of standards within 
the labor regulations were extremely useful. This came about 
because of the institutional network that was developed under 
the NAFTA. This came about because of the public attention 
given these issues. This came about because there was a certain 
amount of funding available.
    It is the same thing, basically, in terms of the 
environmental record under the NAFTA.
    It would be hoped that in the summit process the same can 
occur. Fortunately, the FTAA process is not operating in 
isolation from other aspects of negotiations within the 
hemisphere. The Chilean summit is going to address four issues, 
of which trade is only one.
    They will be addressing issues that will include 
eradication of poverty, development of human rights, assuring 
more meaningful distribution of income. There were various 
baskets they have identified.
    It is very likely that environment and labor can be treated 
within this rubric, as well as under the FTAA. It is this 
attempt, it is this commitment that has been made by 
hemispheric participants in the FTAA process to make progress 
in these areas.
    There was a question of whether it belongs in trade 
negotiations or not. At the WTO, it became clear that there was 
a desire by participants in that process to have labor issues 
considered under the International Labor Organization.
    What we would suggest, perhaps, as a final recommendation, 
is that when one looks at fast track, and I agree with all the 
members of the panel, that the renewal of fast track is the key 
part of the process, that one should look beyond the narrow 
definitions of trade policy. One should see what is happening 
in these other areas of negotiations, and one should determine 
whether it is possible or not to bring these issues up in those 
contexts.
    That would eliminate the annoying issue of sanctions, but 
it would also assure that these issues receive the attention 
they deserve in terms of a hemispheric integration process.
    Thank you very much, Mr. Chairman.
    [The prepared statement and attachment follow:]

Statement of Stephen Lande, Adjunct Senior Research Associate, North-
South Center, University of Miami

    Chairman Crane, Mr. Matsui, and Members of the Subcommittee 
on Trade:
    On behalf of The North-South Center at the University of 
Miami, let me thank the Subcommittee for giving the Center an 
opportunity to appear before you on the subject of the Free 
Trade Area of the Americas.
    The mission of The North-South Center is to promote better 
relations and serve as a catalyst for change among the United 
States, Canada, and the nations of Latin America and the 
Caribbean. Its simple approach to these challenging dual 
objectives is to advance knowledge and understanding of the 
major political, social, economic, and cultural issues 
affecting the nations and peoples of the Western Hemisphere.
    Most recently, The Center submitted a detailed set of 
Policy Recommendations and Issues Papers to the Third Business 
Forum of the Americas, meeting in Belo Horizonte, Brazil. The 
papers were based on a thorough analysis of current FTAA (and 
Latin American integration) policy issues, and their 
implications for business, provided by a series of private 
sector ``shadow groups'' organized by The Center. These 
``shadow groups'' were also active before the Second Business 
Forum, in Cartagena, Colombia, and helped in the drafting of 
the earlier Center publication, Private Sector Recommendations 
on Advancing Western Hemisphere Trade.
    Today, we will discuss what we believe are three of the 
most critical issues facing the 34 nations committed to 
achieving a Free Trade Area of the Americas by the year 2005.
    First, we will focus on what might be expected in the way 
of ``interim'' results before the final negotiating results are 
agreed in 2005. Given the prolonged nature of the hemispheric 
talks, the negotiating countries must demonstrate that they 
recognize how essential it will be to achieve substantive 
agreements in commercially-significant areas, even as other 
FTAA topics continue to be debated and developed.
    Second, we will discuss the nature of the private sector's 
role in the negotiating process, and why this ``hemispheric'' 
free trade negotiation, both in its historical context, and as 
a continuing process of economic reform and liberalization, 
implies the need for a fully-articulated private sector 
advisory process, adopted and implemented by all the 
governments taking part in the FTAA negotiations.
    Finally, we will address how the President's negotiating 
team might treat undertakings on non-trade issues, including 
workers' rights and environmental protection, as topics 
integral to the terms of the final trade and investment 
agreements constituting an FTAA, without allowing these issues 
to become obstacles to the expansion of hemispheric trade.

To San Jose, and Beyond

    There is a consensus among the Hemisphere's Governments 
that a formal negotiating process will be endorsed and declared 
underway at the Santiago Summit of the Americas next year. 
Preceding the Summit, the hemisphere's Trade Ministers will 
meet in San Jose, Costa Rica to set the stage for Summit's 
decision to launch negotiations. Provided that the United 
States has passed, or is close to approving a fast-track 
negotiating mandate, a Hemispheric Negotiating Plan should be 
approved by the Trade Ministers without significant difficulty.
    Even as the Government's prepare to tackle the complicated 
set of negotiating modalities that will give structure and 
balance to the talks, there is growing concern among private 
sector organizations--from Ottawa to Santiago--that the FTAA 
negotiations could very well retard, rather than accelerate the 
integration of the Western Hemisphere's 34 free-market 
economies.
    This concern has been growing since the Second Trade 
Ministerial and Business Forum in Cartagena, Colombia last 
March, and I can state from first-hand experience that it was 
palpable at the Third Ministerial in Belo Horizonte, Brazil 
this spring.
    As way of background, we would remind the Subcommittee that 
since the FTAA negotiations were never foreseen to end before 
the year 2005, political leaders and private sector officials 
were in agreement, at least at the 1994 Miami Summit, on the 
idea of developing an ``early harvest'' of concrete trade and 
investment liberalizing measures before the year 2000.
    In the context of post-war trade talks, the ``early 
harvest'' idea gained some prominence during the Uruguay Round. 
Faced with what appeared to be several additional years hard 
bargaining, government attempted to develop an ``early 
harvest'' in 1988. Unfortunately, the difficulty of isolating 
specific subjects made it impossible to develop a meaningful 
package of undertakings, although some technical solutions were 
adopted. The Uruguay Round early harvest was not sufficient to 
maintain private sector interest, although the negotiations had 
sufficient momentum to finally reach closure four years later.
    But this is not 1988. Today, the term ``globalization'' is 
as common to the vocabulary of international business as 
``profit'' and ``loss.'' At the speed that international 
markets--for goods, services, and financial instruments--are 
changing, both in terms size and organization, it is naive to 
think that the private sectors of our hemisphere would be 
content with a decade-long, protracted squabble over what 
everyone agrees is crucial to the stability of the economies, 
and to the success of the newly democratic political regimes of 
the Western Hemisphere.

Overcoming Current Private Sector Apprehensions

    To avoid a ``still-born'' FTAA in Santiago next spring, the 
Hemispheric Working Groups that are currently preparing a 
negotiating program for eleven functional areas, should 
carefully review the inputs they received from the private 
sector at the Third Business Forum (Belo Horizonte,) with a 
view to rapid progress on measures having a business 
facilitating impact.
    To the extent the United States Government has influence in 
this process, it should insist that each of the Working Groups 
which received recommendations, should prepare thoughtful 
responses to those recommendations. In cases where such replies 
are not appropriate before a negotiating phase is reached, the 
Working Group should recommend that responses be included on 
the negotiating agenda.
    Naturally, the private sector expects more than a pro forma 
response, especially on topics for which its Business Forum 
recommendations represent a broad consensus in the hemisphere, 
and where the Brazilian and American private sectors are in 
full agreement. Two areas are of particular note:
    1) Several of the Working Groups should be reflecting that 
the private sector has indicated it would be fruitful to 
identify sectors and products where mutual recognition, 
harmonization and equivalency agreements could be achieved in 
the short-term. A useful precedent is offered by the U.S.-EU 
Transatlantic Dialogue where agreements were worked out 
covering medical equipment, pharmaceuticals and certain 
electronic products. This initiative could also include 
identifying service sectors where mutual accreditation 
procedures could be agreed upon. For example, the WTO has 
adopted guidelines for the mutual recognition of qualifications 
for the accountancy sector.
    2) All the Working Groups should make recommendation on 
opportunities to harmonize regulatory processes (e.g. the 
tender and bid submission processes in government procurement 
situations; or the handling of customs-related protests.) This 
would be consistent with a substantial majority of the 
recommendations of the three Business Fora.
    There is, of course, a tendency for countries without 
significant negotiating leverage to resist making concessions 
until the final bargaining sessions. Here, in particular, we 
should look to the Hemisphere's private sector groups to help 
in tempering opposition from governments for an early 
resolution of these and other business facilitation issues.

Increasing Legitimacy Through Private Sector Involvement

    It would be a mistake to say that the Summit process has 
been flawless. Despite the clear policy stated in the 
Declaration of Principles, governments receipt and assimilation 
of the private sector's input to the Trade Ministerials has 
never have been formalized or institutionalized. Many private 
sector groupings in their submissions to the Belo Horizonte 
Ministerial indicated the need for closer coordination with the 
Vice Ministers of Trade and the HWGs in the period between 
Trade Ministerials.
    Nevertheless, the private sector of Latin America and the 
Caribbean has already been more involved in the FTAA process 
than they were in any previous extra-regional trade 
negotiation. Credit for this phenomenon is in part due to the 
leadership of the late U.S. Commerce Secretary, Ron Brown, and 
the head of the Colombian national export promotion agency, 
Jorge Ramirez-Ocampo. Their early efforts were further advanced 
at the Belo Horizonte meetings by Brazilian officials 
associated with Brazil's National Confederation of Industries--
Senator Fernando Bezerra and Jose August Coehlo Fernandes.
    Taken together, this private-sector collaboration led to 
the transformation of the ``Business Forum of the Americas'' 
from a low-impact political event, into a serious and 
substantive gathering of the Hemisphere's leading national 
private sector actors.
    Brown and Ocampo made certain that the private sector 
leaders attending the ``Forum'' would have a direct interaction 
with their Governments' trade ministers, at the precise moment 
that the ministers were taking decisions on the negotiating 
agenda and issue-specific work program for the FTAA 
negotiations.
    At the Third Trade Ministerial and Business Forum, the 
substantive aspects of the Forum were organized so that the 
subjects of each of the private sector workshops and dialogues 
would correspond precisely with the issue areas around which 
the government-to-government discussions are being conducted. 
Thus, the submissions of attending private sector groups, and 
the dialogues at the workshops, were specifically focused on 
the issues driving the trade negotiating agenda, as of April, 
1997.
    Belo Horizonte was also significant for the agreement 
reached by the negotiating governments to circulate compendia 
of information on national barriers to trade in goods, services 
and investment, as well as the treatment of various issues 
under each of the existing subregional arrangements.
    Contributing significantly to the value and relevance of 
the private sector's input at the Second and Third Forums was 
the early formation of a ``Business Network for Hemispheric 
Integration (BNHI.) BNHI consists of about seventy subregional 
and national business organizations. This group has now held 
two general assemblies at which there have been fruitful 
discussions about the best way for the private sector to 
participate in the FTAA process. The current consensus is that 
the BNHI should allow for the dissemination of information 
being developed by the FTAA process to its member 
organizations, should serve as a sounding board for the views 
of its private sector members and for transmitting these views 
into the official FTAA process, and should be an instrument for 
mobilizing support for hemispheric free trade. However, the 
BNHI should allow national groups to develop recommendations on 
specific issues, and there should be no attempt to develop 
consensus on all but the most general issues. Currently, BNHI 
is being led by the Brazilian President of their Confederation 
of Chambers of Commerce, Paulo Manoel Protasio.
    Most Western Hemisphere nations already possess a few 
organizations that work to facilitate private sector input into 
the trade advisory process. For example, each of the countries 
has a chamber of commerce, a chamber of industry (or similar 
institution), and a chamber of exporters. These organizations 
are involved in regular consultations with the government. 
However, consultations tend to address general economic 
conditions, macroeconomic and fiscal policies, rather than the 
details of trade talks.
    We have recommended elsewhere that the private sectors of 
all the negotiating countries urge their governments to 
establish formal trade negotiations advisory systems, which 
would include the naming of recognized ``private sector 
advisors'' who would be cleared to receive information on the 
most sensitive government-to-government negotiations.
    One issue that must be addressed if the private sectors 
role is to be meaningful is that, currently, between 
Ministerials, there is no regular contact or exchange of views 
between the various official institutions and the private 
sector. It makes no sense not to have businesspeople, who bear 
the brunt of barriers to trade, input into the development of 
these compendia of barriers.
    No mechanism has been established for the private sector to 
provide suggestions or information to the vice ministers and to 
the HWGs beyond the two half-day workshops at the Americas 
Business Forum. Ideally, the private sector should have 
representation on the official HWGs or at least have some form 
of recognized ``transmission belt'' for being kept informed of 
all developments and for delivering its input. Inclusive 
private sector meetings should be held at least six weeks 
before Trade Ministerials, in order to afford the private 
sector improved conditions for formulating inputs and assessing 
work from the official process. After all, when goods, 
services, technology, and capital move within a developing 
FTAA, the private sector will be the greatest stakeholder. 
During the Trade Ministerial, the Forum Workshops were 
addressed in most cases by the chairman of the applicable 
Working Groups. At a minimum, this procedure should be 
maintained, with the Negotiating Group Chairmen being required 
to brief the Workshop Chairs on the outcome of their meetings, 
including any reaction to Forum recommendations.
    Additionally, data collected by the HWGs, which governments 
pledged to make public on a timely basis, is only beginning to 
be released. The few HWGs that made their information available 
after the Belo Horizonte meetings concluded seemed unconcerned 
that this key information was not able to be used by the 
private sector in preparing for the Third Business Forum, 
despite the fact that the private sector probably knows better 
than governments the practical importance of the myriad of 
impediments to trade and investment.
    On the other hand, the private sector has some 
responsibilities, not the least of which is to gain sufficient 
expertise to understand the specific issues under negotiation. 
This means that each private sector entity wishing to play a 
role in the talks must understand the technical issues. In most 
cases, this starts with knowing the current commitments in the 
World Trade Organization (WTO)--the presumed floor of any 
negotiation--and determining how they should be deepened in a 
politically acceptable way. So far, the private sectors of most 
countries have not demonstrated that such knowledge exists 
beyond a handful of lawyers and former government officials.

Issue Linkage: Where Should Free Trade End And the Summit 
Begin?

    There is currently no effort, either formal or informal, to 
consider how the prospective FTAA negotiations should relate to 
other so-called ``baskets'' which will be considered at the 
Santiago Summit. In addition to the basket on economic 
integration and free trade, the Chilean Summit will address i) 
education; ii) eradication of poverty and discrimination; and 
iii) preserving and strengthening democracy and human rights.
    It would appear that the non-trade Summit ``baskets'' are, 
or could be made to be more suitable to the handling of 
workers' rights issues; environment protection; and corrupt 
practices. This is fortuitous since there is considerable 
Government resistance to expanding an already full agenda of 
FTAA issues into these controversial areas.
    The Administration's report on the first three years of 
NAFTA had an extensive review of the operation of the two side 
agreements covering social issues. There is no question that 
these agreements have operated well. In both these agreements, 
there have been major improvements in enforcement, 
establishment of standards, education, etc. Institutions have 
been established to address these issues in a balanced fashion
    The North American Agreement on Labor Cooperation (NAALC) 
has promoted cooperation on fundamental labor issues and 
enhanced oversight and enforcement of labor laws. The NAALC 
petition process subjects Member Governments to public scrutiny 
for alleged violations of labor laws. The petition process has 
resulted in such outcomes as recognition of an union previously 
denied recognition, and permitting secret union ballots at two 
companies where union votes previously were not secret.
    Between 1993 and 1996, the Mexican Secretariat of Labor and 
Social Welfare increased funding for enforcement of labor laws 
by almost 20 percent. Mexico reported a 30 percent reduction in 
the number of workplace injuries and illnesses since the NAFTA 
was signed. Under the NAALC, the three countries have initiated 
cooperative efforts on a variety of labor issues, including 
occupational health and safety, training, industrial relations, 
workers' rights, and more specifically, child labor and gender 
issues.
    There was similar progress on environmental protection. 
Environmental institutions have financed 16 infrastructure 
projects with a combined cost of nearly $230 million. The 
NADBank will be able to leverage its capital into $2 to 3 
billion in lending for environmental projects.
    The NAFTA Commismental Cooperation (CEC) has strengthened 
trilateral cooperation on a broad range of issues, including 
illegal trade in hazardous wastes, endangered wildlife, and the 
control of certain toxic chemicals and pesticides. Through the 
CEC, Mexico has agreed to join the United States and Canada in 
banning the pesticides DDT and chlordane. The United States and 
Mexico have launched a Border XXI program establishing five-
year objectives for achieving a clean border environment, and a 
blueprint for meeting these objectives. Work is underway to 
abate vehicle emissions at border crossings, improve tracking 
of transborder movement of hazardous wastes, and to operate a 
U.S.-Mexican joint response team to minimize the risk of 
environmental degradation.
    A voluntary environmental auditing program has seen about 
half of the 800-odd maquiladora plants operating in Mexico sign 
environmental compliance action plans (this represents an 
investment in environmental controls worth more than $800 
million.) Mexico reports a 72 percent reduction in serious 
environmental violations in the maquiladora industry since the 
NAFTA was signed and a 43 percent increase in the number of 
maquiladora facilities in complete compliance.
    This level of meaningful progress vindicates those who felt 
NAFTA would be less successful without agreements covering 
labor cooperation and the environment. At the same time, the 
record also indicates that there is hardly any linkage between 
improved enforcement of national laws, and trade sanctions. 
There have been no sanctions applied in the course of creating 
a better set of circumstances for workers, and for protection 
of the environment.
    The side agreement on labor cooperation covers eleven 
principles--freedom of association; protection of the right to 
organize; the right to bargain collectively; the right to 
strike; prohibition of forced labor; labor protections for 
children and young persons, minimum employment standards, 
elimination of employment discrimination, equal pay for women 
and men, prevention of occupational injuries and illnesses, 
compensation in cases of occupational injuries and illnesses, 
and protection of migrant workers. Although only the first 
three of these labor protections might lead to trade 
sanctions--i.e., occupational safety and health, child labor, 
and minimum wage standards--there has been substantial progress 
in all eleven areas
    What we believe this demonstrates is that trade sanctions 
are not essential in achieving comparable progress on ``social 
issues,'' relative to the improvements being made in the trade, 
commercial, and investment climate under a free trade 
agreement. However, the NAFTA experience does substantiate the 
value of parallel treatment of ``social issues'' during the 
course of the FTAA negotiations, and in the final set of 
agreements that emerge from the overall Summit process.
    At the Santiago Summit, labor cooperation, the environment, 
and other germane issues can be considered under such rubrics 
as eradication of poverty, strengthening democracy, and human 
rights. The participating countries have already agreed that 
these ``baskets'' would be considered as part of the continuing 
Summit follow-up. Nora Lustig of The Brookings Institute, in 
her volume Coping with Austerity: Poverty and Inequality in 
Latin America, argued persuasively that this topic could 
effectively be treated under the Summit follow-up agenda item 
on ``eradicating poverty.''
    One should look at fast-track in the context of current 
developments. Past debates over this subject have been colored 
by the legitimate concern of labor and environmental groups 
that without explicit authority to negotiate a trade-
environmental (or trade-labor rights) linkage, these subjects 
would not be covered effectively in trade negotiations. 
However, at least for Latin America and the Caribbean, this is 
no longer a serious concern. There is no question that these 
issues will be addressed in a number of Summit ``baskets.'' 
U.S. negotiating authority should recognize this fact, and the 
Committees in Congress responsible for trade should reflect in 
the fast-track legislation their legitimate interest in 
developments in these negotiations, even if some of these 
issues are not part of, but are running parallel to the FTAA 
talks.

The Authority to Negotiate

    If fast-track is passed this year, NAFTA negotiations with 
Chile could be well advanced or even completed before the 
second Summit of the Americas in Santiago. Further, the most 
important obstacle to the launching of the FTAA negotiations 
would be eliminated.
    If fast-track has not been renewed by 1998, the American 
position in Latin America will deteriorate rapidly. MERCOSUR 
already has free trade agreements with Chile and Andean Pact 
member Bolivia, and is holding discussions with Mexico, Central 
America and the Caribbean Islands--discussions which could lead 
to an expansion of free trade agreements whose preferences work 
against U.S. exports of goods, capital and investment. In an 
ironic development, the Central American countries having 
accepted fully the U.S. arguments for a major liberalization of 
their trade regimes, requested free trade talks with the U.S. 
but were flatly turned down by an Administration lacking 
negotiating authority.
    Without a U.S. President in possession of a negotiating 
mandate, a successful Summit is all but precluded. Thus, if 
fast track is not renewed, the United States would have to rely 
on the leadership of other countries to salvage its hopes of 
launching FTAA negotiations there. In this regard, the Mexican 
role could be crucial since it may have completed by the Summit 
a string of FTA agreements with all the Latin America countries 
with the exception of MERCOSUR. Unlike the agreements being 
negotiated by MERCOSUR, the Mexican network is closely modeled 
after NAFTA, with NAFTA level discipline.
    As discussed above, we are convinced that the Congress can 
structure the authority to negotiate so as to permit the Summit 
to launch FTAA negotiations, but without trade sanctions 
entering into the discussion of non-trade issues. There is too 
much at stake in the FTAA and in the Summit process overall for 
there to be further delay in the granting of fast-track 
authority.
    National support for the FTAA and the Summit could also be 
enhanced if the subject matters under negotiation were 
broadened. We ask that the Subcommittee consider the following 
topics in framing of a negotiating mandate:
    1) The Trade-Monetary Linkage: Public opinion in all 
countries seems to hold that for free trade to work, monetary 
fluctuations must be minimized. In the past three years, 
Brazilian, Colombian and United States producers have been 
harmed by devaluations by their FTA partners: respectfully, 
Argentina, Venezuela, and Mexico. In fact, U.S. public opinion 
is still wary about free trade due to the coincidence in timing 
between NAFTA implementation, the fall in the peso's value, the 
resulting bailout, and subsequent trade deficit.
    There is insufficient convergence in macroeconomic policy 
in the hemisphere to allow for formal linkage of monetary and 
exchange rate policy among all prospective members of the FTAA. 
However, the free exchange of goods among countries in the FTAA 
calls for some form of regular consultations and exchange of 
information among the participating countries.
    Although mandatory requirements such as those included in 
the Maastricht Treaty for a European Monetary Union would not 
be appropriate for the FTAA, a system of non-binding indicators 
for setting off consultations would be useful. The indicators 
could be modeled after those in Maastricht and include such 
variables as the ratio of governmental budget deficits to GNP, 
government debt as a percentage of GNP, and relative 
fluctuations in exchange and inflationary rates.
    2) Deregulation and Rule-making: The newest and most 
valuable addition to the agenda for trade negotiations may be 
deregulation. As production and investments become globalized, 
it is increasingly difficult and wasteful of resources for 
companies to adjust to different national rules and 
regulations. Although it is unrealistic to expect countries to 
give up their own system of rule-making, it is realistic to 
agree to harmonize the regulatory processes. Modeled after the 
rules on sanitary and phytosanitary measures and industrial 
standards, there could be agreement that regulations be as 
minimally disruptive to market decisions as possible, 
consistent with their social purposes. There should also be 
fully transparent rule-making procedures, with adequate warning 
of impending regulatory rule-making.
    3) Development of the hemispheric infrastructure for trade: 
Business facilitation issues often go beyond the competence of 
individual Ministries. Thus, to truly promote trade, there must 
be involvement of more than the Trade Ministers in negotiations 
for the FTAA. For example, with respect to the agenda item on 
how to develop national infrastructures in ways which encourage 
the flow of goods and services throughout the hemisphere. A 
joint working group linking Trade and Finance officials should 
examine forms of additional financing.
    4) Melding the operation of the Anglo-Saxon common law 
system with the more Roman system of Latin American countries: 
It has become obvious that a full scale legal review must be 
carried to decide how best to meld the legal traditions 
existing in the United States and the English speaking 
Caribbean, on the one hand, and those of Latin America on the 
other. This issue is already under discussion in national bar 
associations.
    5) Ways to bring government and entrepreneurs together to 
actually facilitate business deals rather than focusing 
narrowly on the trade regime: There is no better way to 
maintain interest in the FTAA process than to borrow a leaf 
from the APEC experience. In addition to groups study trade and 
investment liberalization, AEC has thirteen groups pursuing 
economic and technological cooperation as a way to encourage 
increased investment and trade among the members. These groups 
are considering joint activities for 1) human resource 
development, 2) industrial science and technology, 3) small and 
medium enterprises, 4) economic infrastructure, 5) energy, 6) 
transportation, 7) telecommunication and information, 8) 
tourism, 9) trade and investment data, 10) trade promotion, 11) 
marine resource conservation, 12) fisheries and 13) 
agricultural technology. Similar groups set up under the FTAA 
rubric could provide the type of concrete results which 
actually generate business and employment.....
    Thank you, Chairman Crane, Mr. Matsui, and the Members of 
the Subcommittee for giving us this opportunity to discuss the 
FTAA negotiating process.

This statement was prepared and presented orally by Mr. Stephen 
Lande, Adjunt Senior Resource Associate of the North-South 
Center. Mr. Lande is also president of Manchester Trade, Ltd., 
of Washington, D.C.
      

                                

    This paper was compiled and updated for the North-South 
Center by Stephen Lande, Adjunct Senior Research Associate at 
the North-South Center, and President, Manchester Trade, Ltd.; 
Jerry Haar, Senior Research Associate and Director, Inter-
American Business and Labor Program, North-South Center; and 
Bennett Marsh, Vice President, Manchester Trade, Ltd.

Private Sector Recommendations on Advancing Western Hemisphere Trade

                              Introduction

The Americas Business Forum III

    From May 13 to 16, 1997, the city of Belo Horizonte, 
Brazil, will host the third Americas Business Forum. These 
occasions have brought together an impressive cross-section of 
the business leadership of North and South America and the 
Caribbean. The participating executives gather to lend support 
and counsel to the hemisphere's trade and commerce ministers, 
in the latter's efforts to design and implement a Free Trade 
Area of the Americas (FTAA). At the second Forum, in Cartagena, 
Colombia, a precedent was established for the Trade Ministers 
collectively to attend the final session of the Business Forum, 
when presentations were made by the private sector summarizing 
the results of their issue-oriented workshops.
    This type of interaction between the public and private 
sectors was foreseen in the Summit of the Americas Declaration 
of Principles, which states the following:
    To assure public engagement and commitment, we invite the 
cooperation and participation of the private sector, labor, 
political parties, academic institutions, and other non-
governmental actors and organizations in both our national and 
regional efforts, thus strengthening the partnership between 
government and society.
    It is the purpose of this set of papers to pursue the 
spirit of this Summit principle. The papers review the 
importance of the issues, discuss existing impediments and 
barriers, and suggest public and private sector actions to be 
considered at the Belo Horizonte Ministerial. The North-South 
Center thus continues a practice begun before the first Summit 
took place, when it put together seminars of non-governmental 
actors to discuss the main lines of the Summit agenda and 
published the results. Following the Summit, the Center 
published a large volume of pre-Summit proposals that had been 
submitted to official channels from the various sectors of 
civil society. Before the Cartagena Ministerial, the Center 
brought together a number of business, labor, and academic 
experts to serve on ``shadow groups,'' corresponding to the 11 
Hemispheric Working Groups (see discussion of the HWGs below). 
The shadow groups' suggestions, prepared for the Business Forum 
in Cartagena, were embodied in the publication, Private Sector 
Recommendations on Advancing Western Hemisphere Trade. These 
recommendations have now been expanded and updated and are 
included in the current volume.
    Following the Belo Horizonte Ministerial, we plan to 
continue to assist the FTAA process as an ongoing North-South 
Center project. We will present an interpretive note on the 
results of the Ministerial, inviting further input from non-
governmental sectors. In these and other endeavors, the Center 
will be working closely with the widely respected Institute of 
the Americas in La Jolla, California, to establish a 
transcontinental program for promoting hemispheric integration.

The Belo Horizonte Hemispheric Trade Ministerial

    Belo Horizonte will also host the third Trade Ministerial 
dedicated exclusively to the issues related to an FTAA and to 
hemispheric economic integration. The Ministerial should 
provide the clearest indication to date that the hemispheres 
governments will all begin implementing the FTAA by the year 
2005--just as agreed at the first Summit of the Americas in 
1994. A Ministerial commitment to complete the preparatory work 
for negotiations at the next Trade Ministerial (scheduled for 
February 1998, in San Jose, Costa Rica) will be one of several 
steps forward taken at Belo Horizonte. The honor of formally 
launching the FTAA negotiations will be bestowed on the 
hemispheres heads of state and government, who are to gather 
for a Summit in Santiago, Chile, the month following the 1998 
Ministerial.
    Since the first Trade Ministerial (June 1995 in Denver), 
working-level officials have been meeting continuously to 
develop and refine the factual and organizational bases for 
formal negotiations. Having established a substantial catalogue 
of problems to be addressed during the negotiations, the 
governments, nonetheless, will not agree in Belo Horizonte on 
how to structure the formal negotiations nor on how the FTAA 
actually will be formed (that is, whether individual national 
governments will be the sole actors or whether subregional 
economic groups, such as MERCOSUR, will be central to the 
implementation process). Yet these disagreements in the spring 
of 1997 are unlikely to force a postponement of the launching 
of the negotiations in Santiago in 1998. By March 1998, an 
agreed-upon basis from which to launch the negotiations should 
be firmly in place.

The Summit Revisited

    What is the essence of the trade negotiating process begun 
at the Summit of the Americas? The Summits Plan of Action lays 
out a two-track approach. Above the two tracks is an 
overarching principle that calls for the full and rapid 
implementation of global trading arrangements consistent with 
the rules established by the World Trade Organization (WTO). 
The freest possible global trading system is still the 
preferred overall policy, and regional arrangements should be 
able to be characterized as open regionalism. It remains our 
expectation that successful creation of the FTAA, including 
countries at all levels of economic and social development, 
from the most industrially advanced to the least developed, 
would help establish a basis for creating a global free trade 
community by the end of the first quarter of the next century.
    The Plan of Action's first track, which always should be 
consistent with the principle of open regionalism, promotes 
building upon existing subregional free trade agreements. At 
this time, there are 27 such agreements in the Western 
Hemisphere, of which the North American Free Trade Agreement 
(NAFTA) and the Southern Cone Common Market (MERCOSUR) are only 
two. In the spirit of open regionalism, MERCOSUR entered into 
free trade agreements with Chile and Bolivia this year. Also in 
this spirit, Mexico is expanding its own network of free trade 
agreements. By the end of 1997, Mexicos agreements will include 
all Western Hemisphere countries except the members of MERCOSUR 
and the Caribbean Community (CARICOM). Further, Canada has 
entered into an agreement with Chile. The United States almost 
certainly would enter negotiations with Chile (and possibly 
with Central America) for either a stand-alone free trade 
agreement(s) or NAFTA expansion, provided the president is 
given fast-track negotiating authority by the Congress.
    The second track of the Summits Plan of Action directed the 
countries to pursue ``balanced and comprehensive agreements'' 
on those aspects of trade in goods and services involving 
tariff and nontariff barriers. The plan listed a full array of 
subjects: ``agriculture, subsidies, investment, intellectual 
property rights, government procurement, technical barriers to 
trade, safeguards, rules of origin, anti-dumping and 
countervailing duties, sanitary and phytosanitary standards and 
procedures, dispute resolution, and competition policy.'' It is 
under this track that negotiations for a single free trade 
undertaking are expected to be launched at Santiago in 1998.
    Less than two weeks after the 1994 Summit, there occurred 
an unforeseen, unpleasant surprise--the Mexican peso crisis. It 
created financial shock waves, dubbed the ``tequila effect,'' 
that resonated as far as the Southern Cone of South America. 
Yet, FTAA planning was not stalled. The Plan of Action was 
respected, and the two-track process continued. At the first 
two meetings of Trade Ministers in Denver in June 1995 and 
Cartagena in March 1996, 11 working groups were set up to cover 
the critical areas that are the real crux of transnational 
movement of goods, services, and investment.
    The Denver Ministerial set up seven Hemispheric Working 
Groups with specific terms of reference and country 
coordinators; the Cartagena Ministerial added four more. 
Current HWGs and their monitoring countries are the following:

    Market Access (El Salvador)
    Customs Procedures and Rules of Origin (Bolivia)
    Investment (Costa Rica)
    Standards and Technical Barriers to Trade (Canada)
    Sanitary and Phytosanitary Measures (Mexico)
    Subsidies, Anti-dumping and Countervailing Duties 
(Argentina)
    Smaller Economies (Jamaica)
    Government Procurement (United States)
    Intellectual Property Rights (IPR) (Honduras)
    Services (Chile)
    Competition Policy (Peru)

    All 11 groups will have met at least three times between 
the Cartagena and Belo Horizonte meetings. With the exception 
of the four most recent groups set up at Cartagena (Government 
Procurement, IPR, Services, and Competition Policy), the groups 
will have completed almost all their work, specifically, fact 
finding, identifying areas of hemispheric convergence and 
divergence, and recommending negotiating modalities. Thus, 
between the Belo Horizonte and San Jose meetings, these groups 
will be concerned largely with final polishing and updating, 
while the newer groups complete their work. At Belo Horizonte, 
a twelfth group on Dispute Settlement is expected to be 
established.
    The HWGs are composed of working-level public sector 
experts from all the Summit countries. Their progress is being 
supervised through meetings of the vice ministers for trade and 
given political approval at periodic Trade Ministerial 
meetings.

The Way to San Jose

    The Belo Horizonte Ministerial might have been a decisive 
session in the preparatory phase of the FTAA process if the 
U.S. delegation had been empowered by congressional approval of 
fast-track negotiating authority. For many weeks following the 
U.S. presidential election, there were optimistic reports of 
Congress acting on fast-track in the first 90 days of the 105th 
Congress. Yet, as the Belo Horizonte meeting drew nearer, it 
became clear that political gamesmanship would preclude a major 
congressional vote on trade issues until much later in 1997.
    Absent a clear political statement on trade from the U.S. 
Congress, Latin and Caribbean delegations were unwilling to 
reach final compromises on the objectives, approaches, 
modalities, sites, and structures of the negotiating blueprint. 
In fact, as the fortunes of fast-track legislation began to 
appear dubious in April, some Latin delegations withdrew 
support from what previously had been the consensus position on 
a few issues.
    The United States and MERCOSUR were also far apart on the 
issue of negotiating ``phases.'' MERCOSUR continued its support 
for a three-phase negotiating scenario, with business 
facilitation issues being negotiated first, rules and 
conditions of competition second, and actual market access for 
goods, services, and investment being delayed until a third 
phase (which is unlikely to begin until the next century).
    Just prior to the Belo Horizonte Ministerial, the United 
States modified its position on the ``phases'' issue and joined 
29 other delegations in recommending that all topics 
(identified as part of the mandates of the HWGs) should be 
negotiated simultaneously.
    By contrast, the United States was all but isolated on the 
issue of a labor-trade linkage. The United States was also 
favoring that the Trade Ministerial's work be informed by a 
report of the Labor Ministers' Caucus. There is still strong 
resistance to these initiatives by other participants. They 
argue that the WTO Ministerial in Singapore clearly established 
that labor issues are not to be considered in trade negotiating 
forums.
    The San Jose Ministerial will also have to come to closure 
on four other significant issues: 1) fuller private sector 
participation, 2) a secretariat to help manage the process, 3) 
the standing of subregional FTAs and their disciplines on 
certain issues, and 4) the realization of ``substantial near-
term progress,'' designed to facilitate hemispheric trade flows 
and business contacts.

Private Sector Participation

    It would be a mistake to say that the Summit process has 
been flawless. This set of papers and the consultations that 
helped shape it reflect the fact that despite the clear policy 
stated above in the Declaration of Principles, governments 
receipt and assimilation of the private sector's input to the 
Trade Ministerial never have been formalized or 
institutionalized. Many private sector groupings in their 
submission to the Belo Horizonte Ministerial have indicated the 
need for a closer coordination with the vice ministers and the 
HWGs in the period between Trade Ministerials.
    The General Coordinator of the Americas Business Forum in 
Cartagena, Jorge Ramirez-Ocampo, scored a success by scheduling 
the Forum in conjunction with the Cartagena Ministerial rather 
than after it, as had been the case at Denver. At the Americas 
Business Forum III, there will begin a more direct dialogue 
between the private sector and the FTAA working groups. Forum 
III workshops will develop specific recommendations for each 
HWG. HWG chairpersons will address the Forum workshop 
responsible for his/her issue areas.
    An exciting development is that the Central American 
private sector, through the Federation of Private Entities of 
Central America and Panama (FEDEPRICAP), together with 
approximately 75 other private sector organizations have set up 
the Business Network for Hemispheric Integration (BNHI). This 
group was clearly the first specifically to address the role of 
the private sector in the hemispheric process. Now, in large 
part because of the work of the BNHI, the Americas Business 
Forum includes a special workshop on this topic.
    Unfortunately, a leadership vacuum has occurred with the 
resignation of dynamic BNHI Executive Director Jose Manuel 
Salazar, who has become Costa Rican Trade Minister and de facto 
host of the San Jose Trade Ministerial.
    One issue that must be addressed if the private sectors 
role is to be meaningful is that between Ministerials, there is 
no regular contact or exchange of views between the various 
official institutions and the private sector. Data collected by 
the HWGs, which governments pledged to make public on a timely 
basis, is only beginning to be released. The few HWGs that will 
have made their information available by the time Belo 
Horizonte concludes seemed unconcerned that this key 
information could not be used by the private sector in 
preparing for Americas Business Forum III, despite the fact 
that the private sector probably knows better than governments 
the practical importance of the myriad of impediments to trade 
and investment.
    No mechanism has been established for the private sector to 
provide suggestions or information to the vice ministers and to 
the HWGs beyond the two half-day workshops at the Americas 
Business Forum. Ideally, the private sector should have 
representation on the official HWGs or at least have some form 
of recognized ``transmission belt'' for being kept informed of 
all developments and for delivering its input. Inclusive 
private sector meetings should be held at least six weeks 
before Trade Ministerials, in order to afford the private 
sector improved conditions for formulating inputs and assessing 
work from the official process. After all, when goods, 
services, technology, and capital move within a developing 
FTAA, the private sector will be the greatest stakeholder.
    On the other hand, the private sector has some 
responsibilities, not the least of which is to gain sufficient 
expertise to understand the specific issues under negotiation. 
This means that each private sector entity wishing to play a 
role in the talks must understand the technical issues. In most 
cases, this starts with knowing the current commitments in the 
World Trade Organization (WTO)--the presumed floor of any 
negotiation--and determining how they should be deepened in a 
politically acceptable way. So far, the private sectors of most 
countries have not demonstrated that such knowledge exists 
beyond a handful of lawyers and former government officials.

An FTAA Secretariat

    A second, equally serious problem in the process is the 
lack of an organizing entity to construct the FTAA. In the FTAA 
process, there is no analogue to the European Commission that 
undertook to act as secretariat for the building of a united 
Europe. Over the 39-month period between the Miami and the 
Santiago Summits, this responsibility will have been exercised 
by five countries--the United States, Colombia, Brazil, Costa 
Rica, and Chile--with each of the five having sole 
responsibility for a short period. This is a patently 
inefficient design for international negotiations, despite the 
quality of the professionals in each of these countries. A 
tripartite committee of international entities, the 
Organization of American States (OAS), the Inter-American 
Development Bank (IDB), and the United Nations Economic 
Commission for Latin America and the Caribbean (ECLAC), was 
given important responsibilities under the Plan of Action. A 
special Trade Unit was formed within the OAS, for example, 
which has produced high-quality studies and new basic 
information sources. Yet the Unit does not function as a 
secretariat for the entire process. Why does this gap exist? 
There is still resistance among many countries in the 
hemisphere to any organizational solution that smacks of 
supranational authority, now or in the future. For these 
countries, a Western Hemisphere version of the European 
Commission would be anathema. However, a small secretariat, 
responsible as a depository for documents and for distributing 
information, should be established. It will be the 
responsibility of the IDB to undertake a feasibility study on 
the creation of a temporary secretariat.

Amalgamating Subregional Agreements in Building the FTAA

    A third problem, perhaps less serious for now, is that 
there is no agreed-upon plan or scheme for fitting together all 
the existing free trade agreements into the FTAA by the year 
2005. In the view of some (principally in North America), the 
best method would be for NAFTA to expand southward until it 
reaches Tierra del Fuego. That is definitely not the view from 
Brasilia. MERCOSURs largest country wants to join all of South 
America under a South American Free Trade Area (SAFTA) and 
bring this grouping to the negotiating table to confront the 
NAFTA countries. There now appears to be a developing consensus 
that the network of subregional agreements will not be rendered 
null and void by the FTAA. FTAA obligations will, at a minimum, 
attempt to reflect the highest level of obligations found in 
the subregional agreements and would thus act as a starting 
point for the deepening of existing arrangements and the 
expansion of the integration schemes.

Reinvigorating the Hemispheric Trading Environment

    A fourth problem is the lack of vision concerning what can 
be implemented in the short term to facilitate greater 
commercial exchange in the hemisphere and a stronger 
hemispheric business community. There is agreement among all 
the participants, including Brazil and the United States, that 
a large number of business facilitation measures that reduce 
costs and increase efficiency should be introduced no later 
than the year 2000 and possibly earlier. Unfortunately, until 
now, the measures under consideration in the HWGs have been 
relatively technical--largely limited to publication of guides 
to hemispheric practices in a number of fields, simplification 
and unification of hemispheric procedures for customs 
clearance, establishment of agricultural and industrial 
standards, and establishment of standards for licensing 
professional and commercial service providers.
    While finding solutions for these problems is important, 
there are more significant and pressing issues for which short-
term progress is possible. However, many of these issues will 
be intractable unless the relevant HWGs coordinate their work. 
This is especially important in providing for the elimination, 
liberalization, and harmonization of regulatory barriers to the 
movement of goods, capital, and professionals.
    Other opportunities for progress are being squandered by 
the failure of the Trade Ministers to involve other ministries 
in the FTAA process. For example, to facilitate the flow of 
capital, progress should be made in harmonizing hemispheric 
practices in defining acceptable types of collateral for long-
term lending, common probity procedures for security markets, 
and privacy standards for credit-rating investigations. 
Harmonization, or at least the development of common elements 
in these areas, must involve the Trade Ministers working with 
other ministerial groups (that is, Finance and Labor Ministers) 
established at the Miami Summit.
    We would hope that between the Belo Horizonte and San Jose 
meetings, a more fundamental and wider review of opportunities 
for the early harvest takes place so that the heads of state 
can agree on a wide-ranging program for implementation by the 
year 2000.

The Authority to Negotiate

    An additional question involving the entire process has to 
do with the leadership role of the United States, an issue more 
of perception than reality. Many Latin Americans and some in 
the United States question the post-Summit political will of 
the United States to follow through with the ``spirit of 
Miami.'' This has to do with the unfulfilled promise to 
incorporate Chile into NAFTA. The problem is not Chile but the 
failure of the U.S. executive and legislative branches to agree 
on the terms of fast-track negotiating authority. The apparent 
differences between Republicans (who want a ``clean''--trade 
only--fast-track) and Democrats (who want to include 
environment and labor considerations) should be resolvable, 
using legislative drafting techniques.
    Unfortunately, U.S. partisan differences may mask 
fundamental disagreements that have been smoldering since the 
epic NAFTA debate. Although the situation can become positive 
quickly (witness the sudden turnaround in Republican opposition 
to the Chemical Weapons Treaty), the outlook immediately 
preceding the Belo Horizonte meeting is gloomy. There are wide 
cleavages within the Democratic and Republican parties as to 
whether the United States should be entering into free trade 
negotiations with countries at lower levels of development. 
Second, relations with China and the annual fight over MFN 
renewal will act to divert the business sectors attention from 
the fast-track effort.
    If fast-track is passed this year, NAFTA negotiations with 
Chile could be well advanced or even completed before the 
second Summit of the Americas in Chile. Further, the most 
important obstacle to the launching of the FTAA negotiations 
would be eliminated.
    If fast-track has not been renewed, a successful Summit is 
all but precluded. The United States would have to look to 
other countries--Canada, Mexico, and Chile, for example--for 
leadership in continuing progress in trade liberalization. The 
process could continue but with a serious loss of momentum. 
More important, the United States would be precluded from 
taking part in subregional preferential arrangements.
    Without President Clinton having negotiating authority, the 
United States would have to reduce its own goals for 
hemispheric liberalization. It would not be able to participate 
in the widening and deepening of existing subregional and 
bilateral agreements and in the addition of new integration 
arrangements. In fact, it would find its own exports of goods, 
services, and investments subject to increasing discrimination 
in the hemisphere both in relationship to other hemispheric 
suppliers and third countries that join such arrangements. 
Instead, it would be limited to pushing for implementation of 
the Uruguay Round commitments as expeditiously as possible; 
urging Western Hemispheric countries to join existing WTO 
sectoral agreements, such as the recently concluded 
telecommunications accord; and participating in, rather than 
leading, future trade negotiations.

Present Progress, Future Challenges

    The current drive in the United States toward free trade 
does not come only from inside the Washington beltway. Instead, 
the commitment to continue efforts toward hemispheric free 
trade reflects a deeply held set of policies throughout Latin 
America, the Caribbean, and Canada (which has negotiated its 
own FTA with Chile).
    The numbers tell the story. The value of U.S. exports has 
quintupled since 1978, despite the ``lost decade'' of debt 
during the 1980s. Export values rose from $22 billion in 1978 
to around $30 billion in 1986 and to more than $120 billion in 
1996. The political mainstream of Republicans and Democrats who 
supported NAFTA, the GATT/WTO, and APEC will not allow this 
country to lose out on such an obvious opportunity. Free trade 
agreements such as NAFTA can, in the short term, become the 
political scapegoat for U.S. economic dislo is that the gross 
domestic product of the United States is too heavily dependent 
upon international trade to allow the luxury of turning inward.
      

                                

    Chairman Crane. Thank you.
    Mr. Schott, you had mentioned earlier that you are prepared 
to elaborate on that provision in the Canada-Chile free trade 
agreement dealing with countervailing duties and antidumping. 
Could you elaborate a little bit?
    Mr. Schott. Certainly, Mr. Chairman. Canada has sought for 
many years to incorporate provisions in its free trade 
agreements with the United States that would limit both 
countries' ability to use antidumping measures on bilateral 
trade. Such provisions have not been included in either the 
Canada-FTAA or the NAFTA.
    In the agreement Canada reached with Chile, however, both 
sides agreed that as soon as tariffs are eliminated on any 
particular product, antidumping measures will no longer be 
allowed on that product. Hence, over the course of the next 6 
years, almost all antidumping measures applied to bilateral 
trade between Canada and Chile will be eliminated. Antidumping 
is a practice that many countries in the hemisphere would like 
to discipline, particularly when it comes to measures imposed 
by the United States. Currently, there is interest in many 
countries in using the Chilean-Canada agreement as a precedent 
for the FTAA so that antidumping measures would be eliminated 
for bilateral trade between Western Hemisphere countries. Of 
course, there would be very sharp differences of opinion here 
in the Congress on that issue.
    Chairman Crane. My next question to you, Mr. Sweeney, is, 
Are the lower labor costs of other countries something U.S. 
workers should fear?
    Mr. Sweeney. No. I don't think so. Lower labor costs in 
countries like Mexico, Brazil, Venezuela, Colombia, and Panama 
are more than offset in most cases--or in all cases--by the 
terrible underdevelopment of the infrastructure of these 
countries, which elevates the cost of doing business and 
producing.
    Labor to me is not the issue. The issue is expanding trade. 
The more trade the United States does with the rest of the 
world, the more American employment is created. I think the 
empirical record for the past 4 years--as NAFTA has been 
implemented, and as the Uruguay round agreements have started 
to go into effect--what we have seen is a tremendous explosion 
in the growth of the American economy.
    The economy is doing very well. There has been significant 
job creation year after year, and clearly this shows 
empirically that the more we trade, the more American labor 
benefits.
    Chairman Crane. I share that view, and one of the things 
that still comes up at town meetings is the ``sucking sound'' 
and the loss of jobs and business moving out of the United 
States.
    And yet, ironically, we have been now, as you know, for 
almost 2 years, at, for all practical purposes, full 
employment.
    One final question for all of you, and that is, Do you 
think the recent political developments in Mexico, namely the 
elections, were affected in any way by our NAFTA Agreement?
    Mr. Lande.
    Mr. Lande. I would think that the recent elections in 
Mexico, probably more than any other development, justified the 
faith of those who believe that through free trade, opening 
markets, you strengthen democratic institutions.
    What occurred in Mexico was an election that all sides 
agreed was fair, where we have begun to see a political 
change--movement on the right, movement on the left.
    There has been much discussion by those opposed to NAFTA 
who speak about the conditions on the border and the conditions 
in the States, and how they are degradations to perhaps the 
average Mexican.
    One of the most important results of that election was not 
only that it was an open election, but the party that did the 
best in the northern part of Mexico was the PAN party, which is 
the party of free market, free enterprise, and a strong 
supporter of NAFTA.
    The party that did the second best was the PRI, the party 
that negotiated the NAFTA. The party that did the worst in the 
area where there has been the most impact from NAFTA was the 
PRD, which is most opposed to many of the NAFTA provisions, 
although in that particular election they did not make a big 
issue of it.
    My own belief is that if you let the market operate, as 
happened in the United States, there develops democratic 
institutions which make for a much more stable hemisphere, and 
I think that's what the Mexican elections have demonstrated.
    Mr. Schott. Let me just add a point or two to that very 
briefly. Clearly, the Mexican political reforms are homegrown. 
Mexico deserves a lot of credit for its democratic advances. It 
has come a long way in a few short years.
    Mexico's political reforms are directly related to the 
economic reforms that have been implemented in Mexico over the 
past decade or more, and reinforced by the NAFTA. The World 
Bank has done extensive case studies of economic reform in a 
variety of developing countries and has found that, in 
instances in which economic reforms were sustained, they also 
achieved very real benefits in terms of promoting political 
pluralism.
    This is a lesson that we can carry over to the entire FTAA 
negotiation process; namely, that reinforcing the domestic 
economic reforms in Latin America will pay us dividends as 
well, in terms of strengthening democratic processes throughout 
the hemisphere.
    Mr. Sweeney. I would add, to the extent to which countries 
like Mexico and other countries in Latin America enter into 
free trade agreements like NAFTA, join the WTO, become members 
of APEC, and become committed to these international 
agreements, that strengthens the underlying base of the 
economic reforms.
    And as these economies open up and globalize, the people 
themselves press for greater democratic freedoms and greater 
participation in the democratic process. We are seeing this in 
Mexico. We saw it in the recent elections, and we have been 
seeing it for the last 10 years throughout the entire Western 
Hemisphere.
    Chairman Crane. Well, I have faith that that goes beyond 
the Western Hemisphere. But I want to thank you all for your 
testimony and look forward to ongoing input from you as any and 
all trade issues continue to bounce around here in the 
Congress.
    And please get your communications out, as I urged before, 
to colleagues and to the White House on the importance of fast 
track renewal, as soon as possible.
    Thank you all.
    I would now like to welcome our last panel, and we will 
begin with Jacques Gorlin, director of the Intellectual 
Property Committee. And then proceed with Lina Hale, who will 
be testifying on behalf of the California Cut Flowers 
Commission and the California Floral Council; Arthur Heyl, 
president of Heyl Roses and Roses, Inc., on behalf of the 
Floral Trade Council; and Matthew McGrath, representing Florida 
Citrus Mutual.
    If you will all please be seated. Since Mr. Gorlin is not 
here yet, I will ask Ms. Hale to proceed.

STATEMENT OF LINA AEBI HALE, ROSE GROWER, RICHMOND, CALIFORNIA; 
 CALIFORNIA ROSE GROWERS, AEBI NURSERY, RICHMOND, CALIFORNIA; 
  AND CALIFORNIA FLORAL COUNCIL; ON BEHALF OF CALIFORNIA CUT 
                       FLOWER COMMISSION

    Ms. Hale. Thank you, Mr. Chairman. I am not going to talk 
about fast track. I don't know if that will be a disappointment 
or a pleasure.
    My name is Lina Aebi Hale, and I am a third generation rose 
grower from Richmond, California. I manage our family's 135,000 
square foot nursery. Our business began in 1890 with my 
grandfather. In 1928 he and my father expanded, and our present 
location in Richmond evolved over the next 38 years.
    The purpose of my testimony is to bring to you 
incontrovertible evidence that the domestic rose industry has 
suffered severe economic losses, beginning in the late 
seventies, and continuing to the present. I hope to convince 
you that H.R. 54 is of vital importance to the rose industry 
and that it deserves the support of this Subcommittee.
    In the midfifties, my nursery joined with nine other 
growers, and we formed the Mount Eden Rose Pool. That pool 
shipped to the Eastern, Midwestern, and Southern States. Loss 
of those pool market shares began in the seventies and into the 
eighties.
    By 1979 market trends in this country caused us to visit 
Bogota, Colombia, and the huge rose operations there caused us 
great concern in the United States.
    While we were losing market share, California growers were 
not idle. In an effort to be competitive, we installed all the 
automatic labor-saving devices known to man. It was not enough.
    Soon thereafter, Colombia began to target our most 
lucrative holiday markets with tremendous volumes of product. 
The resultant oversupply upset the laws of supply and demand 
and severely depressed market prices.
    Loss of the shipping markets in the United States 
eventually led to the demise of the rose pool of which I was a 
member. I now currently sell in the San Francisco wholesale 
flower market, where my greatest competitors are not my 
domestic colleagues, but those selling imported roses at cheap 
prices.
    Mother's Day 1997, my extra fancy roses--those are 36 inch 
stems, large heads, clean foliage, beautiful product--25 stems 
in one bunch, sold for $5.50 a bunch, or 22 cents a piece. 
Foreign roses sold for $5, or 20 cents apiece.
    In April 1990, the Floral Trade Council that represents 
many rose growers estimated from industry statistics that 5,000 
U.S. flower growers, not necessarily rose growers, but flower 
growers across the United States had gone out of business in an 
18-year period, and they took 30,000 American jobs with them.
    A later USDA 1996 survey shows that an additional 59 
growers went out of business between 1992 and 1996. Those 59 
growers sacrificed 7,509,000 rose bushes at a cost of 
approximately $2.90 apiece, or 21,776,000 dollars' worth of 
roses. The loss of jobs, 1,500.
    Using a formula found in my written testimony, a small 
nursery operator, say, 100,000 square feet, would have 
sacrificed over $1 million in capital investments, plus the 
cost of the land.
    Therefore, a large nursery of 1 million square feet, of 
which there are many in California, would sacrifice 10 times as 
much.
    A list of 39 growers personally known to me is attached to 
my written testimony. However, that number has to be amended to 
40 California rose growers out of business, because Friday 
morning one of my neighbors threw in the towel.
    The Andean Trade Preference Act has had a devastating 
effect on U.S. rose growers. Colombians started in 1971 with 
less than 1 percent of our market. Twenty-six years later they 
now have over 66 percent of the rose market, and for other 
commodities, a much higher number. It almost seems that it 
should be enough.
    A United States agency called Agency for International 
Development in the sixties provided Colombian growers with 
their start--United States technology and United States methods 
at United States taxpayers expense. The Colombian Flower 
Council itself, out of Bogota, states that the 1996 biggest 
floral culture crop was roses--510 million dollars' worth, and 
141,000 tons of roses.
    American growers feel like sacrificial lambs in a failed 
war on drugs. Our numbers may not sound like very much to 
people who are accustomed to dealing in trillion dollar 
budgets, but to us they are significant.
    I have heard it said that if Colombian roses are taken out 
of the market, American consumers will suffer from higher 
prices. Simply ask yourself, when was the last time a retail 
florist ever said to you, I'm going to cut the cost of the 
arrangement you have ordered because it contains foreign roses, 
or foreign floral products. I will bet that not one person here 
has ever had that lovely experience.
    Aside from the Colombians natural growing advantages, every 
other advantage they now possess has been granted to them by 
our own government. And so today representing growers 
throughout the United States. I respectfully invite your 
attention to my written testimony and to our request to help us 
now before it is too late.
    Move H.R. 54 out of Committee, and support its passage 
through the House.
    Thank you for this opportunity to address the Subcommittee.
    [The prepared statement follows:]

Statement of Lina Aebi Hale, Rose Grower, Richmond, California; 
California Rose Growers, Aebi Nursery, Richmond, California; and 
California Floral Council; on Behalf of California Cut Flower 
Commission

    My name is Lina Aebi Hale. I am a third generation rose 
grower from Richmond, Cal. I am 65 years old and have spent my 
life in the rose growing business.
    I manage our family's 135,000 square foot nursery with the 
help of my partner who is the grower, my daughter, who manages 
the office and her husband, who is in charge of plant 
propagation and personnel. Greenhouse workers, graders and 
bunchers number is 13. Overall management is still in the hands 
of my parents, who, although in their late 80's, are still 
active in the business. They have been growing roses for 68 
years.
    I am here today, testifying before this committee in the 
express hope of bringing you incontrovertible evidence that 
domestic growers, and rose growers in particular, have suffered 
severe economic losses over a period of years, beginning in the 
late 70's and continuing to the present. I hope to convince you 
that HR 54 is of vital importance to the future of the Rose 
Industry in the U.S. and that it deserves the support of this 
Committee.

                      Short History of my Business

    The family business was begun in 1890 in Berkeley, Cal. My 
Grandfather, Frederick Aebi, immigrated to this country from 
Bern, Switzerland. In 1928, my Grandfather and my Father began 
our present nursery located in Richmond, across the bay from 
San Francisco. We started with three small wood framed 
greenhouses -25,000 square feet. The 1930's were one long, dry 
spell. One of those years, my parents calculated that after all 
expenses were paid, their combined profits were 17.5 cents per 
hour. During and following WWII we realized modest profits. 
These profits were plowed back into the business in the form of 
additional greenhouses, bringing our total square footage to 
135,000.
    In 1968, believing that the flower business had great 
potential, we borrowed a great deal of money and built a second 
nursery in the Salinas Valley of Cal. That business was 
operated by my brother, Francis Aebi, Jr. until 1996, when it 
was sold. My father, Francis Aebi, Sr., still active in the 
business today at 89 years old, is the Rose Grower Emeritus at 
our Richmond nursery.

                           Marketing Product

    In the mid 1950's our company joined with nine other 
growers to form the Mt. Eden Rose Pool of California. Those 
nine growers represented 2.5 million square feet. The pool 
marketed the roses of the nine growers by shipping to Eastern, 
Mid-Western and Southern markets, with a very small percentage 
sold in local markets. By mid 1980, with the advent of 
increased imported roses and other cut flowers from Colombia, 
the pool was forced to withdraw from those shipping markets in 
high-population states and concentrate on California markets 
where imported roses had not yet secured a large market share.
    As early as 1979, American growers were forewarned that 
more trouble lay ahead when note was taken of the condition of 
the domestic carnation and chrysanthemum markets. According to 
figures supplied by the Ornamental Crops National Market 
Trends; USDA Floriculture Crops; Newsletter of Pennsylvania 
State University; and the International Trade Commission Rose 
Study Report, carnations and chrysanthemums began losing market 
shares to importers as early as 1971.
    In 1979, because of our concern over loss of market shares, 
we sent a representative to Bogota, Colombia to see firsthand 
the rose production areas. Our representative, Francis Aebi, 
Sr., visited eight growers, some of whom were larger in size 
than the entire Mt. Eden Rose Pool. Francis Aebi returned home 
with the message that a ``freight train'' of production was 
bearing down on the American rose market at high speeds. His 
1979 analogy has proven to be right on the mark as USDA 
statistical numbers I will present to you will show.
    Historically, in rose markets throughout the United States, 
our strongest demands occurred at holiday times such as Easter, 
Mother's Day, Valentine's and Christmas. These were the 
holidays that we counted on to make the profits that allowed us 
to meet our expenses when sales passed into the summer 
doldrums. The Colombians and other exporters targeted these 
lucrative markets and supplied peak volumes of product timed to 
hit our major markets. They didn't always hit right on time but 
that didn't make any difference because coming in too early or 
too late upset the law of Supply and Demand and depressed 
market prices. This oversupply made it impossible for us to 
obtain the prices needed at holiday time.
    That ``freight train'' of production mentioned earlier just 
kept coming. The market was regularly oversupplied with red 
roses at prices that were sometimes below their own production 
costs and certainly below those of domestic growers: As our 
market for red roses dried up, we were forced to replace red 
rose plants with pastel colors that the Colombians did not yet 
have access to. The capital expenditure required to replace 25 
percent of my nursery's production area amounted to $50,625.
    The inequity in production costs weighs heavily in favor of 
the Andean production areas. Employee expenses are low, there 
are no costs for heating and few environmental regulations or 
expenses. Excellent spray materials restricted for use in 
California are in regular usage there. New rose varieties 
entering the U.S. from European hybridizers are subject to a 
two year quarantine. No such hindrances are in place for 
Colombian growers. However, the single largest factor in the 
takeover of our market has been the refusal of our Government 
and its' agencies, to lift a finger to provide sensible 
guidelines for the number of stems entering the U.S.
    As Colombia gained additional market shares, they were free 
to invest in the pastel varieties that buyers were demanding. 
With large central distribution warehouses in Miami, and a 
fleet of 747 jets, they now had all the tools needed for a full 
market takeover.
    Taking note of the decreasing market shares, California 
growers undertook the capital investments necessary to initiate 
production cost savings. At our own nursery we automated all 
aspects of our growing operation, including automatic watering, 
ventilation, misting systems, heating, and fertilization. We 
invested in new steam heating boilers that would be more energy 
efficient and installed heat curtains in the greenhouses to 
further conserve fuel. Beyond these cost saving measures we 
also set aside a sizable test area for the purpose of testing 
new hybrid varieties that would provide higher production, 
longer stems and plant life, resistance to disease, longer vase 
life and lower winter heating costs. Our own nursery began 
these cost saving measures in the late 70's as a direct result 
of what was seen in Bogota by our representative.
    By 1985, in spite of all our efforts to cut costs, and 
despite producing a quality product and being close to domestic 
markets and able to deliver product in a timely manner, our 
profits plummeted. We were being undersold and out-produced. 
Cheaply priced product flowed into our markets in unrestricted 
numbers.
    Rose growers throughout the United States were petitioning 
the International Trade Commission (ITC) to investigate dumping 
and other trade violations, such as government subsidized 
Colombian products. Each step along the way of this type of 
intervention was vigorously opposed by Colombian growers and 
their counsel. Suffice it to say that any small victory that 
domestic growers may have won was insufficient to preserve our 
way of doing business and our profits. By 1989, the ITC 
published the results of their study entitled, Competitive 
Conditions in the US and World Markets for Fresh Cut Roses. The 
conclusion of the study was that, ``the number of firms 
reporting losses increased from 31 in 1985 and 1986, to 36 in 
1988. Those firms reporting losses represented almost 38 
percent of the growers that supplied usable financial data on 
their rose growing operations.'' (Report to Congress on 
investigation No. 332-263 under Section 332(g) if the Tariff 
Act of 1930 as amended, USITC Pub. 2178, April 1989
    It should be noted that domestic rose growers were losing 
market shares in a steadily growing market. In a three year 
period from 1985 to 1988 domestic growers' share of the market 
declined from 73 percent to 69 percent, whereas consumption 
increased by 29 percent. During this same period, imported 
roses increased by 86 percent and domestic production by nine 
percent. There is no doubt that the growing demand in the 
market was being met by the foreign growers. A portion of the 
domestic increase can be attributed to carnation and 
chrysanthemum growers who switched crops when their own market 
evaporated.
    In my own business, I saw the once profitable Mt. Eden Rose 
Pool disband due to loss of shipping sales. In an attempt to 
remain competitive, the Pool's management had established 
twelve separate outlets throughout Los Angeles and San 
Francisco. Where they had once dealt solely in shipping to 
wholesale customers throughout the Eastern, Mid-Western and 
Southern states, they set up a satellite system of truck 
operations, delivering a variety of cut flowers directly to the 
retailer's door. The Pool also courted the Supermarket business 
which proved to be only a temporary help since the ``Supers'' 
emphasis was on price first and quality second. It was all to 
no avail. One by one, the Mt. Eden Pool growers, no longer able 
to make a profit, drifted away. Some of them went to different 
wholesalers and some tried to market their own products. Some 
simply sold out.
    By mid 1993, many of its' growers were no longer able to 
recover the cost of production, and after a disastrous 
Valentine's holiday, my company severed our 45 year connection 
to the Mt. Eden Pool. 1993 was a painful year of reckoning for 
our 65 year old business.
    At the present time, we are selling through a San Francisco 
Wholesaler, the bulk of whose sales are within California, with 
a very small percentage of shipping customers, some of whom are 
as far away as Anchorage, Alaska and the former Soviet Union. 
In this San Francisco market our competitors are not local 
producers but wholesalers within the market who deal primarily 
in imported roses. Mother's Day of 1997, our wholesaler was 
asking $10 for 25 Extra Fancy roses. Our competitor, selling 
foreign roses was asking $5. Whose roses do you think sold? For 
the month of May 1997, our average price per bunch was $5.50 
(or 22 cents each)--that included our Premium grade of roses 
measuring 36 inches or more.

               The Current State of Domestic Rose Growers

    Since the first imported rose stems appeared in the U.S. in 
1971, the market shares garnered by importers has risen from .2 
percent to 70.0 percent in 1996.
    The Andean Trade Preference Act passed as H.R. 1724 in 1991 
has had a devastating effect on U.S. growers. At the time that 
Colombia was granted tariff-free incentives, they already owned 
48 percent of our market. It was abundantly clear to domestic 
growers that the Andean growers needed no further incentives to 
come into our markets. Nevertheless, the President and the 
Congress forged ahead with this ill-founded pact.
    By April of 1990, The Floral Trade Council which represents 
domestic cut flower growers, estimated that cut flower imports 
had forced nearly 5000 U.S. cut flower growers out of business 
during an 18 year time span. The estimate at that time was that 
the closure of these nurseries eliminated 30,000 U.S. jobs.
    The U.S. Dept. of Agriculture has a new set of statistics 
that cover the years 1992 through 1996. The numbers are 
alarming to those of us remaining in the industry since they 
show an increasingly foreboding trend and we are absolutely 
dumbfounded that our government cannot see the damage done to 
U.S. growers.

                     Looking at Losses (USDA Study)
------------------------------------------------------------------------
                                        No. of Rose
                Year                      Growers        No. of Plants
------------------------------------------------------------------------
1992................................             224          26,295,000
1993................................             212          24,269,000
1994................................             200          23,230,000
1995................................             179          19,448,000
1996................................             165          18,786,000
------------------------------------------------------------------------

      

                                

    This USDA table shows that 59 growers are out of business 
during the above time period. The number of rose bushes taken 
out of production by the 59 growers during the five year time 
period is 7,509,000.
    The cost of these patented rose bushes is conservatively 
priced at today's value of $2.90 each, for a total of 
$21,776,100.
    Because it takes one production worker for every 15,000 
rose plants, the 7,509,000 plants required 500 production 
workers.
    Behind every production worker are two non-production 
workers, such as sales, transportation, maintenance and office 
workers, etc. Therefore, over the five year period, the real 
loss of jobs is 1500.
    These 1500 workers all contributed to a healthy economy 
with their Federal and State income taxes, sales taxes and 
purchases of commodities. Until new jobs open up to these 
workers, or until they are retrained for different positions, 
they are candidates for unemployment benefits. Keep in mind 
that many of these workers are those with no other skills for 
the job market.
    Now consider the nursery owner forced to close his 100,000 
square foot nursery. In the depressed state of the industry, 
and because greenhouses have only one use, he is not likely to 
find a nursery buyer who will utilize his greenhouses. 
Supposing that he is able to find a buyer for the land alone, 
he will be obligated to raze his capital investment at an 
estimated cost of $5.41 per square foot. Assuming that many of 
these nurseries are second and third generation businesses, it 
is safe to assume that construction costs at that time, 30 to 
40 years ago, were at least $5.50 per square foot, plus the 
cost of erection of $1.50 per square foot, plus the cost of the 
plants @ $2,75 each for 50,000 plants, plus another $5.00 per 
square foot for supporting equipment, such as trucks, tractors, 
wells, steam boiler for heating, fertilizer systems, spray 
equipment; supporting buildings such as packing houses, tools, 
and etc. Therefore, a conservative estimate of the capital 
idled by a single 100,000 square foot nursery closing, built 
approximately 30 to 40 years ago, would be $1,337,500 plus the 
value of the land.
    Now consider the fact that some of the 59 documented rose 
nurseries out of business since 1992 are not small businesses 
as is the 100,000 square foot nursery in our example, but are 
some of the giants of the Industry, such as the one million 
square foot Kitayama Brothers' Nursery in Hayward, Cal. In that 
case, the capital investment lost is ten times the amount in 
the example or $13,375,000. In terms of the Budget numbers that 
this Committee is regularly asked to consider, I realize that 
our Industry numbers may seem insignificant, but rest assured 
that to those of us who have spent our life building these 
businesses and had hoped to pass them on from generation to 
generation, the numbers of losses are catastrophic.

                           Substantial Damage

    Throughout the U.S., 59 growers are out of rose production 
and in California alone, in the period 1991 through 1996, I 
personally know of at least 39 growers who went out of the 
traditional rose business. Their names are listed at the 
conclusion of this testimony. Members of the Ways and Means 
Committee now have the formulas to interpret what these losses 
have cost our industry as well as the economy of the U.S. What 
the Committee does not have is the sense of utter frustration 
with which domestic growers struggle as each year passes and 
our options continue to diminish. On my own nursery, there are 
no more significant cost savings to be realized through 
automation or other measures. My colleagues tell me the same 
thing.

                               Conclusion

    The Andean Trade Preference Act passed as H.R. 1724 in 1991 
has had a devastating effect on U.S. growers. Remember, when 
Colombia was granted tariff free trade they already had 48 
percent of our rose market. It was certainly clear to rose 
growers that Colombian growers needed no further incentives to 
come into our markets. Nevertheless, the President and the 
Congress went ahead with this ill-founded pact that created an 
unequal playing field. Now the Andeans own 66 percent of our 
market. Isn't 66 percent enough?
    In 1960, when Colombian flower growing was in its' infancy, 
the U.S. Agency for International Development (AID) with an eye 
toward promoting economic growth in underdeveloped countries 
such as Colombia, investigated the country's potential for 
export. Deciding that Colombia was too dependent on coffee as a 
principal export, AID provided U.S. Government funding for the 
technical assistance for beginning growers and helped Colombia 
establish a central distribution system--all done with U.S. 
taxpayer's money. Today, Colombian flowers are second in export 
value to coffee, and their share of the world market is 11 
percent, second only to Holland. Seventy-seven (77) percent of 
their exported flowers are sold in the U.S. The Colombian 
Floriculture, a publication of the Colombian Flower Council, 
states that two thirds of all flowers sold in the U.S. were 
produced in Colombia. It also states that rose culture has 
expanded, making it the number one cash crop in 1996.
    During the 1970's, most of the legal actions filed on 
behalf of domestic growers ended with the agencies siding with 
the Colombians. Not until 1989 did the ITC concede that a 
significant number of domestic firms (38 percent) were 
experiencing annual losses. (ISITC Pub. 2178, April 1989)
    American growers today feel that we are being sacrificed in 
a hopeless war on drugs and that the sacrifice has been futile. 
The war on drugs is a failed effort. Colombia has either not 
been able or has not been willing to end the shipments of 
illegal drugs into the U.S. In February of 1997, General 
McCaffrey's office published a statement which said that over a 
five year period, Colombia had increased it's cultivation of 
cocoa leaves used in the production of cocaine by 11,438 
hectares; further, their production of opium poppies is second 
to that only of Asia--yet our government continues to offer the 
Andean nations free and uncontrolled access to our markets. Our 
once viable and profitable industry has been made the 
instrument by which the standard of living in Colombia can be 
raised, while that of the owners and workers in American 
Floriculture is lowered.
    Aside from the natural growing advantages enjoyed by Andean 
producers, their every other advantage has been granted to them 
by our own government at the expense of American growers.
    Meanwhile, the largest percentage of America's National 
Flower, the Rose, is being grown abroad, and should the present 
trend continue, it will not be long before 100 percent of them 
will come from off-shore growers.
    Today, representing the rose growers of California and all 
others across the nation, I would respectfully invite your 
attention to our plea. Help us before it is too late. Move HR 
54 out of Committee and support its' passage in the House.

         Out of Business Partial List Northern California Only

    These persons have sold, are in the process of selling or 
have switched to other crops:

Aebi Nursery Salinas
Mt. Eden Nursery Hayward
Enomoto Nursery Half Moon Bay
Oakview Roses Watsonville
Sakai Bros. Hayward
A. Kuramoto Salinas
K. Yonemitsu Salinas
B. Matusyama Salinas
T. Yamaguchi Salinas
Sunnyside Nursery Salinas
Kamimura Nursery Salinas
C. Iwashita Nursery Salinas
Ocean Front Nursery Watsonville
Siri Bros. Nursery Palo Alto
Siri Bros. Nursery Watsonville
D. Dooka Nursery Soquel
Takeyoka Nursery Watsonville
Casserly Farms Watsonville
El Camino Nursery Watsonville
Watsonville Roses Watsonville
E. Uyemura Nursery Watsonville
Makayn Nursery Watsonville
I. Yamasita Nursery Watsonville
A. Yamashita Watsonville
D. Arita Nursery San Marin
B. Yonemoto Half Moon Bay
C. Pastorino Nursery Half Moon Bay
Kitayama Bros. Nursery Hayward
Cherry City Nursery San Leandro
Iwasaki Nursery Palo Alto
D. Kubota Nursery Castroville
Baldwin Nursery Watsonville
San Andreas Nursery Watsonville
Yamasaki Nursery Watsonville
Kohara Nursery Salinas
Salinas Carnation Co. Salinas
Uto Nursery Salinas
Nabeta Nursery Richmond
Hillside Nursery Salinas
Sunbright Nursery Salinas

    These are a portion of the companies that have paid the 
price for America's participation in the Andean Trade 
Preference Act.
      

                                

    Chairman Crane. Thank you, Ms. Hale.
    Mr. Heyl.

STATEMENT OF ARTHUR L. HEYL, PRESIDENT, HEYL ROSES, INC., GREEN 
   VILLAGE, NEW JERSEY; AND PRESIDENT, ROSES, INC., HASLETT, 
          MICHIGAN; ON BEHALF OF FLORAL TRADE COUNCIL

    Mr. Heyl. Mr. Chairman, and distinguished Members of the 
Subcommittee on Trade of the Committee on Ways and Means, 
ladies and gentlemen, I am Arthur Heyl, president of Heyl 
Roses, Inc., of Green Village, New Jersey, and the current 
president of Roses, Inc., the trade association for growers of 
fresh cut roses, with members predominantly in the United 
States and Canada.
    I have been asked by the Floral Trade Council, which 
represents U.S. growers on trade issues, to provide the 
Subcommittee insight on the status of the domestic cut flower 
industry as it pertains to the ATPA, Andean Trade Preference 
Act of 1991.
    The data I will relay on domestic flower production is 
taken from Floriculture Crop Surveys conducted by the USDA 
national Agricultural Statistics Service from 1992 to 1996. 
Import figures are taken from Ornamental Crops and National 
Market Trends, also by the USDA and the U.S. Department of 
Commerce Bureau of the Census.
    The International Trade Commission found in 1995 and 1996 
that the ATPA had a greater impact on the U.S. fresh cut flower 
industry than any other market examined. The complete duty-free 
opening of the United States market to Andean flowers under the 
act has essentially created an expanded NAFTA for the major 
flower producing countries in the Western Hemisphere.
    With no domestic markets to speak of in the Andean nations, 
growers in these nations have targeted the U.S. market. The 
result is the U.S. grower has found the agreement to be a one-
way street.
    Since 1991 the U.S. fresh cut flower industry has been 
forced to make dramatic cuts in production in response to a 
huge increase in Andean cut flower imports. At the current rate 
of reduction, there will be no significant fresh cut flower 
production left in the United States by early in the next 
century.
    Since the passage of the ATPA, 42 percent of standard 
carnation growers, 36 percent of minicarnation growers, 26 
percent of standard chrysanthemum growers, 32 percent of pompon 
chrysanthemum growers, and 26 of the rose growers in the United 
States have closed their doors. This has amounted to an 
aggregate reduction of 27,039,000 square feet of domestic fresh 
cut flower production since the act took effect.
    To put these losses in perspective, I'll break loss figures 
down to each State represented by this Subcommittee as best I 
can.
    In California, 127 growers of the major fresh cut flower 
varieties left the business with a loss of $50,973,000 in 
wholesale value since 1991. Florida has seen a reported 
$3,701,000 reduction in annual wholesale fresh cut flower value 
since 1991. Illinois has reported a $3,225,000 loss, or a 
66.25-percent reduction, with the last rose grower pulling his 
production late last year.
    Iowa, Louisiana, Massachusetts, Michigan, and Washington 
have all suffered significant losses. Virtually alone among the 
States, Minnesota has shown a modest gain of $1,107,000 in cut 
flower production during this period, but I know that Mr. 
Ramstad's constituent, and Roses, Inc.'s, past president, Len 
Busch, has been to Capitol Hill expressing his support of the 
removal of flowers from the ATPA and his concern over the 
current health of the U.S. industry.
    In New York our ranks suffered a major blow by losing seven 
rose growers, amounting to $4,900,000 annual loss in wholesale 
value. There is equally compelling data of grower losses in 
other States, notably Indiana, Ohio, and Colorado.
    While domestic producers have suffered these losses, Andean 
nations have clearly increased their already significant market 
share. In 1991 there were 1,341,000,000 imported stems of major 
cut flowers. In 1996 2,414,000,000 stems were imported.
    Andean nations accounted for 93 percent of this total. This 
data clearly indicates a crowding out of the U.S. producer. The 
U.S. International Trade Commission estimated in 1996 that the 
U.S. rose consumer benefited a total of $2.4 million between 
1993 and 1995, in exchange for $43.1 million in displaced 
domestic shipments.
    Consumers of carnations, chrysanthemums, anthuriums, and 
orchids received a mere $1.99 million in exchange for $24.8 
million in displaced U.S. production.
    Many of us believe that the consumer has lost over the last 
decade because retail prices have seen little or no change, and 
the consumer has often little choice but to buy an Andean 
product which usually takes 5 days to reach the market.
    Mr. Chairman, a complete review of current trade agreements 
with Latin America should include the Andean Trade Preference 
Act. The International Trade Commission acknowledged in 1995 
and 1996 that the Andean cut flowers were the single largest 
beneficiary of the ATPA.
    Sir, this Subcommittee must consider ATPA if it is to 
consider Latin American trade. Many growers believe the Andean 
Trade Preference Act abandoned them for the drug war.
    It is reasonable to say that growers, consumers, and our 
kids on the street lost in that deal. I hope that any future 
agreement of the Americas does not pursue a similar strategy at 
our expense.
    Thank you for your consideration. I hope this information 
is helpful in providing a clear picture of the effects of the 
Andean Trade Preference Act on the fresh cut flower industry.
    [The prepared statement and attachments follow:]

Statement of Arthur L. Heyl, President, Heyl Roses, Inc., Green 
Village, New Jersey; and President, Roses Inc., Haslett, Michigan; on 
Behalf of Floral Trade Council

    Mr. Chairman, distinguished Members of the Subcommittee on 
Trade of the Committee on Ways and Means, ladies and gentlemen, 
I am Arthur L. Heyl, president of Heyl Roses, Inc. of Green 
Village, New Jersey, and the current president of Roses Inc., 
the trade association for growers of fresh cut roses, with 
members predominately in the U.S. and Canada. I have been asked 
by the Floral Trade Council, which represents U.S. growers on 
trade issues, to provide the committee insight on the status of 
the domestic fresh cut flower industry as it pertains to the 
Andean Trade Preference Act of 1991 (ATPA).
    The data I will relay on domestic flower production is 
taken from Floriculture Crops Surveys conducted by the USDA 
National Agricultural Statistics Service from 1992 to 1996. 
Import figures are taken from Ornamental Crops and National 
Market Trends, also by the USDA, and the U.S. Department of 
Commerce, Bureau of the Census.
    The International Trade Commission found in 1995 and 1996 
that the ATPA had a greater impact on the U.S. fresh cut flower 
industry than any other market examined. The complete duty-free 
opening of the U.S. market to Andean flowers under the Act has 
essentially created an expanded NAFTA for all the major flower 
producing countries in the Western Hemisphere. With no domestic 
markets to speak of in the Andean nations, growers in these 
nations have targeted the U.S. market. The result is the U.S. 
grower has found the agreement to be a one way street.
    Since 1991, the U.S. fresh cut flower industry has been 
forced to make dramatic cuts in production in response to a 
huge increase in Andean cut flower imports. At the current rate 
of reduction, there will be no significant fresh cut flower 
production left in the U.S. by early in the next century.
    Since the passage of the ATPA, 42% of standard carnation 
growers, 36% of mini carnation growers, 26% of standard 
chrysanthemum growers, 32% of pompon chrysanthemum growers and 
26% of the rose growers in the U.S. have closed their doors. 
This has amounted to an aggregate reduction of 27,039,000 
square feet of domestic fresh cut flower production since the 
Act took effect.
    To put these losses in perspective, I'll break loss figures 
down to each state represented by this committee as best as I 
can. In California, 127 growers of the major fresh cut flower 
varieties left the business with a loss of $50,973,000 in 
wholesale value since 1991.
    Florida has seen a reported $3,701,000 reduction in annual 
wholesale fresh cut flower value since 1991. Illinois has 
reported a $3,225,000 loss or a 66.25% reduction, with the last 
rose grower pulling his production late last year. Iowa has 
seen a similar reduction of reported fresh flower production of 
61.45% or a loss of $408,000 in wholesale value.
    In Louisiana, fresh flower production was not listed in 
1991, was valued at $69,000 by 1992, reached $265,000 in 1995, 
then declined to $168,000 in 1996. Massachusetts has suffered a 
18.45% reduction in wholesale value in cut flowers since 1991. 
Michigan had a 13.32% reduction in wholesale value in 
production during the same period with rose $513,000 or 14.97%.
    Virtually alone among U.S. states, Minnesota has shown a 
modest gain of $1,107,000 in cut flower production during this 
period, but I know that Mr. Ramstad's constituent and Roses 
Inc.'s past President Len Busch has been to Capitol Hill 
expressing his support of the removal of flowers from the ATPA 
and his concern over the current health of the U.S. industry.
    In New York, our ranks suffered a major blow by losing 7 
rose growers amounting to $4,969,000 annual loss in wholesale 
value or 54.7% of that once vibrant industry. Finally, in the 
state of Washington, wholesale values suffered an annual 
average reduction of $349,000 or 2.95%.
    There is equally compelling data of grower losses in other 
states, notably Indiana, down 65.41%; Pennsylvania, down 
52.80%; Ohio, down 31.62%; and Colorado, down 17.67% in 
wholesale value.
    While domestic producers have suffered these losses, Andean 
nations have clearly increased their already significant market 
share. In 1991, there were 1,341,635,372 imported stems of 
major cut flowers. Andean nations accounted for 92% of that 
total. In 1996, imports increased 80% to 2,414,894,669 stems. 
Andean nations accounted for 93% of this total.
    This data clearly indicates a crowding out of the U.S. 
producer. In the major cut flower crops, per capita consumer 
spending remains relatively stagnant from $12.90 in 1992 to 
$12.21 in 1996.
    The U.S. International Trade Commission estimated in 1996 
that the U.S. rose consumer benefited a total of $2.4 million 
between 1993 and 1995 in exchange for $43.1 million in 
displaced domestic shipments. Consumers of carnations, 
chrysanthemums, anthuriums and orchids received a mere benefit 
of $1.99 million in exchange for $24.8 million in displaced 
U.S. production. Actually, many of us dispute these figures and 
argue that the consumer has lost over the last decade because 
retail prices have seen little or no change and the consumer 
has often little choice but to buy an Andean product which 
usually takes five days to reach the market.
    Mr. Chairman, this hearing is billed to be a complete 
review of current trade agreements with Latin America as well 
as exploring expansion of free trade to the entire hemisphere. 
The Andean Trade Preference Act is a significant precursor to 
this eventuality. Again, the International Trade Commission 
acknowledged in 1995 and 1996 that Andean cut flowers were the 
single largest beneficiary of the ATPA.
    Sir, this committee must consider ATPA if it is to consider 
Latin American trade. Many growers believe the Andean Trade 
Preference Act abandoned them for the drug war. It is 
reasonable to say that growers, consumers and our kids on the 
street lost in that deal. I hope that any future trade 
agreement of the Americas does not pursue a similar strategy at 
our expense.
    Thank you for your consideration. I hope this information 
is helpful in providing a clear picture of the effects of the 
Andean Trade Preference Act on the fresh cut flower industry.
      

                                
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    Chairman Crane. Thank you.
    Mr. McGrath.

  STATEMENT OF BOBBY F. MCKOWN, EXECUTIVE VICE PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, FLORIDA CITRUS MUTUAL; AS PRESENTED BY 
 MATT MCGRATH, COUNSEL, BARNES, RICHARDSON AND COBURN, FLORIDA 
                         CITRUS MUTUAL

    Mr. McGrath. Mr. Chairman, I am Matt McGrath of Barnes, 
Richardson and Coburn, counsel to Florida Citrus Mutual. I 
appear here today on behalf of Mutual and Bobby McKown, the 
executive vice president and chief executive officer, who was 
unable to attend due to an emergency in Florida.
    We appreciate the opportunity to testify today on a matter 
of great importance to the future of the American citrus 
industry, the proposed free trade area of the Americas.
    Florida Citrus Mutual is a voluntary cooperative 
association whose 11,693 members account for 90 percent of the 
citrus growers in Florida, and more than 80 percent of the U.S. 
growers of citrus for processing.
    This morning we heard considerable testimony on the 
macroeconomic analysis and issues concerning free trade. 
Florida Citrus Mutual does not oppose the institution of free 
trade discussions. It does not oppose the passage of fast track 
negotiating authority, but it does want to point out some of 
the microeconomic effects that should be addressed, that have 
an impact on industries such as ours, and the ones that are 
testifying here on this panel.
    The core of our position on the proposed free trade area of 
the Americas can be easily summarized, and we ask that it be 
acknowledged by U.S. negotiators and Congress at this early 
stage. That is, that any trade agreement which further reduces 
United States tariffs on orange juice, or fresh citrus imported 
from Brazil beyond the levels bound in the Uruguay round, will 
not only contravene assurances made by the U.S. Trade 
Representative during NAFTA negotiations, but will also spell 
the end of the United States industry growing citrus.
    While the United States industry has compromised in the 
past on other trade liberalizing measures affecting citrus in 
the Caribbean Basin Initiative, the United States-Israel Free 
Trade Agreement, and on NAFTA, deference in this instance to 
the apparent Brazilian priorities to expand access for what is 
the largest citrus producer in the world would simply be self-
destructive.
    Some clear cut protections must be spelled out in advance 
for the highly import sensitive industries like citrus. 
Ultimately, the lifeblood of the multibillion dollar Florida 
horticultural industry, such as citrus, vegetables, and 
tomatoes, is found in the equalizing import tariff imposed on 
products from countries which do not incur the environmental, 
worker safety, water, welfare, tax, and other costs which 
Florida growers must bear.
    Furthermore, that tariff alone does not account for unfair 
advantages enjoyed by some foreign producers who have engaged 
in dumping or received subsidies in past years that put Florida 
growers at a distinct disadvantage for many years into the 
future.
    Our written testimony and charts document the challenges 
posed to United States citrus growers by the dominant Brazilian 
citrus industry. Global wholesale prices for citrus have 
dropped dramatically in recent months as the current Brazilian 
orange juice pack is projected to exceed both last season's 
output and the most recent record output--which is, in turn, 
far larger than the United States output.
    A formidable Brazilian oversupply can only grow heavier 
with the promise of future tariff reductions in a free trade 
area negotiation. Brazil is, and has been for several years, 
the world's largest producer of citrus, and has been found to 
have engaged in both sales at less than fair value prices, and 
in granting countervailable subsidies.
    The number of bearing trees in the Sao Paolo production 
region continues to expand at the rate of 5 to 6 percent 
annually.
    Unlike annual crops, the citrus tree has a productive life 
of approximately 25 years, with the grower's investment, 
depreciation and financing decisions made accordingly.
    For both the Brazilian and the Florida growers, the 
commencement of citrus production is not a decision which can 
be reversed or modified easily. Once the tree is turned on, it 
cannot simply be turned off.
    Because of the overproduction, prices have been directly 
affected over the long term, in the commodity futures market, 
which has declined over the last 10 years in tandem with 
Brazilian expansion. This has had a direct impact in the United 
States on the on-tree price for oranges, which directly affects 
U.S. growers.
    This has cut into growers' returns and continues to do so 
over the long term.
    Aside from the impact of unrestrained free trade on the 
U.S. citrus industry, the most highly touted benefit of free 
trade agreements, lower prices to consumers, would not be 
realized in the case of processed citrus products. 
Increasingly, the price of retail juice products has not 
tracked the decline in the wholesale price of orange solids, 
leading to a buildup in Florida stocks.
    It is fair to assume that the eventual demise of the 
Florida growing industry under an FTAA is not likely to yield 
direct price benefits to consumers, but only cost savings to 
reprocessors. If anything, the Brazilian industry, which is 
already highly concentrated--80 percent of production being 
held by four companies--will lose the competitive restraint on 
prices, and the United States consumer will suffer.
    In conclusion, we would submit that before any negotiations 
to reach an FTAA are commenced, sufficient limitations should 
be incorporated into the authorizing legislation to assure that 
citrus and similarly situated agricultural industries are not 
subjected to drastic and destructive tariff cuts.
    We strongly believe that while free trade negotiations may 
cover all trade among the member countries, citrus products 
should be exempt from further tariff cuts in this negotiation 
due to their proven import sensitivity.
    The U.S. citrus growers cannot be expected to support 
unconditionally a free trade agreement with the largest 
producer in the world when their unique conditions of trade, 
and, indeed, their very continued existence necessitates some 
concessions in order to maintain the continued viability of 
this vital sector of the Florida and the U.S. economy.
    Thank you very much for your attention, and I would be 
happy to respond to any questions.
    [The prepared statement and attachments follow:]

Statement of Bobby F. McKown, Executive Vice President and Chief 
Executive Officer, Florida Citrus Mutual; as Presented by Matt McGrath, 
Counsel, Barnes, Richardson and Coburn, Florida Citrus Mutual

    Mr. Chairman and members of the subcommittee, I am Bobby F. 
McKown, Executive Vice President and CEO of Florida Citrus 
Mutual. I appreciate the opportunity to testify today on a 
matter of great importance to the future of the American citrus 
industry: the proposed Free Trade Area of the Americas. We have 
been invited to comment on a range of issues relative to the 
proposed FTAA, but the core of our position can be easily 
summarized and must be fully acknowledged by U.S. negotiators 
and Congress: any trade agreement which further reduces U.S. 
tariffs on orange juice and/or fresh citrus imported from 
Brazil, beyond the levels bound in the Uruguay Round, will not 
only contravene assurances made by the U.S. Trade 
Representative during the NAFTA negotiations, but will also 
spell the end of the U.S. industry producing citrus for 
processing and fresh channels of trade. The Brazilian 
Government and citrus oligopoly are certainly well aware of 
this fact, since the Brazilian citrus industry is the world's 
largest by a significant margin, and has made no secret of its 
need to expand market share in the world's most lucrative 
market--the United States--in order to provide an outlet for 
the over-planting and over-production which characterized much 
of the past two decades. While the U.S. industry has 
compromised in the past on numerous trade liberalizing measures 
affecting citrus--the Caribbean Basin Initiative, the U.S.-
Israel Free Trade Agreement, and even NAFTA--deference in this 
instance to the apparent Brazilian priorities would be 
tantamount to suicide. The U.S. citrus industry cannot support 
unconditionally any free trade negotiation which does not 
provide clear-cut protection for highly import sensitive 
industries like citrus. Florida Citrus Mutual is a voluntary 
cooperative association whose membership consists of 11,693 
growers of citrus fruit for processing and fresh shipments. FCM 
represents more than 90% of Florida's citrus growers, and 80% 
of the U.S. growers of citrus for processing into processed 
citrus products. FCM understands why an FTAA, as currently 
envisioned, could bring economic benefits to a broad cross-
section of the U.S. economy, especially as standards of living 
and patterns of consumption increase throughout Latin America. 
However, any further regional trade agreements similar to the 
North American Free Trade Agreement, must fully account for and 
prevent the likely adverse effects and major dislocations to 
certain sectors which would otherwise result directly from such 
an agreement. The NAFTA addressed only some of these issues 
with respect to Florida agriculture, and even the protections 
built into that agreement are modest in scope and temporary in 
application.
    Ultimately, the lifeblood of the multi-billion dollar 
Florida horticultural industry (citrus, vegetables, tomatoes) 
is found in the equalizing import tariff imposed on products 
from countries which do not incur the environmental, worker 
safety, water, welfare, tax, and other costs which Florida 
growers must bear. Furthermore, that tariff alone does not 
account for unfair advantages enjoyed by some foreign producers 
who have engaged in dumping or received subsidies in past years 
that put Florida at a disadvantage for many years into the 
future. In an ideal free market world economy, natural 
advantages would outweigh arguments for tariff protection, but 
the Florida agricultural sector in general, and citrus in 
particular, cannot defer to that assumption, nor close our eyes 
to the reality that eventual elimination of the tariff on South 
American citrus would be a death sentence for the citrus 
industry and devastating to the economy of Florida.
    While it is difficult to generalize from a snapshot of 
trade data, recent developments in world citrus markets 
illustrate the challenges posed to U.S. citrus growers by the 
dominant Brazilian citrus industry. Global wholesale prices for 
citrus have dropped dramatically in recent months, as the 
current Brazilian orange juice pack is projected to exceed both 
last season's output of 374 million gallons, and even the 1994/
95 pack of 388 million gallons (42 degrees Brix). When carry-in 
inventories from the previous season are added, these numbers 
present a formidable oversupply that can only grow heavier with 
the promise of tariff reductions.
    Brazil is and has been, for several years, the world's 
largest producer of citrus (Chart 1) and has been found to have 
engaged in both sales at less than fair value prices, and 
receipt of countervailable subsidies. An antidumping order 
remains in effect on frozen concentrated orange juice from 
Brazil. The number of bearing trees in the Sao Paolo production 
region continues to expand at a rate of 5-6% annually (Chart 
2). Unlike annual crops, a citrus tree has a productive life of 
approximately 25 years, with the grower's investment, 
depreciation, and financing decisions made accordingly. For 
both the Brazilian and Florida growers, the commencement of 
citrus production is not a decision which can be reversed or 
modified easily. These planting decisions are reflected in the 
continuing growth of Brazilian bearing and non-bearing acreage 
(Chart 2). The latter reveals that new plantings continue, 
despite the obvious impact on world supplies and prices. The 
immediate results are shown in the continuing upward expansion 
of Brazilian orange production, exports, and ending stocks 
(Chart 3).

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[GRAPHIC] [TIFF OMITTED] T0672.009


    It cannot be denied that Brazil's over-production has 
directly affected the long-term trend in commodity futures 
prices for frozen concentrated orange juice (FCOJ), which have 
declined over the last ten years in tandem with the Brazilian 
expansion (Chart 4). Commodity futures prices are utilized as 
one of the most accurate indicators of the U.S. price for FCOJ, 
and U.S. FCOJ prices have had, and will continue to have, a 
direct impact on the U.S. on-tree price of oranges for 
processing (Chart 5). These low on-tree prices have been 
increasingly cutting into growers' returns (Chart 6), placing 
them in an extremely tenuous position. The long-term outlook 
for oversupply in Brazil does not present a rosy picture for 
Florida growers.
[GRAPHIC] [TIFF OMITTED] T0672.010

[GRAPHIC] [TIFF OMITTED] T0672.011

[GRAPHIC] [TIFF OMITTED] T0672.012


    Aside from the impact of unrestrained free trade on the 
U.S. citrus industry, the most highly touted benefit of free 
trade agreements--lower prices to consumers--would not be 
realized in the case of processed citrus products. 
Increasingly, the price of retail juice products has not 
tracked the decline in the wholesale price of orange solids, 
leading to a buildup in Florida stocks. It is fair to assume 
that the eventual demise of the Florida industry under an FTAA 
is not likely to yield direct price benefits to consumers, but 
only cost savings to re-processors. If anything, the Brazilian 
industry, which is already highly concentrated (80% of 
production is held by four companies), will lose the 
competitive restraint on prices and the U.S. consumer will 
suffer the consequences.
    In conclusion, Florida Citrus Mutual submits that before 
any negotiations to reach an FTAA are commenced, sufficient 
limitations must be incorporated into the authorizing 
legislation, to assure that citrus and similarly situated 
agricultural industries are not subjected to drastic and 
destructive tariff cuts. We strongly believe that, while free 
trade negotiations may cover all trade among the member 
countries, citrus products should be exempt from further tariff 
cuts, due to their proven import sensitivity. The U.S. citrus 
growers cannot be expected to support unconditionally a free 
trade agreement with the largest producer in the world, when 
their unique conditions of trade and indeed, their very 
continued existence--necessitate concessions in order to 
maintain the continued viability of a vital sector of the 
economy.
    I will be pleased to respond to any questions.
      

                                

    Chairman Crane. Thank you, Mr. McGrath.
    I have a question, Ms. Hale. I have here, and this is from 
the Department of Agriculture, the percent of the market due to 
imports. And this line here is 1992, when the Andean Trade 
Preference Act was passed.
    And if you go from that figure to today, there has been 
about a 3-percent reduction in imports since the Andean Trade 
Preference Act. And the figure over here is roughly the 
equivalent of where it was in 1987.
    And I am not saying there wasn't a big surge because of our 
promotion of raising flowers and selling flowers from Colombia. 
That started back in the sixties. But I don't think there is, 
based on the Andean Trade Preference Act, really a correlation 
between any surge in importation, according to this Department 
of Agriculture chart.
    Ms. Hale. Well, Mr. Chairman, what you may be looking at is 
a composite of floral products, and there have, indeed, been 
some serious reductions within the last several years of 
production among Colombian carnation growers and chrysanthemum 
growers.
    Because of a disease on chrysanthemums called white rust, 
they are unable to export those to the United States. They are 
not allowed into the United States. And because of price 
failures on an oversupply of carnations, those crops were also 
sharply curtailed.
    But the uptake occurred on roses. And I have in front of me 
USDA numbers that show that since 1971, when there was a 1-
percent market, to 1995, the market share that Colombians have 
has risen incrementally from 1 percent, 15 percent, 22 percent, 
in 1991 when the Andean Trade Preference Act was first passed, 
48 percent, and the last figure--
    Chairman Crane. Excuse me. Are you talking about their 
percentage of all imports?
    Ms. Hale. I am talking about their percentage of the rose 
market, sir.
    Chairman Crane. Of total, the total market?
    Ms. Hale. No. Roses.
    Chairman Crane. I mean, our market.
    Ms. Hale. Yes. Total Colombian shares of the American rose 
market.
    Chairman Crane. All right.
    Ms. Hale. And the last figure I have is 1995 when 66 
percent of the American rose market was held by Colombian 
producers, and at that time 77 percent of Colombia's flower 
production, not just roses, all flowers, were sold in the 
United States.
     And two-thirds of all flowers sold in this country today 
came from Colombia.
    Chairman Crane. I am not disputing that, but what I am 
saying is there is not really, according to this chart, with 
the exception of your explanation of market share, roses, vis-
a-vis chrysanthemums or carnations, since passage of the Andean 
Trade Preference Act, that percent of imports has remained a 
constant. In fact, it has marginally declined.
    Of the total market, for imported flowers, coming from 
Colombia. I am not saying there was not this effort made by the 
United States to get them to get into flowers instead of drugs. 
But that goes way back and that was when that percentage of 
flower imports was very low.
    I am not disagreeing with you in terms of how we did not 
apparently think down the road as to what the consequences 
might be to the domestic market, but that was not immediately 
and directly related to Andean Trade Preference legislation.
    And unless you get into a restrictive trade policy where 
you say no, we are going to put the walls up again----
    Ms. Hale. Well, sir, I do not believe we should put up any 
walls. I think I am certainly one of the people that believes 
in free trade. I think it benefits the American consumer.
    However, I do feel that that trade should be a fair trade, 
and I would like to point out that at the time the Andean Trade 
Preference Act was passed, Colombian growers had 48 percent of 
our market.
    And they did not need an incentive of free tariff----
    Chairman Crane. Wait just a second. They had almost 70 
percent of our market.
    Ms. Hale. Of the entire market.
    Chairman Crane. Entire market.
    Ms. Hale. But I am talking about the rose market.
    Chairman Crane. Just roses.
    Ms. Hale. Yes. Forty-eight percent of the rose market, and 
70 percent overall.
    And they certainly did not need any incentives with a fleet 
of 747's coming in daily to Miami, and warehouses as large as 
football fields, and a central distribution center out of 
Miami. American growers are unable to understand why they were 
given free tariff on our product.
    Why not free tariff on petroleum products, coal, oil, 
coffee, and other products? So I guess what I am saying is, Why 
were we the sacrificial industry? I know that on the grand 
scheme of things, flower growers throughout the United States 
are not a tremendous industry.
    However, it should be considered that if American small 
business is the backbone of this country, and the jobs that we 
provide, then certainly the demise of our industry in another 
25 years will have a severe effect upon U.S. economy, 
remembering that the jobs that we offer are many times to those 
who have no other skills in the job market.
    They are either going to be on unemployment, or they are 
going to have to be retrained for some other job that may exist 
in the United States.
    And it is the eventual demise of our industry that we are 
concerned with. We do not want to put up barriers to trade. We 
simply want to make sure that trade is fair.
    Chairman Crane. Well, I understand that there are many 
antidumping and countervailing duties assessed on imports in 
your sector. And is a safeguard petition something your 
industry has considered?
    Ms. Hale. That we have availed ourselves of the opportunity 
to file antidumping petitions many times. Suffice it to say, 
however, any small gains we may have made in that area have not 
been sufficient to deter Colombian growers from flooding our 
markets, and they have not been sufficient to maintain American 
growers in business and to maintain the profits that are 
necessary to meet our costs of production and keep us in 
business.
    The fact that 40 of my colleagues in northern California--I 
don't know about southern California--northern California 
alone, have said we give up. And they have closed their 
nurseries.
    A greenhouse has only one use. It is only used to grow a 
product. It can't be leased to another company for a warehouse. 
So what does this grower do when he says, I give up?
    He has to demolish his greenhouses and the entire facility. 
Packing sheds, boiler houses--demolish it all. Knock it down, 
with the guidance of the Environmental Protection Agency, which 
watches over your every step in that process.
    And then if you can find a buyer for your land, you will 
have at that time incurred a cost for every square foot of 
greenhouse space you had, it will have cost you, according to 
my colleagues who have been through it, between $5 and $5.41 a 
square foot to demolish your nursery.
    Those who have been able to recapture the capital 
investment are in the minority.
    So these are the concerns that we bring to this 
Subcommittee today. Not seeking to do away with free trade but 
seeking to obtain fair trade.
    Chairman Crane. I would like to ask you, and it is in the 
same vein, Mr. McGrath, about the antidumping and 
countervailing duties on imports of frozen concentrated orange 
juice.
    Has the system worked basically for you folk in this area?
    Mr. McGrath. Well, we petitioned for a countervailing duty 
order in the early eighties, and an antidumping order which was 
issued in the late eighties, and it worked pretty well.
    The effect was that it imposed a price discipline on the 
marketplace which had theretofore not been present. And the 
larger commodity brokers and producers and exporters in Brazil, 
I think, were aware that prices were being monitored.
    The order is still in effect, with respect to some of the 
producers, but most of the industry, I think, has been subject 
to revocation at this stage. But the process did work, and it 
remains an option, if prices decline to levels that appear to 
be discriminatory between markets, between the United States 
and Europe, for instance.
    But there really is no comparison between United States 
prices and home market prices in Brazil. That industry is 
designed to export. They have no home market, or they have only 
a minimal home market.
    That is an option which remains. But as I said at the 
outset, there are numerous other factors that are equalized by 
the imposition of the current level of tariff. We are not 
looking to the current tariff level or maintaining it simply as 
a surrogate for replacing antidumping measures. There are other 
reasons why the tariff, I think, offsets some differences.
    The very existence of the Brazilian industry, for instance. 
It was established with a great deal of government support, 
with a lot of subsidies some years ago, which cannot be offset 
now through any countervailing measures this many years later.
    There were advantages that were available then and continue 
to be available, and the industry looks to the tariff as an 
offset to those advantages, including environmental laws and 
some of the other factors that all of the agricultural 
industries are, I think, aware of, and the problems, the 
challenges that they deal with in functioning in the United 
States.
    Chairman Crane. Well, Mr. Farr and Mr. Campbell from your 
home State testified earlier today. I do not know whether you 
were here for their testimony.
    Ms. Hale. Yes, sir.
    Chairman Crane. They are doing their utmost to faithfully 
represent you folks. And we, through the advancement of free 
trade, are trying to minimize the kinds of injuries you have 
talked about.
    With that, our Trade Subcommittee hearing is concluded, and 
the record will remain open until August 5. And with that, the 
Subcommittee stands adjourned, and thank you so much.
    [Whereupon, at 12:59 p.m. the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of American Farm Bureau Federation

    Farm Bureau represents 4.7 million families in the United 
States and Puerto Rico. We welcome this opportunity to testify 
on the status and outlook for negotiations aimed at achieving a 
Free Trade Area of the Americas (FTAA).
    It is our understanding that negotiations concerning a FTAA 
are in process. These negotiations should lead to an agreement 
in which barriers to trade and investment will be progressively 
eliminated. The commitment is to begin the process as soon as 
possible, make concrete progress by the year 2000, and conclude 
negotiations no later that 2005. Farm Bureau generally supports 
such an effort.
    Farm Bureau believes that higher living standards 
throughout the world depend upon mutually beneficial trade 
among nations. We urge that trade and other economic policies 
be developed that promote rather that retard the growth in 
world trade. We recommend more effort toward increasing 
international trade on a commercial basis because exports 
represent such a significant part of the total market for our 
agricultural production. Currently over one-third of U.S. 
agriculture production depends on export markets.
    Just last year, American farmers and ranchers exported 
about $60 billion worth of agricultural goods to the rest of 
the world. In return, the rest of the world sent about $30 
billion worth of agricultural goods into the United States. 
Thus, agricultural trade remains a growth industry for the 
United States--and an industry with a trade surplus relative to 
the rest of the world. It is our aim to keep these trends 
growing. The next logical public policy step appears to include 
more of our neighbors to the south in a free trade agreement.
    American farmers and ranchers already ship many commodities 
to Latin America. For fiscal 1997, the United States expects to 
export almost $10 billion worth of agricultural commodities to 
Latin America. This figure will equal about one-sixth of all of 
our agricultural exports to the entire world.
    Our largest regional trading partner to the south is 
Mexico, which of course, is already linked in trade to the 
United States through the North American Free Trade Agreement 
(NAFTA). For the current fiscal year, $5.5 billion of 
agricultural exports are expected to be sent to Mexico, an 
increase of 10 percent over last year as well as a trade 
record.
    Other Latin American trading (export) partners of note 
include Brazil and Venezuela. Together, the United States will 
send almost $1 billion worth of agricultural exports to these 
two countries during the current fiscal year. There is greater 
potential to export agricultural commodities to the rest of 
Latin America as well if market barriers can be reduced.
    We understand that international trade is a two-way street. 
For fiscal 1997, Latin America will import almost $12 billion 
worth of agricultural goods into the United States, led by 
Mexico, Brazil and Chile. Since two-way agricultural trade is 
so vital in the Americas--we must insist that any trade 
agreement concerning the Americas include agriculture as a key 
ingredient.
    In many cases, the United States competes with other 
countries in the sale of agricultural commodities. In Chile, 
for example, we compete in the areas of grapes, apples, dried 
fruits, processed tomatoes, pears, kiwi, fruit juices, plums, 
nectarines and peaches. If Chile expects to sell such items in 
the United States, they also need to realize that the United 
States must be allowed to send such items into their country as 
well. We must have strong agreements with Chile that guarantee 
free movement of U.S. products into Chile.
    Other areas of concern in any trade agreement include; 
common standards, lessening of technical barriers to trade, 
removal of subsidies, anti-dumping rules, science based 
sanitary and phytosanitary measures, equivalent customs 
procedures, standard rules of origin and (most important) 
increased market access.
    Our government must continue to insist on strict 
implementation of international trading rules to prevent unfair 
practices by competing nations and to assure unrestricted 
access to domestic and world markets. All trade agreements 
should be continually evaluated with emphasis on fair trade as 
well as free trade (more open trading systems), including GATT, 
NAFTA, and any potential FTAA.
    We view the passage of NAFTA as the starting point for 
greater and better trade relations with Canada, Mexico and 
other Latin American countries. Efforts should be made to build 
upon NAFTA's passage to further enhance our trade relationships 
with these countries. The negotiations of a Free Trade Area of 
the Americas is an excellent step in this direction and 
agriculture must have a place at the negotiating table.
    To move U.S. agricultural trade forward throughout the 
Americas, the President must have fast-track negotiating 
authority. We have urged the administration to move quickly in 
requesting Congress to provide fast-track negotiating authority 
that does not include social issue or labor and environmental 
restrictions. We must have a clear fast-track to allow our 
negotiations to move forward and open new markets for 
agricultural products.
    Trade agreements must be monitored and enforced. The 
American Farm Bureau Federation has been concerned for some 
time about the level of attention and commitment by the U.S. 
Trade Representative's Office (USTR) toward our issues and has 
called for a Deputy Ambassador for Agriculture. I heartily 
applaud Ambassador Charlene Barshefsky in her move toward 
designating an ambassador for agriculture under the title 
previously carried by Ira Shapiro. This is a granting of use of 
the title by the State Department, not a permanent position. 
However, we believe that there should be a permanent position 
of Deputy Ambassador, not one which is at the mercy of 
personnel changes or changes in administrations. A legislated 
Deputy Ambassador for agriculture at USTR and continued close 
coordination with USDA is critical for successful long-term 
agriculture trade.
    International and especially trade with our close neighbors 
can create a significant market for U.S. agricultural 
commodities. Agreements like NAFTA must ensure that trade 
remains both freer and fairer for all commodities. We need to 
continue to expand and enforce these accords to make sure the 
benefits promised to farmers and ranchers are fully realized.
      

                                

Statement of Eugenio M. Valdes, President of Sunburst Farms, Inc.; and 
Vice President of Association of Floral Importers of Florida; on Behalf 
of Association of Floral Importers of Florida

    Mr. Chairman and Members of the Subcommittee:
    The Association of Floral Importers of Florida (``AFIF'') 
submits this statement to highlight the importance of fresh cut 
flower imports to the U.S. floral industry and to urge Congress 
to oppose H.R. 54, which would revoke duty-free treatment for 
flowers imported into the United States under the Andean Trade 
Preference Act (``ATPA'').\1\ If enacted, H.R. 54 would 
economically harm AFIF's member importers, increase the price 
of fresh cut flowers for U.S. consumers, adversely impact the 
economy of southern Florida, and needlessly jeopardize many 
thousands of U.S. jobs.
---------------------------------------------------------------------------
    \1\ For ATPA purposes, the Andean countries are Bolivia, Colombia, 
Ecuador and Peru.
---------------------------------------------------------------------------

      Background on the Association of Floral Importers of Florida

    AFIF represents the interests of the South Florida fresh 
cut flower importers. The association, founded in 1982, 
currently speaks for 52 importers of fresh cut flowers based in 
the Miami area. AFIF represents this large group of importers 
at the federal, state and local level on various industry 
issues which impact floral importation including antidumping, 
legislative and transportation matters. In addition, AFIF 
represents its member importers before such federal entities as 
the U.S. Customs Service, the Department of Agriculture and the 
Department of Commerce.
    AFIF members directly employ over 5,400 people. Payroll for 
these employees totaled $67,500,000 in 1995 alone. In that same 
year, the Miami flower importing community occupied more than 
1.4 million square feet of office, warehouse and cooler space 
and spent approximately $6.8 million on insurance; $3.4 million 
on professional fees; and $4.5 million on office expenses. 
AFIF's members handle more than 90% of all flower imports that 
flow through South Florida flower importers.

    The Importance of Flower Imports to Florida and the U.S. Economy

A. Florida

    Today, an astounding 70 percent of all flowers consumed in the 
United States are imported through Miami. In 1996, these flower imports 
were valued at $740 million.
    The importation business and the 5,400 people it employs tell only 
part of the true impact that imported flowers have on the Florida and 
national economies. An entire industry--beyond importers--has developed 
to move the huge volume of flowers that flow through Miami. Today, 
there are eight (8) U.S. airlines that transport flowers into Miami--an 
estimated 33,000 boxes on 21 flights per day. These airlines employ 
more than 1,400 people. Nine (9) trucking companies employ 
approximately 1,500 people with an annual payroll totaling $44 million. 
In addition, 140 people are employed at 4 brokerage houses that handle 
floral shipments.The employment picture at the wholesale and retail 
level is even more impressive. In Florida alone, more than 3,250 
workers are employed in over 1,600 supermarkets and 30 grocers that 
maintain floral departments.

B. U.S. Economy

    At the national level, 70,000 wholesalers, retail florists, 
supermarkets and independent grocers employ more than 200,000 U.S. 
workers in the floral industry. All of these people are either directly 
or indirectly dependent on the free flow of flowers from the ATPA 
countries for their jobs and livelihood. One of the most dramatic 
impacts on the national economy has been the development of thousands 
of floral departments in America's supermarkets and grocery stores. 
These floral departments, which employ over 30,000 people are almost 
exclusively supplied by flower imports from the ATPA countries. In 
addition, the United States' 55,000 retail florists, which employ 
150,000 workers, and wholesalers, which employ another 20,000, are also 
heavily dependent on low price, high quality flowers from the ATPA 
countries.

C. Consumers

    U.S. workers are not the only ones who have greatly benefited from 
imported flowers. U.S. consumers have also reaped tremendous benefits. 
Due to the extremely favorable growing climate of Latin America, U.S. 
consumers are able to enjoy a greater variety of cut flowers year-round 
with much higher quality than can be obtained from U.S. producers. The 
increased supply has meant more affordable prices for the many popular 
varieties of cut flowers as a direct result of the importation of 
flowers. Reports prepared by an independent trade body, the 
International Trade Commission, indicate that of all products entering 
the U.S. under ATPA, U.S. consumers of roses, carnations and other cut 
flowers reaped the largest benefits in terms of reduced prices. 
According to the Commission, under the ATPA, U.S. consumers paid 7.8 
percent less for fresh cut roses and 7.7 percent less for 
chrysanthemums and carnations than they otherwise would have without 
this tariff preference program.

 The Importance of Colombian Flower Imports to the U.S. Floral Industry

    What do all 200,000 workers involved in the U.S. floral 
industry have in common? A singular reliance on imported 
flowers from Colombia. Two-thirds of all flowers sold in the 
U.S. are produced by Colombian growers.
    The important role played by Colombian flowers to support 
the large and growing U.S. floral industry cannot be 
overstated. If one looks at the percentages of all flowers 
produced domestically and imported, the picture becomes clear. 
For roses, 961,207,029 stems were imported or grown in 1996 
from 29 countries and California; of these, Colombia supplied 
50 percent (or 485,007,135 stems). For carnations, mini-
carnations and pompons, Colombia supplied more than 80 percent 
of these varieties imported or grown in the U.S.\2\
---------------------------------------------------------------------------
    \2\ For carnations, Colombian growers supplied 88 percent of all 
carnations imported or domestically produced in 1996. For mini-
carnations, Colombian growers supplied 85 percent of all mini-
carnations produced domestically or imported. For pompons, Colombian 
growers supplied 82 percent of all pompons produced domestically or 
imported in 1996.
---------------------------------------------------------------------------
    The flower imports from Colombia have dramatically 
increased the size of the U.S. floral market. The floral market 
in the U.S. has boomed in recent years to become an $11.5 
billion industry, $8.05 billion attributable to imported 
flowers. The stable and varied supply of flowers has led to new 
outlets, such as supermarket floral departments and street 
vendors, as well as new customers. This growth in the market 
has benefited all domestic and foreign suppliers of fresh cut 
flowers, not just Colombian. According to data from the U.S. 
Department of Agriculture, the share of the U.S. market held by 
Colombia has remained steady for many years.

                         The Danger of H.R. 54

    Supporters of H.R. 54 claim the legislation will restore 
the health of U.S. flower producers, primarily in California. 
H.R. 54 would shut off the flow of imported flowers by revoking 
duty-free treatment of flowers under the ATPA. H.R. 54, 
according to its supporters, would make U.S. flower producers 
robust again by improving their share of the U.S. floral 
market--once the Andean producers, particularly the Colombians, 
are cut out of the picture.
    Instead, if H.R. 54 is enacted, the cut off of Colombian 
flowers and/or increase in floral prices would undermine the 
strong U.S. floral industry. The impact would be devastating to 
floral importers and their employees. Thousands of U.S. jobs 
would be lost or at risk, including hundreds of U.S. businesses 
in the transportation, wholesale and retail sectors. The impact 
on U.S. consumers would be disastrous because the demands for 
fresh cut flowers in the U.S. cannot be met by U.S. producers 
alone.
    Contrary to the claims of supporters of H.R. 54, the ATPA 
has had little impact on the Colombian share of the U.S. fresh 
cut flower market. Every year since 1987 (five years prior to 
the ATPA's implementation in 1992), Colombia held approximately 
70 percent of the U.S. market. In 1995, after three full years 
of ATPA preferences, Colombia held exactly the same share of 
the U.S. market. (Data compiled by the Department of 
Agriculture (chart attached)). 
[GRAPHIC] [TIFF OMITTED] T0672.013


    Moreover, supporters of H.R. 54 have misinterpreted the 
goal of the ATPA. They have argued that the ATPA was enacted to 
stimulate crop substitution and because flower cultivation in 
Colombia has not supplanted cocoa cultivation, the ATPA is a 
failed policy. However, drug crop substitution was never the 
central goal of the ATPA. The primary goal of the ATPA was to 
encourage alternative economies to the production and 
trafficking of drugs by providing broad access to the U. S. 
market for alternative products and to encourage cooperation 
against narcotics trafficking. These alternative economies 
offer legitimate sources of employment to workers that might 
otherwise become involved in the drug trade. By this benchmark, 
the ATPA has been successful. The Colombian flower growers and 
exporters have developed and sustained a viable alternative 
means of employment for thousands of Colombians. Currently, 
more than 150,000 Colombians are employed by the Colombian 
floral industry. The industry has led the private sector in co-
operation against drug trafficking.

 The Importance of the Colombian Floral Industry to the U.S. ``War on 
                                Drugs''

    The Colombian flower industry has been a key ally in the 
U.S. ``war on drugs'' and it has been recognized by the U.S. 
Government for its efforts to combat the drug trade. Its 
commitment to fight drug trafficking has been valuable to the 
U.S., especially in view of the U.S. Government's serious 
concerns about the commitment of the Colombian Government at 
its highest levels.
    The Colombian flower industry has worked extremely close 
with U.S. law enforcement agencies to establish extensive anti-
smuggling programs to combat the flow of drugs. This close 
cooperation, coupled with sophisticated, state of the art 
security systems installed by flower growers, exporters and 
transportation companies, has been recognized as a model by the 
U.S.'s leading drug interdiction agencies, including the 
Customs Service and the Drug Enforcement Agency.
    In fact, the former top United States diplomat for 
international narcotics and law enforcement efforts, Ambassador 
Robert Gelbard, publicly praised the efforts of the Colombian 
flower growers when he testified before Congress in September 
of 1996. At the hearing before the House International 
Relations Committee, Ambassador Gelbard said, ``There are many 
groups in Colombia, including in the private sector 
particularly, who have been...very good examples of those 
honest Colombians who are trying to produce serious results in 
the fight against drugs. For example, the Colombian flower 
growers...have been very prominent in pushing the [Colombian] 
government to try to do more.''
    In a recent letter from President Bill Clinton responding 
to several Members of Congress, he stated, ``. . . The ATPA was 
put in place in late 1991 to stimulate alternatives to illicit 
narcotics production and to encourage continued cooperation 
against narcotics trafficking. One of the most positive changes 
in the fight against drug traffickers has been the 
participation of the private sector in stimulating the 
Colombian government to take action on counternarcotics. The 
Association of Colombian Flower Growers has been in the 
forefront of that movement.''

           AFIF Supports Continued Free Trade Under the ATPA

    In conclusion, AFIF strongly supports the continued duty-
free treatment of flower imports from Andean countries under 
the ATPA. Without the continued supply of fresh cut flowers 
that AFIF members import every day, the economy of south 
Florida and the U.S. floral industry will be seriously damaged. 
U.S. consumers will be faced with much higher prices for 
flowers. Continued duty-free treatment of Andean flower imports 
will continue to expand the U.S. floral market--which will 
benefit U.S. growers--and help continue to create U.S. jobs.
      

                                
[GRAPHIC] [TIFF OMITTED] T0672.014

[GRAPHIC] [TIFF OMITTED] T0672.015

      

                                

Statement of Hon. Peter Deutsch, a Representative in Congress from the 
State of Florida

    Mr. Chairman and Members of the Trade Subcommittee:
    This statement is submitted in response to testimony before 
the Subcommittee on H.R. 54, which seeks to revoke duty-free 
treatment under the Andean Trade Preference Act for fresh cut 
flowers.
    I am particularly interested in the impact this legislation 
will have on the economy of southern Florida. While the goal of 
the legislation is to help U.S. flower producers, its impact on 
the economy of southern Florida would be devastating.

Why H.R. 54 is Bad for the Florida Economy

    Imports of Colombian fresh cut flowers primarily are 
shipped to the United States via air through Miami 
International Airport and then transported via trucks 
throughout the United States. Over 30,000 boxes of fresh cut 
flowers are shipped to Miami every day. Almost all of the 
transportation infrastructure for moving Colombian flowers is 
based in southern Florida. As such, fresh cut flowers from 
Colombia are a major source of employment in Florida. Over 
6,600 persons are employed as part of the importing, shipping 
and transportation sectors handling Colombian flowers. An 
estimated $740 million in annual economic activity is generated 
in Florida alone by fresh cut flower imports. The jobs 
supported by this infrastructure, coupled with many U.S. jobs 
at the wholesale and retail level, results in more than 200,000 
U.S. jobs being dependent on Colombian flower imports. In sum, 
cutting off the flow of Colombian flower imports will result in 
the loss of thousands of jobs in Florida as well as substantial 
revenue losses.

The Goal of the Andean Trade Preference Act

    The primary goal of the Andean Trade Preference Act 
(``ATPA''), enacted on December 4, 1991, was to develop and 
sustain alternative, legitimate industries to the drug 
producing and trafficking industries of the Andean countries. 
According to the U.S. International Trade Commission (``ITC'') 
report on ATPA, ``[t]he goal of ATPA is to promote the 
development of sustainable economic alternatives to drug crop 
production in the Andean countries by offering these 
alternative Andean products broader access to the U.S. 
market.'' (U.S. International September 1996, page vii.)
    The ATPA was never meant to be a pure drug crop 
substitution program. Such a goal would be extremely difficult, 
if not impossible to achieve, given the fact that drug 
producing crops and flowers need very different agricultural 
environments in which to thrive.
    Based on this stated goal of the ATPA, it has been 
extremely successful in the largest beneficiary of the ATPA 
program: the Colombia flower industry. Colombian flower growers 
and exporters now employ over 150,000 Colombians, directly and 
indirectly, in good paying, legitimate jobs.
    I would like to see the U.S. floral industry to become more 
robust. However, as the attached information from the U.S. 
Department of Agriculture clearly indicates, the ATPA has not 
been the cause of its current problems. In its report on ATPA, 
the ITC stated, ``This series of reports has documented the 
decline in U.S. production of chrysanthemums, et al. (90 
percent of which is imported from Colombia)--even during 
periods of declining imports of competing products entered 
under ATPA provisions--because of reduced acreage, adverse 
weather factors, and import competition.'' (U.S. International 
Trade Commission Third Report on the ATPA, September 1996, 
pages 25-26.) Cutting off ATPA preferences for flower shipments 
from the Andean countries will cause much more harm--both in 
the United States and in the Andean countries--than any 
supposed benefits that will accrue to the U.S. flower industry 
from its passage.
    I urge the Subcommittee to oppose this legislation and 
thank the Chairman for this opportunity to address the 
Subcommittee.
      

                                

Statement of Distilled Spirits Council of the United States

    The following statement is submitted on behalf of the 
Distilled Spirits Council of the United States, Inc. (DISCUS), 
for inclusion in the printed record of the hearing on the Free 
Trade Area of the Americas. DISCUS is the national trade 
association which represents U.S. producers and exporters of 
distilled spirits.

                            I. Introduction

    As exporters to nearly every country in Latin America, 
DISCUS member companies fully embrace the concept of free trade 
in the hemisphere. DISCUS actively supported the North American 
Free Trade Agreement (NAFTA) and more recently the initiation 
of negotiations on Chile's accession. DISCUS also participated 
in the Cartagena and Belo Horizonte Business Forums and 
continues to regard the proposed Free Trade Area of the 
Americas (FTAA) as a tremendous opportunity for the economies 
of the region and our member companies.
    DISCUS applauds the decision of the trade ministers at Belo 
Horizonte to recommend that the FTAA negotiations be launched 
in conjunction with the April 1998 Hemispheric Summit in 
Santiago, Chile. We also view the decision at Belo to form a 
Preparatory Committee to develop the guidelines for 
negotiations as a very positive step. In our view, however, 
many participants in the FTAA process appear to be focusing 
greater attention on the development of other trade agreements, 
including some with trading partners outside the hemisphere. 
The FTAA process is at a critical juncture. In the run-up to 
the next Ministerial meeting at San Jose, Costa Rica, 
participants must demonstrate a renewed commitment to the FTAA 
process by refocusing their attention on the region as a whole 
and by fully agreeing to a timetable and procedures for 
conducting and completing the FTAA negotiations.
    We also remain concerned that tangible benefits of the FTAA 
process will not be realized in the near term and that the 
momentum of the initiative will continue to waver. Therefore, 
DISCUS urges that the FTAA participants go further and agree to 
specific, early ``down payments'' toward liberalization, which 
should be announced in conjunction with the launch of the 
negotiations at the Santiago Summit. Such measures are 
essential to maintaining the support of the region's business 
community which is so critical to the FTAA's success.
    At both the Cartagena and Belo Horizonte Business Forums, 
DISCUS distributed a paper that offered a number of suggestions 
on steps that FTAA participants could take to facilitate 
business and create such early ``down payments'' towards 
liberalization. We believe that many of these suggestions merit 
repeating as the participants embark on the run-up to San Jose. 
Provided below is an updated assessment of the principal trade 
barriers faced by U.S. distilled spirits producers in the 
region and several recommendations for eliminating these 
barriers.

                           II. Market Access

     The combined effect of high tariffs and taxes is the most 
significant impediment to open and fair competition in the 
Latin American market. Of primary concern to the distilled 
spirits industry is the abundance of discriminatory excise tax 
systems in the region. Brazil, Chile, Colombia, and Uruguay all 
employ liquor tax systems that discriminate between distilled 
spirits products and, in certain countries, protect domestic 
production. Chile, for example, continues to tax its local 
distilled spirit, pisco, at 25 percent ad valorem but taxes 
U.S. Bourbon and Tennessee Whiskey at 70 percent. This 
discriminatory treatment of imported spirits violates the basic 
national treatment provisions of the NAFTA and the GATT (1994). 
DISCUS seeks equal tax treatment of all spirits, both domestic 
and imported, throughout the hemisphere, through the adoption 
of a single specific rate of tax based on alcohol content.
    While trade liberalization has led to a significant 
reduction in tariffs, many Latin American and Caribbean 
countries apply rates to distilled spirits that exceed the 
average duty levels. Tariff elimination is the most basic 
element of a free trade agreement. Therefore, we believe tariff 
negotiations should be one of the first priorities when formal 
negotiations commence.
    However, even prior to such negotiations, we suggest that 
FTAA participants agree to a schedule for complying with 
existing WTO obligations, such as providing national treatment 
with respect to the taxation of imported distilled spirits and 
for accelerating tariff reduction commitments agreed to in the 
Uruguay Round. With the input of the private sector, these 
measures should be identified by the Working Groups with the 
goal of full implementation by the time of the Santiago Summit. 
In addition, DISCUS urges all FTAA participants to agree to 
eliminate tariffs for every product in the ``zero-for-zero'' 
sectors identified in the Uruguay Round, including for all 
distilled spirits, by no later than 2003. In this regard, we 
note that the United States agreed at the recent WTO 
Ministerial in Singapore to eliminate its tariffs on most 
distilled spirits by 2000 and by 2003 for certain types of rum 
and began to implement that obligation on July 1, 1997.

             III. Standards and Technical Barriers to Trade

    Differing and sometimes antiquated beverage alcohol product 
standards have either deterred or prevented the introduction of 
new distilled spirits products in many Latin American markets. 
For example, Bourbon and Tennessee Whiskey consistently face 
technical barriers to trade because production standards for 
beverage alcohol in many countries do not always contemplate 
the characteristics of these unique U.S. products. Other minor 
variances, such as unnecessary limitations on certain additives 
or colorings, can force U.S. distillers to bypass potentially 
lucrative markets, due to the production expense of conforming 
with an individual country's product standard.
    In situations where new standards are under consideration, 
the lack of transparency and adequate notification procedures 
often prevent interested U.S. distilled spirits companies from 
contributing comments or even anticipating changes that will 
affect their business. Member companies also spend considerable 
time and capital to conform to varied and often protracted 
testing requirements in each country, despite having satisfied 
the stringent testing and product control of the Bureau of 
Alcohol, Tobacco and Firearms (BATF) in the United States.
    Labeling requirements also differ from country to country 
within the region. These differences create disincentives for 
entering markets and contribute to inventory and distribution 
inefficiencies. For example, products that must display a label 
with a country's particular information requirements before 
entry are predestined for that market, thus preventing 
exporters from utilizing ``just in time'' inventory procedures 
or rerouting shipments to other markets. While providing 
consumer information is essential, exporters should be given 
sufficient flexibility to meet labeling requirements, including 
through ``stickering'' of market specific labels.
    As an early business facilitation measure, DISCUS proposes 
that participants agree to the creation of a standard 
``stickered'' bottle label that is uniform in size, typeface 
and basic consumer information. Country-specific information, 
such as the name of the importer, could be applied to the 
bottle after entering the country.
    In addition, priority attention should be given to the 
ongoing development and implementation of standards and 
regulations. FTAA participants should agree on procedures, such 
as those under the NAFTA, for notifying other countries and 
interested parties about the establishment of or amendment of 
standards in a given country, with uniform timeframes for 
public comment, implementation and compliance. Using these 
guidelines, we urge the participants to agree to begin a 
hemisphere-wide standards review procedure that will allow all 
FTAA participants and their private sectors to comment on the 
development or renewal of any future standards. Such a 
procedure would generate greater private sector participation, 
create a first step towards eventual standards harmonization, 
and in the meantime stem the growth of inconsistent standards 
within the hemisphere. Institutions such as the OAS already are 
available to coordinate such a process.

                         IV. Customs Procedures

    The variety and redundancy of customs procedures and 
documentation requirements throughout the hemisphere often lead 
to unnecessary and costly delays in delivering shipments. U.S. 
distilled spirits companies also encounter problems due to 
abrupt changes to customs and regulatory enforcement rules, 
leaving them with little or no time to adjust their practices.
    In addition, certain countries still require distilled 
spirits bottles to display a tax stamp or ribbon to indicate 
proof of tax payment, sometimes in a discriminatory fashion. 
Bottle stamps are redundant and impose cumbersome 
administration and storage procedures on the importer, often 
delaying the entry of products through customs. Proof of 
payment can be easily indicated on the customs documentation or 
through other means.
    In this area, DISCUS recommends that the FTAA Customs 
Working Group explore the possibility of creating uniform 
customs invoices and other shipping documentation, with the aim 
of eliminating redundancy and paperwork. As an initial step, 
participants should agree on alternative methods for proof of 
payment of taxes and develop a timeframe for the elimination of 
tax stamps and ribbon requirements before the end of the 
century. The Working Group also should develop proposals for 
establishing hemisphere-wide customs implementation and 
notification procedures that are consistent and transparent.

                    V. Intellectual Property Rights

    Distilled spirits are often subject to counterfeiting and 
parallel importation, particularly in those Latin American 
countries with extremely high tariffs and/or taxes. Moreover, 
these smuggled goods are frequently adulterated or bootlegged, 
creating health risks to consumers and damaging the image of 
the producers. Inadequate intellectual property laws and 
negligent enforcement measures in the region exacerbate the 
problem and deter U.S. distilled spirits companies from 
introducing new and innovative products with confidence.
    The recognition of Bourbon and Tennessee Whiskey as 
distinctive products of the United States has proven very 
valuable to U.S. producers in their efforts to develop foreign 
markets for these products. Article 23 of the WTO TRIPS 
agreement provides for the protection of distinctive distilled 
spirits. Thus, the effective implementation of Article 23 by 
all countries in the FTAA is of great importance to U.S. 
distilled spirits companies.
    DISCUS recommends that the FTAA Intellectual Property 
Rights Working Group give early attention to determining the 
status of participants' implementation of the obligations of 
the TRIPS agreement. We also suggest that the participants 
discuss the findings during the period leading up to the 
Santiago Summit and at that time agree to accelerate 
implementation of the TRIPS obligations, in particular those 
contained in Article 23.

                   VI. The Role of the Private Sector

    While the participation of the private sector in the FTAA 
process has been encouraged in a general context, direct 
communication between the private sector and the individual 
working groups should be enhanced. We propose that the 
ministers agree to develop a region-wide private sector 
advisory committee for each working group, which will collect 
and channel advice and recommendations on the issues under 
negotiation. We believe the recommendations of these advisory 
groups would be invaluable as the negotiating process unfolds.

                            VII. Conclusion

    The FTAA offers an excellent opportunity for the U.S. 
distilled spirits industry to secure improved market access 
conditions in Latin America on a comprehensive scale. However, 
subregional integration and trade arrangements with other 
countries from outside the hemisphere appear to be moving at a 
much faster pace, to the detriment of the FTAA process. 
Therefore, DISCUS urges the FTAA participants, led by the 
United States, to reinvigorate the promise of hemispheric 
integration by reaching agreement on the timeframe and 
structure of the negotiations so that they can be formally 
launched at the Santiago Summit in April 1998. In addition, we 
strongly urge the participants to agree to additional measures 
to secure improved market access conditions during the 
negotiating process, so that globally minded industries such as 
ours can begin to take full advantage of the opportunities for 
growth within the hemisphere before the turn of the century.
      

                                

Statement of Jacques J. Gorlin, Director, Intellectual Property 
Committee

    The IPC views the FTAA process as a critical element in the 
overall strategy for gaining improved intellectual property 
protection not only in this hemisphere but around the world. 
Strengthened intellectual property protection will come about 
in the future as a result of the cumulative bilateral, regional 
and multilateral efforts of the United States--all of which are 
necessary for building the foundation for keeping the TRIPS 
Agreement current.
    The IPC believes that the preparatory work for the next 
FTAA Trade Ministerial meeting, which will precede next year's 
March Summit of the Americas by one month, will not only be a 
critical milestone in the negotiating process that seeks to 
establish a free trade area in the region but will also provide 
an opportunity to accomplish two critical short term 
objectives: (i) to provide the impetus for improved 
intellectual property protection in the hemisphere; and (ii) to 
provide support for the WTO by ensuring that, at least, the 
countries in the hemisphere will have put in place national 
laws and regulations to implement the WTO TRIPS Agreement at 
the very latest by the year 2000, when the TRIPS transition 
periods are effectively over.
    More than just the TRIPS Agreement is at stake. The ability 
of the developing countries to meet the January 1, 2000 
deadline will be a critical test for the future viability of 
the WTO as a body that can develop international rules and 
enforce them. If the developing countries abuse the transition 
periods by failing to enact the intellectual property 
protection required by TRIPS, there will likely be a flood of 
WTO intellectual property complaints on January 2, 2000. This 
will overwhelm the WTO's dispute settlement process and 
highlight the WTO's failure in this area. We must take steps 
today to avoid this possibility.
    With respect to the longer-term objective of negotiating 
strong standards of intellectual property protection and 
enforcement as part of the FTAA, the trade ministers should lay 
the ground work next year for dealing with hemispheric 
intellectual property protection in a post-TRIPS world. The 
ministers should ensure that the intellectual property 
standards that will be incorporated in any FTAA Agreement will 
reflect the technological advances of the 21st century, when 
the FTAA negotiations will be concluded.
    The IPC believes that the FTAA Agreement should include 
very short transition periods, which should be measured in the 
months used by the United States in its bilateral and regional 
(i.e., NAFTA) intellectual property agreements and not in the 
years that characterize the WTO TRIPS Agreement. The IPC is 
gratified that the Trade Ministers at Belo Horizonte agreed 
that the outcome of the FTAA negotiations would constitute a 
comprehensive single undertaking. This is critical, because any 
segmentation of the negotiations, which could result in either 
early completion of the intellectual property negotiations or a 
stand-alone intellectual property agreement, would increase the 
risk that tradeoffs would be achieved within the intellectual 
property sector in the form of weaker standards or longer 
transition periods rather than in the overall FTAA Agreement.
    The IPC strongly supports the efforts of the United States 
to begin consideration within the FTAA intellectual property 
working group of the approaches for the negotiation of 
intellectual property within the FTAA, as instructed by the 
ministers at Belo Horizonte. The IPC, in particular, supports 
the US proposal that phase one of the intellectual property 
negotiations, which would be completed by the year 2000, 
provide for a reaffirmation of the basic standards of 
intellectual property protection contained in the WTO TRIPS 
Agreement and the Berne, Paris and some of the other 
substantive multilateral agreements negotiated in WIPO.
    The IPC strongly supports the negotiation of agreements to 
further improve intellectual property protection and 
enforcement in the region as well as globally. While it is 
premature to conclude that these agreements will require any 
changes in US law, there is a strong possibility that such 
changes will be required, especially given the new technologies 
that may be covered in future intellectual property agreements. 
The IPC thus believes that it is absolutely critical for the 
negotiation of future intellectual property agreements that the 
Congress and Administration reach agreement on fast track 
authority.
    The IPC urges Ambassador Barshefsky and her counterparts in 
the other countries of this hemisphere to recommend to the 
Heads of State that they support an aggressive program on 
intellectual property protection by adopting the types of 
actions suggested by the IPC. Such actions will go a long way 
in both improving current intellectual property protection in 
the region and properly launching the FTAA intellectual 
property negotiations.
    I am Jacques J. Gorlin, Director of the Intellectual 
Property Committee (IPC). I appreciate your invitation to 
provide the views of the IPC on the negotiations aimed at 
achieving a Free Trade Area of the Americas (FTAA). My 
testimony today will focus on the status of intellectual 
property protection in the region and the role of the FTAA in 
strengthening intellectual property protection in the area.
    The views of the IPC on the need for the highest standards 
of intellectual property protection and enforcement worldwide 
and, in particular, on the proper and timely implementation of 
the TRIPS Agreement are known to the Subcommittee. IPC 
representatives have appeared before this Subcommittee on 
numerous occasions over the course of the Uruguay Round 
negotiations and since the completion of the Round. Most 
recently, in September of last year, I provided the IPC's views 
on the role that the WTO Singapore Ministerial could play in 
meeting US policy objectives of the proper and accelerated 
implementation of the TRIPS Agreement.
    The IPC was formed in March, 1986--six months before the 
Punta del Este ministerial meeting that launched the Uruguay 
Round--with the specific mission of mobilizing domestic and 
international support for the negotiation of an intellectual 
property agreement in the GATT. The current members of the 
IPC--General Electric, Hewlett-Packard, IBM, Johnson & Johnson, 
Merck, Pfizer, Procter & Gamble, Rockwell International, Texas 
Instruments and Time Warner--represent the broad spectrum of 
private sector US intellectual property interests. In June, 
1988, the IPC achieved a significant milestone when it reached 
a tripartite consensus with the Keidanren, representing 
Japanese industry, and UNICE, representing European industry, 
on how the GATT should deal with intellectual property in the 
Uruguay Round negotiations. The 100 page report defined in 
detail the minimum standards for ensuring fundamental 
protection for all categories of intellectual property and 
proposed procedures for enforcing that protection. The IPC 
continues to collaborate closely with our private sector 
counterparts abroad in support of our mutual objective of 
strong worldwide intellectual property protection.
    The IPC's long support for the negotiation of the TRIPS and 
NAFTA agreements and our continuing search for improved 
worldwide intellectual property protection in such regional 
negotiations as the FTAA stem from the inexorable link between 
intellectual property protection and American competitiveness 
and job growth. America's competitive edge rests ultimately on 
our creativity and resourcefulness--the unique ability of 
Americans to generate new ideas and develop new ways of looking 
at the world. Our most internationally-competitive industries 
depend on intellectual property protection: for example, the 
computer software, motion picture, sound recording, 
pharmaceutical, chemical and electronic industries are among 
the largest and fastest growing segments of the US economy. 
Employment in these industries grew at close to four times the 
rate of employment in the economy as a whole between 1983 and 
1993. Furthermore, the foreign sales of these industries make 
major positive contributions to the US balance of payments.
    In stressing the importance of the intellectual property-
dependent industries to the US economy, I underline the IPC's 
concern that policy makers in the United States and in our 
trading partners not fall into the trap of thinking that the 
negotiation of the TRIPS Agreement has by itself solved the 
intellectual property problems that we are facing today. Should 
policy makers adopt this view, technology-exporting countries 
will be taking a major economic risk, because the resultant 
failure of intellectual property protection abroad to keep pace 
with new technologies will endanger the future commercial 
health of those industries that have had a demonstrated track 
record of making positive contributions to economic and 
commercial activity.
    TRIPS implementation includes not only the proper and 
timely implementation of the intellectual property standards 
currently found in the agreement but also the periodic upward 
adjustment of those standards to higher levels of intellectual 
property protection. The necessity of ensuring the 
strengthening of the TRIPS Agreement was foreseen in the 
agreement itself and is an integral element of TRIPS 
implementation.
    In briefly digressing from the specific focus of this 
hearing to provide an overview of the IPC's involvement in the 
TRIPS negotiations, I have sought to underscore the IPC's long-
held view of the importance of regional efforts such as the 
FTAA to meeting the overall US objective of gaining strong 
intellectual property protection around the world. Reliance on 
mass intellectual property negotiations on the scale of TRIPS 
are a phenomenon of the past; rather, strengthened intellectual 
property protection will come about in the future as a result 
of the cumulative efforts that the United States will undertake 
bilaterally, through the Special 301 program, regionally, 
through the negotiation of trade agreements such as APEC and 
the FTAA, and multilaterally through ongoing WTO discussions 
and negotiations. These bilateral, regional and multilateral 
initiatives are necessary for building the foundation for 
keeping the TRIPS Agreement current. In the absence of these 
initiatives, there is a real likelihood that TRIPS will become 
moribund with respect to the protection of intellectual 
property in a rapidly evolving technological environment.

                              FTAA Process

Short Term Objectives

    It is, in part, with this linkage in mind that the IPC 
approaches the FTAA process and, in particular, the preparatory 
work for next year's Summit of the Americas that was launched 
at the recent Trade Ministerial in Belo Horizonte. The IPC 
believes that the preparatory work for the next Trade 
Ministerial meeting, which will precede the March Summit by one 
month, will not only be a critical milestone in the negotiating 
process that seeks to establish a free trade area in the region 
but will also provide an opportunity to accomplish two critical 
short term objectives:
    To provide the impetus for improved intellectual property 
protection in the hemisphere;
    To provide support for the WTO by ensuring that, at least, 
the countries in the hemisphere will have put in place national 
laws and regulations to implement the WTO TRIPS Agreement at 
the very latest by the year 2000, when the TRIPS transition 
periods are effectively over.
    To that end, the Trade Vice Ministers should develop, for 
the consideration of the Ministers, a program that will begin 
to address the current environment for intellectual property 
protection and enforcement.
    Regional TRIPS Implementation--It is critical that the 
trade ministers confirm next year the intention of their 
governments to take all necessary actions to have TRIPS-level 
protection in place by January 1, 2000. The IPC urges US 
negotiators to impress upon their colleagues the importance of 
prompt implementation of TRIPS-level protection in their 
countries.
    Such a signal from the trade ministers is critical because 
we are no longer talking about accelerated TRIPS 
implementation, which has been a US intellectual property 
objective since it was included in the Uruguay Round Agreements 
Act at the insistence of the Congress and, in particular, of 
this Subcommittee back in 1994. January 1, 2000, which was six 
years away back then, is today less that two and a half years 
away. We are no longer dealing with a question of TRIPS 
acceleration but with a question of TRIPS compliance. If the 
United States and other developed countries do not undertake, 
in cooperation with the developing countries, a concerted 
program, which will be in operation for the rest of 1997, 1998 
and 1999, to ensure that the developing countries comply with 
their TRIPS obligations, we will greet the turn of the century 
without any appreciable improvement in intellectual property 
protection in those countries that are availing themselves of 
the TRIPS transition periods.
    More than just the TRIPS Agreement is at stake. The ability 
of the developing countries to meet the January 1, 2000 
deadline will be a critical test for the future viability of 
the WTO as a body that can develop international rules and 
enforce them. If the developing countries abuse the transition 
periods by failing to enact the intellectual property 
protection required by TRIPS, there will likely be a flood of 
WTO intellectual property complaints on January 2, 2000. This 
will overwhelm the WTO's dispute settlement process and 
highlight the WTO's failure in this area.
    The Administration recognizes this challenge. In announcing 
the results of the 1997 Special 301 annual review last April, 
Ambassador Barshefsky took note of the TRIPS transition periods 
which defer many TRIPS obligations on developing countries 
until January 1, 2000 and expressed concern that ``certain 
developing countries have not begun the process of reforming 
their laws and enforcement mechanisms so as to fully implement 
TRIPS obligations by January 2000.'' She called upon those 
countries to ``take steps now so that they are fully prepared 
to meet these obligations as they become due.'' The IPC 
welcomes Ambassador Barshefsky's announcement and urges the 
Administration to develop a focused program to ensure that 
result. The FTAA process should give a boost to that effort by 
supporting the approach contained in the US paper which was 
recently tabled in the FTAA intellectual property working group 
that called on the governments of the hemisphere to reaffirm 
their intention to take all necessary actions to have TRIPS-
level protection in place at the latest by January 1, 2000.
    Anti-Piracy Campaign--The ministers should endorse a 
hemispheric-wide campaign to combat the unauthorized trade in 
goods and services protected by intellectual property rights. 
The ministers should agree to consider internal actions as well 
as border measures, which could be taken either individually or 
on a coordinated basis. The campaign should have a public 
education component, in which the economic, social and legal 
costs of piracy and counterfeiting are explained to the people 
of the hemisphere.
    Training Programs--The ministers should also recognize the 
importance of trained police, prosecutors and judges for the 
proper enforcement of intellectual property rights and agree to 
develop Hemispheric-wide training programs to that end.
    Intellectual Property Acquisition and Maintenance--Another 
announcement that the ministers should make next year is a 
pledge of their support to Hemispheric-wide measures that will 
facilitate the acquisition and maintenance of intellectual 
property rights throughout the region. Among the steps that the 
ministers could endorse are the exchange of information and 
development of cooperative arrangements for the establishment 
of more efficient patent search and examination systems and 
more efficient trademark systems.
    Ratification of Outstanding Intellectual Property 
Treaties--The ministers should encourage FTAA members to ratify 
the Trademark Law Treaty, which would help modernize and 
simplify trademark systems in the hemisphere, and the Copyright 
Treaty and Performances and Phonograms Treaty, both of which 
were recently negotiated in WIPO.
    As I indicated earlier, a pledge by the trade ministers to 
undertake the above actions with the view to having their TRIPS 
obligations fully in place on January 1, 2000 would demonstrate 
their commitment to not only strong intellectual property 
protection but also to the World Trade Organization and its 
open trade principles. This would lay a strong foundation for 
the creation of the FTAA.
Longer-Term Objectives

    The Trade Ministers agreed at Belo Horizonte that, at next 
year's meeting, they would formulate how the FTAA negotiations 
would proceed, including such features as their objectives, 
approaches, structure and venue. With respect to this longer-
term objective of negotiating strong standards of intellectual 
property protection and enforcement as part of the FTAA, the 
ministers should lay the ground work next year for dealing with 
hemispheric intellectual property protection in a post-TRIPS 
world. It will not be enough for them to repeat the TRIPS 
standards. Rather, the ministers should ensure that the 
intellectual property standards that will be incorporated in 
any FTAA Agreement will reflect the technological advances of 
the 21st century, when the FTAA negotiations will be concluded. 
In doing so, the ministers should recognize that the TRIPS 
Agreement was negotiated with the technological issues of the 
1980s and early 1990s in mind and that, in some areas of 
technology, new international norms of protection have already 
been developed since the negotiation of the TRIPS Agreement. 
These norms are contained in such international treaties as the 
NAFTA chapter on intellectual property and the WIPO Copyright 
Treaty and Performances and Phonograms Treaty. The ministers 
should also recognize that intellectual property norms may be 
developed in other areas of technology before the end of the 
FTAA negotiations, which should also be included in the FTAA 
Agreement.
    The IPC believes that the FTAA Agreement should include 
very short transition periods, which should be measured in the 
months used by the United States in its bilateral and regional 
(i.e., NAFTA) intellectual property agreements and not in the 
years that characterize the WTO TRIPS Agreement. Since the FTAA 
negotiations are scheduled to end in the year 2005, when the 
WTO TRIPS transition periods will be effectively over, the 
major countries of the region, which today may not have strong 
intellectual property protection and enforcement, will have 
implemented at least TRIPS-level standards of intellectual 
property protection and enforcement. The move to the higher 
levels of protection that will be negotiated in the FTAA will, 
therefore, not involve major changes in national intellectual 
property protection. A lengthy transition process akin to that 
which characterizes current implementation of the WTO TRIPS 
Agreement will not be necessary for the FTAA Agreement. To 
avoid any misunderstandings down the road, the United States 
should declare, at the onset of the FTAA negotiations, that it 
does not believe long transition periods to be appropriate for 
the FTAA intellectual property agreement.
    The IPC believes that it is critical that the intellectual 
property-related activities that the ministers will launch next 
year begin immediately and that intellectual property be among 
the first group of subjects covered in the FTAA negotiations. 
We are gratified that the Trade Ministers at Belo Horizonte 
agreed that the outcome of the FTAA negotiations would 
constitute a comprehensive single undertaking. This is 
critical, because any segmentation of the negotiations, which 
could result in either early completion of the intellectual 
property negotiations or a stand-alone intellectual property 
agreement, would increase the risk that tradeoffs would be 
achieved within the intellectual property sector in the form of 
weaker standards or longer transition periods rather than in 
the overall FTAA Agreement.

Role of the FTAA Intellectual Property Working Group

    The IPC believes that its suggestions for the types of 
actions that the ministers should take both to improve current 
intellectual property protection in the region and also to 
properly launch the FTAA intellectual property negotiations can 
be accommodated in the broad recommendations on immediate 
action items that the FTAA intellectual property working group 
has made to the trade ministers. The recommendations include a 
call on the governments (i) to undertake collective and 
individual actions that would ``strengthen the capacity of 
countries of the Hemisphere to incorporate the disciplines of 
the TRIPS Agreement in their national legislation''; (ii) to 
develop recommendations to address hemispheric piracy and 
counterfeiting and (iii) to encourage the development of more 
efficient mechanisms for obtaining intellectual property 
rights. Finally, the recommendations recognize the dynamic 
nature of intellectual property protection by calling on the 
governments to ``identify and seek solutions to additional 
problems linked to intellectual property hindering businesses 
in the Hemisphere.''
    While the IPC recognizes that the recommendations are a 
negotiated text, they do provide, with the necessary political 
will, the basis for serious immediate work on improving 
intellectual property protection in the Hemisphere. The IPC 
strongly supports the efforts of the United States to begin 
consideration within the working group of the approaches for 
the negotiation of intellectual property within the FTAA, as 
instructed by the ministers at Belo Horizonte. As I indicated 
earlier, the IPC, in particular, supports the US proposal that 
phase one of the intellectual property negotiations, which 
would be completed by the year 2000, provided for a 
reaffirmation of the basic standards of intellectual property 
protection contained in the WTO TRIPS Agreement and the Berne, 
Paris and some of the other substantive multilateral agreements 
negotiated in WIPO.

FTAA and Private Sector Advice

    Concrete steps by the governments in the region in the 
direction of stronger intellectual property protection will 
facilitate the provision of private sector advice from 
throughout the Hemisphere and its incorporation into the FTAA 
process. As long as the current culture of imitation that 
pervades the region is endorsed by governments through weak 
intellectual property protection and enforcement, it will be 
very difficult for fora such as the Business Forum of the 
Americas, which are designed to gain private sector advice from 
the Hemisphere, to effectively do so. Once again, this year's 
report of the Technology and Intellectual Property Workshop of 
the III Business Forum of the Americas, while it contained an 
extensive list of agreed recommendations, also demonstrated 
that on some key points of intellectual property protection 
industry in the hemisphere remains split. While the efforts to 
solicit private sector input from the Hemisphere should not be 
abandoned, the United States should continue to make 
qualitative assessments of the overall advice provided by these 
hemispheric fora, especially in intellectual property.

Fast Track Authority

    The IPC strongly supports the negotiation of agreements to 
further improve intellectual property protection and 
enforcement in the region as well as globally. While it is 
premature to conclude that these agreements will require any 
changes in US law, there is a strong possibility that such 
changes will be required, especially given the new technologies 
that may be covered in future intellectual property agreements. 
Negotiations are already scheduled in 1998 and 1999 in the WTO 
TRIPS Council regarding patent protection for biotechnology 
products and one possible outcome could be higher levels of 
TRIP-mandated protection for such products. We also anticipate 
that the FTAA intellectual property negotiations, although not 
scheduled to conclude until 2005, will contain higher levels of 
intellectual property protection than are currently contained 
in either TRIPS or NAFTA. The IPC thus believes that it is 
absolutely critical for the negotiation of future intellectual 
property agreements that the Congress and Administration reach 
agreement on fast track authority.

                               Conclusion

    The IPC views the entire FTAA process as a critical element 
in the overall strategy for gaining improved intellectual 
property protection not only in this hemisphere but around the 
world. Countries in the region are increasingly recognizing the 
important role that strong intellectual property protection 
plays in attracting vitally-needed foreign investment. The FTAA 
process should serve as a catalyst for expediting that 
recognition and for translating the recognition into effective 
intellectual property protection on the ground.
    The IPC urges Ambassador Barshefsky and her counterparts in 
the other countries of this hemisphere to recommend to the 
Heads of State that they support an aggressive program on 
intellectual property protection by adopting the types of 
actions suggested by the IPC. Such actions will go a long way 
in both improving current intellectual property protection in 
the region and properly launching the FTAA intellectual 
property negotiations.
      

                                

                    International Trademark Association    
                                         New York, New York
                                                      July 22, 1997

The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

    Dear Mr. Chairman:

Re: Free Trade Area of the Americas

    In response to your initiative to hold hearings on the status and 
outlook for negotiations aimed at achieving a Free Trade Area of the 
Americas (FTAA), the International Trademark Association (INTA) would 
like to submit for the record our views regarding the progress of the 
FTAA discussions and the national interests served by the formation of 
a hemispheric free trade area.
    INTA is a 119 year-old, worldwide membership organization 
representing over 3,400 corporations, law firms, package design firms 
and professional associations in 120 countries. INTA's membership, 
which crosses all industry lines and includes both manufacturers and 
retailers, is united in our goals of supporting the essential role 
trademarks play in promoting effective commerce, protecting the 
interests of consumers, and encouraging free and fair competition.

Trademark Rights as Essential Elements of Trade and Development

    INTA believes that trademarks in the Western Hemisphere must be 
viewed in terms of:
    (a) protection of the public;
    (b) protection of the valuable rights of owners: and
    (c) development of the political, legal and administrative 
infrastructure and institutions appropriate to each nation of the 
region that will encourage investment and trade.
    INTA also appreciates that the nations of the hemisphere are 
developing at different rates and in different ways. We nevertheless 
believe that all nations should meet certain minimum standards of 
trademark protection essential to securing the rights of trademark 
owners, avoiding public confusion and deception, and enhancing 
development.
    The greatest impediment to trade and investment which a number of 
nations in Latin America face is their inadequate protection and 
enforcement of intellectual property rights (IPR). Technology-based 
companies, including pharmaceuticals, telecommunications and 
electronics, will continue to be reluctant to provide their latest and 
best efforts to the Latin American market unless the IPR regimes in 
those nations are significantly and dramatically improved, both prior 
to and as a result of the FTAA. Thus, inadequate protection of IPR not 
only deters domestic incentives to develop new technology and create 
products and services, but will also result in a loss of access to 
foreign technology, know-how and capital.
    At the ever-increasing rate at which investment capital flows from 
place-to-place, it is not in the best interest of Latin America to wait 
until the year 2000 or thereafter to commence full integration into the 
established norms of intellectual property protection as set out under 
the World Trade Organization's Agreement on Trade-related Aspects of 
Intellectual Property Rights (TRIPS). If Latin American nations do not 
act effectively and soon to fully protect intellectual property, the 
current growth spurt that they are experiencing will slow, and the 
knowledge-based businesses which are the future of the developing 
nations will pass them by.
    The failure to adequately protect IPR technology in addition to 
deterring foreign investment, takes a toll on the public in terms of 
confusion, deception, loss of warranty, loss of safety and consumer 
financial losses. In addition, trademark owners lose domestic sales, 
export sales, royalties, profit margins that fund research and 
development, and most important suffer diminishment or loss of 
reputation.
    INTA recognizes the significant changes that have occurred in the 
political, social and economic landscape of Latin America in the last 
decade. Democratic institutions have continued to grow in virtually 
every nation. Both promise and challenge are presented by these 
changes.
The FTAA Process and National Interests

    With these realities in mind, we submit the following thoughts 
regarding the progress of the FTAA process to date, the national 
interests served by the formation of a hemispheric free trade area, and 
how INTA might assist in this valuable process:
    1. Regarding the progress of the FTAA process to date, it is our 
impression that the negotiations in the intellectual property area have 
been painfully slow. Nevertheless, the FTAA process provides a vehicle 
to move recalcitrant nations more quickly toward TRIPS compliance and 
other ``TRIPS-Plus'' goals. The intellectual property-related 
negotiations already are helping to spur some nations in the hemisphere 
to update and improve their trademark laws and enforcement regimes. We 
would like to see the FTAA intellectual property discussions 
accelerated both to ensure TRIPS compliance by the year 2000 and to 
stimulate consideration of ways in which the nations of the Western 
Hemisphere can go beyond the minimum requirements of TRIPS.
    2. From the perspective of most trademark owners, a major issue in 
Latin America is protection of well-known marks, especially those that 
may not have been registered before they were pirated. Many companies 
in a variety of industries face enormous problems in stemming the 
rising tide of piracy and counterfeiting throughout Central and South 
America. Countries that are members of the Paris Convention should 
effectively implement Article 6bis which provides that the Member 
Nations protect well-known marks. Moreover, these countries should 
begin to move towards the broader protection afforded to well-known 
marks by Article 16 (2) and (3) of the TRIPS Agreement. Effective 
implementation of Article 6bis by all the nations of the Americas 
should be a condition placed on FTAA membership.
    3. A corollary to the protection of well-known marks is timely and 
effective enforcement of trademark rights. Even the most well-crafted 
treaties and laws are of little value if trademark owners cannot obtain 
prompt action by customs authorities, the courts and other agencies of 
Latin American governments. Many nations of Latin America have no 
effective border enforcement. Exacerbating enforcement efforts is the 
extreme slowness of the courts in processing even blatant cases of 
counterfeiting. The courts in many instances have permitted the illegal 
activity to continue or resume pending trial (which may be three to six 
years after the action is filed). Effective preliminary relief, in the 
form of injunctions and seizure orders, is necessary for all nations of 
the Americas if intellectual property rights are to be adequately 
enforced.
    4. Certain Latin American countries have erected or maintain 
barriers to the full use and enjoyment of trademark rights. For 
example, some countries require mandatory recordal of trademark license 
contracts which in turn disclose to the public highly confidential 
business information between a trademark owner and its licensee. Even 
worse in some nations, if a U.S. trademark owner fails to record its 
license, the trademark registration will be canceled, thus exposing 
valuable trademark rights to be misappropriated by trademark pirates. 
INTA takes the position that trademark license recordal should be 
voluntary, not mandatory, and that this principle should be a part of 
any intellectual property agreement that emanates from the FTAA 
process. Another example of possible violations under TRIPS are 
requirements for labeling or packaging that injure and diminish the 
rights of trademark owners such as printing the generic name of 
pharmaceuticals on labels in type size substantially larger than the 
trademark for the product. It is in the interest of all nations of the 
Western Hemisphere to bring down these inappropriate barriers to trade 
and investment.
    5. After enforcement and effective protection under existing laws, 
the FTAA process should emphasize full and timely implementation of 
GATT-TRIPS, and adoption of the Trademark Law Treaty, which aims at 
reducing the burden of seemingly endless formalities required to 
authenticate filings and perfect and protect trademark rights in most 
Latin American countries. In this regard INTA has developed Model 
Trademark Law Guidelines that incorporate TRIPS-compliant provisions. 
We are prepared to provide those Guidelines to any nation of the 
hemisphere and work with the executive, legislative, judicial and 
administrative branches of the governments of these nations to adopt 
and implement TRIPS-compliant laws and regulations. We already have 
engaged in this process with the government of Paraguay, both through 
our participation in a private IPR mission sponsored by the U.S. 
Department of State to that nation in March, 1997 and submission of 
comments regarding Paraguay's new draft trademark legislation in April 
1997.
    6. Adoption of the Madrid Protocol, which will greatly enhance 
timely, cost effective and efficient international applications to 
secure trademark rights, should be a centerpiece of the FTAA process, 
with the United States leading the way in adopting and implementing 
this treaty. There has been some discussion within the FTAA working 
groups of a ``trademark application mailbox'' and other means for 
facilitating trademark registration within the Western Hemisphere. 
While such discussions help to focus attention on the benefits of easy 
registration across national jurisdictions, the Madrid Protocol's 
international registration system which is administered by the World 
Intellectual Property Organization already exists. Accordingly, the 
Madrid Protocol should be an essential building block for IPR 
infrastructure improvements in the hemisphere and thus is essential to 
the success of the FTAA initiative.
    7. Many nations of the Western Hemisphere lack the resources to 
implement effective IPR protection regimes. INTA, along with other 
groups interested in protecting intellectual property, has initiated 
discussions with the Inter-American Development Bank (IDB) on 
structuring certain loans to the governments of Latin America for the 
purpose of enhancing the protection and enforcement of intellectual 
property rights. Our goal is to eventually work with the governments of 
interested countries in developing grant and loan packages that will 
build the legal frameworks and institutions necessary to attract trade 
and investment. We hope to advance these discussions over the next few 
months. We understand that both USAID and the World Bank also are 
contemplating efforts in the field of IPR. We would welcome 
enthusiastic support from the Subcommittee on Trade for these efforts.
    8. INTA conducts seminars and roundtables throughout the world for 
the discussion and exchange of information and views on trademark 
issues. These events have attracted leaders from industry, government, 
academia and the private bar. INTA already has sponsored several 
roundtables in the Americas regarding the FTAA and TRIPS. INTA will be 
pleased to participate with the FTAA IPR Working Group in arranging 
appropriate educational and informational presentations in the 
hemisphere regarding TRIPS compliance.
    We hope that these comments will be useful to the Subcommittee. 
INTA would be happy to answer any further questions that the 
Subcommittee may have. Again Mr. Chairman, thank you for allowing INTA 
to participate in your hearing process.

            Sincerely yours,
                                           David C. Stimson
                                                          President

House Rule XI Disclosure

    Pursuant to House Rule XI, Clause 2 (g) (4), the Subcommittee is 
hereby informed that the Internaitonal Trademark Association has 
received no federal grant, contract, or subcontract in the current and 
preceding two fiscal years.
      

                                

                                          JBC International
                                                     August 5, 1997
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade of the Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20005

    Dear Chairman Crane:

    On behalf of JBC International, an international trade consulting 
firm, I respectfully submit these comments regarding the development of 
a Free Trade Area of the Americas (FTAA). I also serve as chairman of 
the Industry Functional Advisory Committee on Customs (IFAC-1) and 
secretariat of the Joint Industry Group and National Council on 
International Trade Development. Our involvement with these global 
trade organizations and JBC International has allowed us to work with 
various world trade facilitation initiatives. We support the concept of 
the FTAA. In this regard, the following recommendations are provided 
for establishing the FTAA, reducing tariffs, and facilitating customs 
processes among member nations.
    In previous recommendations, we have encouraged adoption of all 
GATT/WTO customs-related agreements such as Preshipment Inspection; 
Customs Valuation, including the 1984 decision on the valuation of 
software; Rules of Origin; and the World Customs Organization's 
Harmonized System of Commodity Description and Coding (HS) before a 
country is granted membership. In our view, all future FTAA members 
should adopt these agreements prior to accession.
    Since there is no WTO agreement covering the customs process, we 
believe that an effective trade regime should contain basic elements 
that include transparent and expeditious customs clearance procedures, 
such as those provided for in Article X of the General Agreement on 
Tariffs and Trade. In exploring the needs of US businesses, we have 
identified a number of key attributes a fair and efficient customs 
clearance agreement should include. The following is a list of those 
processes we believe are most important and should be provided for in 
any hemispheric trade agreement.

                            Cargo Processing

     Provisional release of goods prior to completing 
paperwork and payment of duties for all agency purposes.
     Use of an automated selectivity or statistically 
valid compliance measurement system.
     Define all data forms and fields in terms for UN/
EDIFACT messages.
     Separate the merchandise import and inspection 
process to eliminate delays and reduce the risks of corruption.

              Transparency to Enhance Voluntary Compliance

     All relevant rulings should be published and 
available to exporters and importers prior to customs entry of 
goods.
     Customs should give timely notice before 
implementation of any new regulation or practice, or any change 
in a regulation or established practice.
     The Customs entry process should provide a timely 
and prompt system to protest rulings and decisions.

                          Passenger Processing

     Integrate passenger processing with immigration 
and allow for expedited processing of business travelers.

                                 Audit

     Rely on post-import audits to verify compliance.
    Thank you again for this opportunity to express our views and for 
your work in expanding the Free Trade Area of the Americas. We will be 
happy to elaborate on any of the above recommendations.

            Sincerely,
                                           James B. Clawson
                                                          President
      

                                

[By Permission of the Chairman]

Statement of Hon. Dr. Richard L. Bernal, Ambassador from Jamaica to the 
United States

    Thank you for providing me an opportunity to submit a 
statement on the impact of hemispheric free trade on the US/
Caribbean trade partnership. As the Subcommittee moves forward 
with its review of these critically important issue, I believe 
it is important to provide you with a Jamaican perspective.
    In December, 1994, the 34 Democratic nations of the 
Hemisphere came together in Miami to hammer out an agreement to 
establish a Free Trade Area of the Americas (FTAA) by the year 
2005. Earlier this year, the trade ministers of those nations 
met in Belo Horizonte to agree that negotiations to launch a 
trade agreement should begin early next year. As the Hemisphere 
marches to put this vision into practice, it will be important 
that the needs and special circumstances of the smaller 
economies--which make up a majority of the nations in the 
hemisphere--are addressed in the final FTAA implementation 
package.

     I. The US Trade Agenda and the US/Caribbean Basin Partnership

    The US Congress and successive Administrations have long 
since recognized that promoting strong economic development in 
the Caribbean Basin is in the US national interest. This 
becomes even more apparent in the context of the FTAA. Many 
Caribbean countries view the United States as their single 
largest market and as the largest source of their imported 
supplies. Moreover, many of the smaller economies of the 
Caribbean are extremely fragile, depending upon a single crop 
or service to earn much of their crucial foreign exchange. 
These economies can be extremely susceptible to external shocks 
or the corrupting influences of narco-traffickers, and are 
often not flexible enough to undertake the kinds of reforms 
necessary for survival in the modern international economy. 
Sustained and tangible expressions of US support for these 
countries--through continued engagement on the trade front--re 
vital to help them defend themselves against external 
disruption and internal resistance to change.
    Although many see the US/Caribbean relationship as 
altruistic or one-sided, it is truly a mutually beneficial 
relationship. Statistics on regional trade and investment flows 
underscore this point.
    --Presently, the US/Caribbean commercial relationship 
supports more than 300,000 jobs in the United States and 
countless more throughout the Caribbean. During the past 
decade, the US/Caribbean Basin relationship has created more 
than 18,000 jobs a year in the United States.
    --The Caribbean Basin is in aggregate now the tenth largest 
export market for the United States, surpassing countries such 
as France.
    --The Caribbean Basin is one of the few regions in the 
world where US exporters maintain trade surpluses. In 1996, the 
11th consecutive year for which the United States recorded a 
trade surplus with the Caribbean Basin, that surplus surpassed 
$1.4 billion.
    --In 1996, US exports to the region passed $ 15.9 billion, 
resulting in a 170 percent increase in US exports during the 
past 11 years. Virtually every state in the union has benefited 
from this relationship.
    --In 1996, US imports from the region reached $ 14.5 
billion, completing an 11-year growth rate of nearly 120 
percent.
    --It is estimated that between 60 to 70 cents of each 
dollar spent in the Caribbean Basin is spent back in the United 
States compared with only 10 cents of each dollar spent in 
Asia.
    --When US trading partners are ranked by the US share of 
their markets, CBI countries claim 12 of the top 20 spots. 
Jamaica, which in 1995 purchased 75 percent of its imports in 
the United States, is ranked second and is only surpassed by 
Canada.
    The basis of this healthy and balanced trade relationship 
is a complementarity between the CBI economies and the US 
economy. While the US economy is highly industrialized, the CBI 
countries tend to emphasize more agriculture, raw materials, 
tourism, and, increasingly, labour-intensive manufacture. These 
economic patterns are natural catalysts for the trade based-
economic growth.
    For example, apparel has become Jamaica's leading 
manufactured export and has grown very rapidly. It has grown 
because of a complementarity involving the combination of US 
capital goods and raw materials being produced with Jamaican 
labour for US companies. The result is the creation of jobs in 
the textile and shipping sectors both here and in Jamaica. In 
addition, this integrated transnational process of production 
draws upon the strength of both economies to manufacture a 
final product that can be competitive in the US and global 
market. This equation again adds up to jobs, especially through 
the preservation of jobs and corporate entities in the Unites 
States which could not survive by producing goods entirely in 
the United States.

           II. NAFTA'S Impact on the US/Caribbean Partnership

A. The CBI/NAFTA Imbalance

    Clearly, the biggest issue facing the Caribbean Basin is the lack 
of parity of US market access with Mexico. The CBI has provided a good 
foundation, particularly in the era when aid from the United States is 
declining. It has been a good strategy of trade, and not aid, which has 
proved more beneficial in the long run. But the CBI has several built-
in limitations.
    One problem is that, while it liberalizes 90 percent of the trade 
categories, the CBI does not liberalize 90 percent of the actual trade 
flows, primarily because the very goods--such as apparel and footwear--
on which the CBI has a comparative advantage are the goods that tend to 
be restricted by US import laws. The paralyzing effect of these 
exclusions becomes more noticeable as CBI economies begin to produce 
products that are not covered by the CBI. In 1996, the annual 
International Trade Commission survey on the CBI reported that average 
duties paid for CBI imports rose from 1.9 percent in 1984 to 12.3 
percent in 1994. If left unchecked, the current CBI formula will have a 
declining impact on Caribbean economic development.
    In contrast, NAFTA eliminates the duty and quota treatment for 
these same articles, either immediately or over a phase-out period. 
Under NAFTA, import duties were immediately removed on the overwhelming 
majority--approximately 80 percent--of Mexican apparel exports to the 
United States. The remaining 20 percent benefits from an accelerated 
implementation of free trade, with annual duty cuts and quota 
liberalization set to be completed by the year 2000. To be fair, NAFTA 
also phases out the duties on the products for which the CBI countries 
already enjoy duty free treatment.
    But the result is far from even. Mexico gains parity with the 
Caribbean countries for CBI-covered products, establishing a level 
playing field for those items on which Mexican and Caribbean exporters 
face no duty. But on the products excluded from the CBI, such as 
textile and apparel products, Mexico gains access to the US market, 
exceeding that granted to the Caribbean countries. This tilts the 
playing field in Mexico's favor, and gives Mexican exporters a distinct 
advantage over Caribbean exporters. When combined with Mexico's access 
to cheap energy, lower transport costs, greater economies of scale, and 
low wage rates, this advantage becomes quite substantial.

B. NAFTA's Impact on the Caribbean Basin

    Broadly speaking, NAFTA's implementation--and advantages over the 
CBI--poses clear risks for the US/CBI partnership. The elimination of 
quotas and the phase-out of tariffs on Mexican products removes the 
advantage enjoyed by CBI exports to the US market, diverting trade 
flows from CBI countries to Mexico. Since the NAFTA was implemented, 
there has already been a measurable diversion of trade from the CBI to 
Mexico. Before NAFTA was implemented, the growth rate of US apparel 
imports from Mexico and the CBI region were on par. Three years after 
the NAFTA was implemented, Mexican apparel import growth rates have 
consistently outpaced Caribbean growth rates by at least a 2 to 1 
margin. As this trend continues, Caribbean market share in the United 
States will be consumed by Mexican suppliers.
    Another consequence of NAFTA's implementation has been the 
diversion of new investment. One of the primary indicators has been the 
fact that in the last 3 years there has been a pause in investment in 
the region, as investors first waited to evaluate the NAFTA provisions 
and then established new operating facilities in Mexico, instead of in 
the Caribbean. This trend, which is now being fully realized, was 
anticipated by the US International Trade Commission, which reported in 
1992 that ``FTA will introduce incentives that will tend to favor 
apparel investment shifts away from the CBERA countries to Mexico.''
    As existing investors begin to source their products out of Mexico, 
others are rushing to transfer or close existing productive capacity--
particularly in the ``foot-loose'' apparel industries which can easily 
be relocated--to take advantage of Mexico's market access. In many 
Caribbean Basin countries, NAFTA directly reverses past successes of 
the CBI program, effectively turning back the clock of Caribbean 
development. Employment is hit particularly hard by this trend, as 
manufacturers close factories and lay off employees. According to 
estimates by the Caribbean Textiles and Apparel Institute, more than 
150 apparel plants closed in the Caribbean, resulting in the loss of 
123,000 jobs during 1995 and 1996. This trend is particularly damaging 
to women, who often look to the textile and apparel sector for their 
livelihood.
    An erosion of export access to the United States will eventually 
translate directly into a contraction of economic activity in the CBI 
region. Such a contraction would lower regional incomes, and, 
ultimately, the demand for imports from the United States. In such a 
scenario, US exports of goods and services to the CBI would decline 
while regional instability--fostered by a decrease in economic 
opportunities--would rise. Judging from past patterns, the resulting 
unemployment in the United States would be met with an increase in 
immigration from displaced Caribbean workers and a rise in narcotics 
trafficking.

C. Caribbean Enhancement (Parity) As An Immediate Remedy

    While the long term solution is to determine how to fully integrate 
Caribbean countries--and the specific needs of their smaller 
economies--into the NAFTA or a Free Trade Area of the Americas (FTAA), 
a short term solution calls for the leveling of the playing field 
between Mexico and the Caribbean countries. In Bridgetown earlier this 
year, President Clinton renewed and unequivocally reconfirmed his 
strong commitment to seek enactment of a Caribbean Basin Trade 
Enhancement package during 1997. Congressmen Phil Crane and Charlie 
Rangel and Senator Bob Graham have also worked to support enactment of 
Caribbean parity provisions this year. As Congress and the 
Administration move ahead on this proposal to re-impose balance between 
Mexican and Caribbean access to the US market, they should ensure that 
the legislation on which they act encompasses several key principles:
    First, the legislation must cover all products currently excluded 
from the CBI. As the Caribbean economies liberalize, it becomes 
increasingly difficult to erect artificial barriers between product 
categories. Improving market access for only certain textile and 
apparel products would have a limited effect, and would retain the 
anomalies that encourage unbalanced economic growth. Enacting a 
comprehensive bill, however, is both economically more feasible and 
symbolically more consistent with the notion of free and open trade.
    Second, the legislation must serve as a gateway to the Free Trade 
Area for the Americas. One of the implicit goals of parity is to 
provide Caribbean Basin countries an opportunity to complete the trade 
liberalization and economic reform steps necessary for accession to the 
FTAA. While some countries--such as Jamaica--are now ready to negotiate 
either a free trade agreement with the United States or accession to a 
NAFTA, others may need a longer period. The Caribbean trade enhancement 
proposal should provide that transitional period, without locking CBI 
countries into a perpetual state where their trade posture is being 
slowly eroded.
    Third, any Caribbean trade enhancement proposal must be of a 
sufficiently long duration to provide credibility and certainty, and to 
help re-establish confidence lost in past years. It is now clear that 
this legislation will require Caribbean countries to undertake certain 
obligations and implement specific measures in order to access the full 
benefits. Such reciprocity makes sense, but only if the reciprocal 
commitments are maintained in force indefinitely.
    Fourth, on a related note, the legislation must not impose entrance 
requirements that are insurmountable. The 24 nations of the Caribbean 
Basin represent diverse economies that are at different stages of 
liberalization. Ideally, the legislation will not establish a new set 
of criteria by which countries can become eligible for the benefits, 
but rather link the enhanced benefits to more rigorous application of 
the existing CBI program criteria. In this way, countries can fully 
pursue trade liberalization without being harmed by a break in market 
access or the sudden resurgence of an unbalanced playing field.

      III. Sustaining US/Caribbean Trade Links for the Longer Term

    Moving past the immediate concerns of Caribbean Basin trade 
enhancement are the longer term debates of NAFTA expansion and 
the development of the FTAA.

A. NAFTA Accession and the Caribbean

    The prospect of NAFTA accession for Caribbean countries 
takes on added importance with the on-going delay in enactment 
of Caribbean parity provisions. It also provides an important 
long term framework for the CBI, especially since the CBI 
exists now as the product of a legislated action by Congress, 
and not as the product of a reciprocal trade negotiation.
    Although there are quite a few countries in the region that 
are close to meeting the requirements of joining NAFTA, there 
is a perception that only a handful of big emerging markets--
such as Brazil and Argentina--hould be considered for NAFTA 
accession once Chile has joined. It may, however, make sense to 
look to smaller Caribbean economies for the next stage of NAFTA 
expansion. First, most Caribbean economies would be 
complementary, not competitive, with the US economy. Second, 
because Caribbean economies are small, they are unlikely to 
disrupt the US economy. Third, there may be no better way of 
securing the long-term economic development of the Caribbean 
then by forging a close link based on reciprocity with the 
United States. Finally, the Caribbean is the logical place to 
start since many Caribbean economies have already implemented 
the kind of trade liberalization and economic reforms that 
would be called for under NAFTA accession.
    Regardless of the accession queue, it is vitally important 
for the US Government to establish a transparent process in 
which there are clear eligibility criteria. Without clear 
guidelines, countries are focusing on political jockeying to 
compete to see who should come in next, rather than focusing on 
meeting specific criteria that is a more appropriate measure of 
readiness.

B. The FTAA And The Caribbean

    At the same time, Caribbean countries are engaged with 
their hemispheric neighbors in discussions on erecting a Free 
Trade Area of the Americas (FTAA). Although a hemispheric free 
trade agreement will provide a long-term framework under which 
a solid security relationship can flourish, the process of 
achieving that goal may prove exceptionally disruptive for many 
Caribbean countries.
    FTAA participants will have the unprecedented task of 
erecting an FTAA that encompasses in a single trade agreement 
countries which differ widely in size, levels of development, 
extent of industrialization, and degree of liberalization. At 
the same time, for the FTAA to be worthwhile, it must strive 
toward a uniform series of standards and disciplines that are 
consistent with international and hemispheric trading 
practices. To ensure full and equitable participation, 
especially of the smaller economies in the Caribbean, the FTAA 
implementation path must reflect several important principles.
    First, there must be an orderly accession process. This can 
be achieved if the process is politically transparent. Orderly 
accession requires the establishment and enunciation of a 
clearly defined set of eligibility criteria, procedures for 
applying for membership, and a timetable for expansion. The 
absence of these factors creates a situation in which various 
arbitrary, non-economic criteria may disproportionately 
influence the selection and sequence of admission of new 
members.
    Second, the path will have to accommodate considerable 
flexibility since it will probably not be possible for all 
countries to move at the same pace and arrive at a single 
destination. In fact, there is some concern about how quickly 
the smaller, less developed countries of the Caribbean region 
or Latin America could undertake the full range of commitments 
that will be expected under the FTAA. A suitable transitional 
arrangement must be designed for these countries and involve 
asymmetrically phased assumption of obligations and 
disciplines. An appropriate adjustment period not only will 
take account of the level of development, extent of 
liberalization, and undiversified structure of these economies, 
but it also would permit time for completion of the structural 
adjustment process of the wider Latin American region. For 
example, Caribbean Basin countries could be provided fuller 
access to the NAFTA markets, with phased in reciprocity, to 
transition them to the disciplines of the NAFTA. A suitable 
transitional arrangement would enable these economies to 
complete their processes of economic reform and structural 
adjustment, which will put them in a position to move towards 
reciprocity. A premature attempt by these countries to provide 
full reciprocity immediately could be detrimental to these 
processes of adjustment, and could inhibit export expansion.
    Third, the FTAA will need to contain provisions for 
associate or partial membership to permit countries, or sectors 
within those countries, to undertake FTAA commitments in a way 
that do not infringe upon existing obligations. This would 
provide an opportunity, for countries that, despite a 
commitment to the FTAA, are not ready for full membership or 
are precluded by existing commitments to sub-regional trade 
arrangements with trade groups outside the hemisphere. Looking 
back at example of the Caribbean, CARICOM members of the 
preferential Lome Convention are obliged to provide no-less 
favorable conditions to the EU than that provided to any 
developed country. If Caribbean countries were to provide 
reciprocity to the United States and Canada by virtue of an 
FTAA agreement, or even NAFTA membership, then these countries 
would be obliged to provide reciprocity to the EU under the 
terms of Lome. Associate membership would facilitate 
liberalization in a limited number of areas and obviate the 
enforcement of across the board reciprocity by the European 
Union.
    Finally, the FTAA process must pay close attention to the 
needs of the smaller economies. While constituting a majority 
of the Western Hemisphere, the smaller economies are not likely 
to be a major determinant on what constitutes the FTAA, the 
path to the FTAA and the schedule for negotiations and the 
commencement of the FTAA. Yet without their participation, the 
FTAA loses its character as a truly hemispheric exercise. At a 
minimum, the Ministers must integrate the special needs of 
small developing countries in all their work, rather than 
confine these concerns to the Working Group on Smaller 
economies.

                             IV. Conclusion

    The prospect of hemispheric free trade figures prominently 
in US/Caribbean trade relations. If the Administration and 
Congress can develop a common approach for continued trade 
expansion, they can signal to the hemisphere that the United 
States remains fully engaged in the international trading 
community over the next decade. Failure to reach such a 
consensus not only sends the wrong signal on trade, but also 
stands as a real barrier to continued US/Caribbean trade. 
Conversely, any setbacks in the effort to enact Caribbean 
parity suggests an ambiguous commitment to promote trade 
liberalization on the part of the United States.
    Countless studies have shown that strong regional economic 
links are crucial, not only in creating economic opportunities 
throughout the United States and the Caribbean Basin, but also 
in supporting stable and mutual beneficial security 
relationships. In the dozen years since it has been 
implemented, the CBI has provided a key framework of economic 
development for the Caribbean, and has stimulated sound US/
Caribbean commercial relations.
    However, with the many challenges facing the Caribbean 
today, it is imperative that the US and Caribbean Basin 
Governments jointly work to sustain a healthy relationship and 
keep the vision of the CBI relevant. In crafting the Bridgetown 
Partnership, US and Caribbean policy makers have taken a first 
step to address concerns in a number of sensitive economic and 
security areas. A critical premise of this work is the 
understanding that both the United States and the Caribbean 
partners will move ahead to foster and implement additional 
trade liberalization. Such an understanding is important since 
the continued vitality of this relationship will be a key 
ingredient in the approach to hemispheric free trade.
      

                                

Statement of Mattel Toys, Inc., El Segundo, California

    As a multinational corporation with offices in over 30 
countries, sales in more than 140 countries, and manufacturing 
activities in 7 countries, Mattel strongly supports the goal to 
establish the Free Trade Area of the Americas agreement by 
2005. We support all multilateral initiatives to promote the 
reduction of tariffs and non-tariff barriers, especially those 
within the hemisphere. Latin America is a very important market 
for Mattel's products. With sales and marketing offices in 
Mexico, Argentina, Chile, Venezuela and Colombia, and strong 
export sales to the rest of the region, we've enjoyed 
significant annual sales growth in Latin America for more than 
a decade. Nonetheless, we have also experienced significant 
restrictions to trade in the region including high tariffs and 
import taxes, proliferation of anti-dumping (safeguard), 
retaliatory tariff measures against toys from China, and yearly 
introduction of laws threatening imports by imposing stricter 
standards, labeling requirements or other criteria.

U.S. Objectives in FTAA Process

    1. The FTAA should eventually supersede and integrate all 
sub-regional trade accords (i.e. NAFTA, Andean Pact, ALADI, 
Mercosur, etc.) providing for one common set of trading rules 
and tariff phase-out schedules.
    2. The FTAA should promote the voluntary acceptance among 
all participatory countries of International Customs 
Guidelines. Under this framework, countries can cohesively work 
towards the goal of providing automated customs systems, the 
ability to appeal decisions of each nation's Customs Service, 
as well as pre-entry binding advice and post-entry audit 
procedures.
    3. The FTAA could improve the enforcement of Intellectual 
Property Rights in Latin America by recognizing and endorsing 
the effective methods of the U.S. Customs Service to protect 
U.S. companies from IPR violations. U.S. Customs (under 19 CFR 
133) allows businesses to register trademarks, copyrights or 
trade names with U.S. Customs. In turn, the agency protects 
these companies against infringing imports by denying entry to, 
or seizing goods which violate recorded rights. U.S. Customs 
also requires importers to obtain letters of authorization from 
trademark holders granting them permission to import products 
bearing the latters' registered trademark.
    4. The FTAA should work to harmonize product safety 
standards and testing/certification requirements in the 
hemisphere. To the greatest extent possible, uniform and 
consistent safety standards should be adopted by all parties. 
Where safety certification is required, countries should allow 
approved laboratories to conduct such certification within any 
country that is party to the agreement.
    5. The FTAA overall should promote the ideals and 
objectives of the WTO to provide for transparent, consistent 
and fair trade policies, and systemic approaches to resolving 
trade conflicts.

Major Issues Not Address by International Disciplines

    If international disciplines refers to multinational 
organizations such as the World Trade Organization and the 
World Customs Organization, then there are few, if any, trade 
issues that are not already addressed or able to be addressed 
through those organizations.
    However, as mentioned in Point 3 above, there is much room 
for improvement in the enforcement of intellectual property 
rights (IPR). As the world leader in innovative technology, the 
U.S. stands to lose the most in the face of weakly enforced IPR 
around the world. We strongly urge U.S. officials to push for 
the adoption by other countries of stricter controls to protect 
IPR by dedicating more resources towards such protection, and 
preferably modeling their enforcement on U.S. Customs 
initiatives, as domestically, those initiatives have protected 
American industries well.

Advantages/Disadvantages to Specific Sector Agreements of Codes

    While we do not recognize advantages to specific sector 
agreements, we do believe all industries would benefit more 
from a hemispheric free trade agreement were the current 7 
percent de minimis allowance for non-originating materials 
provided for under the NAFTA rules of origin, and the eventual 
FTAA rules of origin, to be increased to 25 percent. The 
outstanding balance of 75%, which would be the originating 
value, is substantial enough to ensure that the majority of all 
costs associated with labor, materials and production were 
derived in the hemisphere.
    Also, just as the U.S. eliminated the Form A for GSP claims 
in 1994, with no decline in compliance rates, we believe it is 
possible and justifiable to eliminate the NAFTA certificate of 
origin. The NAFTA form is not required to be submitted with 
entry documentation, and is requested for less than 1% of all 
entries. Given the stiff penalties for non-compliance with 
NAFTA, the elimination of the form would not reduce adherence 
to the rules. As such, we further recommend that no certificate 
of origin requirements be developed pursuant to the FTAA.

Extent to Which Subregional Arrangements Affected your 
Interests

    Our interest in the region has been strong for years from a 
sales and marketing standpoint, but with the growth in 
subregional arrangements (such as Mercosur and ALADI) we are 
increasingly recognizing Latin America as a potential source 
for manufacturing products.
    As a result of exports to Latin America from our two 
manufacturing plants in Mexico and third-party vendors, we have 
begun to experience the benefits of free trade in the region as 
a result of Mexico's participation in a free trade agreement 
with Chile, the G-3 accord with Venezuela and Colombia and the 
ALADI (LAIA).

Measures to ensure private sector advice

    The ministers should ensure that private sector advice is 
received and incorporated into the FTAA process by making 
agreements in all sectors under negotiation available to trade 
associations and organization in each country with sufficient 
time to provide thoughtful input and comments. Public-private 
sector meetings can be held to review the controversial aspects 
of the agreement.
    Participation by the business community and their eventual 
support of a final agreement will be critical, particulary when 
the time comes to promote the agreement before national 
legislators within each participating country.

Steps toward Economic Integration most beneficial to U.S. 
interests overall

    An important step in the process of hemispheric economic 
integration is for countries to afford foreign-owned companies 
invested in their country the freedom to participate and have 
voting power in local trade organizations. Regardless of the 
location of the parent company, these entitities have a stake 
in the economy and in the practices and laws imposed by the 
government which affect their industries. As employers and 
taxpayers, foreign-owned companies should have a venue in which 
to voice their interests.
    A case in point: Mattel has two wholly-owned Maquiladora 
plants in Mexico. Manufacturing done there consists of plastic 
injection, extrusion and molding, the assembly of the product, 
and packaging. According to NAFTA rules, the status of the 
Maquiladora plants will be eliminated in the year 2000, to be 
reclassified as domestic manufacturing plants. Mexico should 
accelerate the process and currently recognize these companies 
as domestic entities, based on the level of their investment in 
the economy and their required compliance with Mexican law. 
Although Mattel is one of the major toy producers in Mexico, as 
the law stands, Maquiladora plants cannot participate in the 
Toy Manufacturers Association of Mexico.
    In general, achievement of the U.S. objectives outlined in 
Point 1 would greatly benefit overall interests. In addition, 
the accelerated reciprocal reduction of tariffs by our trading 
partners and their commitment to develop transparent commercial 
practices would also be significant progress in economic 
integration.

Impediments Most Detrimental to U.S. companies doing business

    We have seen a proliferation of protectionism in the region 
in the form of anti-dumping (safeguard) retaliatory tariffs 
being imposed on toy and other products from China. As of 
January 1997, Brazil has imposed import relief duties as high 
as 70% on toys from certain countries and in addition 
established price indexes for dolls which under WTO regulations 
are considered illegal. This action seems to have sparked an 
alarming trend; Argentina had considered similar measures but 
fortunately the measure was not approved by the government.
    In both cases these tariff hikes will severely damage Latin 
America as a market for U.S. toy manufacturers. While large 
American toy companies may outsource the bulk of production, 
our high wage jobs in the States depend on the ability to 
efficiently manufacture goods around the world and on our 
ability to maintain and expand our presence in international 
markets. The current and proposed retaliatory tariffs will lead 
to burdensome price registrations, and moreover, are not 
necessarily targeted to protect domestic producers.
    In the arena of non-tariff barriers, costs incurred by 
erratic safety standards are also of great concern. Currently, 
some Latin American countries, such as Mexico, will not 
recognize U.S. safety standards. Requiring products to undergo 
repeated testing at the country of export adds unnecessary 
additional costs to export, and more importantly, delays the 
delivery of product to the ultimate consumer.

Problems in the region

1) ALADI Documentation

    Our affiliate in Argentina is unable to benefit from ALADI 
(LAIA) tariff preferences for Mexican-made products since the 
invoice used for customs declaration purposes reflects a 
Netherlands address. The invoice used in Argentina for customs 
purposes is our trading company invoice. Like many 
multinational corporations, Mattel sells its products to all 
its markets directly from our trading company. In our case, the 
trading company serves to ensure that all dutiable assist costs 
(such as tooling and design and development) are allocated into 
the final product cost. The product in question for which we 
are unable to obtain ALADI benefits has been certified by 
Mexican authorities to qualify and was shipped directly as 
required to Argentina. The fact that the customs invoice does 
not show a Mexican address should not preclude our affiliate in 
Argentina from gaining ALADI benefits when the product is 
otherwise eligible. The FTAA should ensure that documentation 
requirements are flexible and realistic enough to recognize the 
peculiarities of multinational business transactions.

2) NAFTA Business Travel

    Following NAFTA, Mexico introduced a new form, FMN valid 30 
days, for business professionals working in Mexico. This form 
is onerous and time consuming to obtain, since it must be 
certified by the Mexican Immigration when entering the country, 
and returned to Mexican Immigration officials upon exit. This 
new form encourages business travelers to use the much simpler 
Tourism form when they travel on a business trip. This 
falsification causes a discrepancy on the statistical 
registration of foreign arrivals for Mexico and generally 
jangles the nerves of American business travelers.

3) Development of uniform labeling standards.

    In Mexico, it is mandatory for toys to comply with two 
labeling standards, one with general information and the second 
with specific information on toys. This gratuitous approach to 
labeling seriously impacts the cost of exporting toys into 
Mexico, both in terms of repackaging requirements and lost time 
during Mexican Customs inspection of shipments. We recommend 
that the specific labeling standard for toys remain, but that 
compliance with the general information label be eliminated. 
This would simplify the import process for both the Mexican 
government and the toy industry.

4) Non-reciprocal tariffs

    In the Uruguay Round of GATT, the United States eliminated 
import duties for approximately 95% of all toys under the 
``Zero for Zero Agreement.'' Converse to this duty-free status, 
Mexico still imposes a tariff duty of approximately 20% on most 
toys, but absent a certificate of exclusivity, a countervailing 
duty of 350% for those from China. Even toys which qualify 
under NAFTA are subjected to an average duty rate of about 12%. 
Mexico must accelerate its commitment in the toy industry to 
reciprocal rates of duty. Our other NAFTA partner, Canada, has 
made significant progress in tariff reductions for toys, but 
needs to accelerate its progress regarding tariff rates for 
sets classified under sub-heading 9503.70 and children's ride-
on vehicles, classified under heading 9501.
      

                                

Opening Statement of Hon. Jim Ramstad, a Representative in Congress 
from the State of Minnesota

    Mr. Chairman, thank you for calling today's hearing to 
discuss U.S. trade with Latin America and the Free Trade Area 
of the Americas.
    There has been a special relationship between the U.S. and 
our fellow nations in the Western Hemisphere. While trade with 
Latin America, excluding Mexico, currently accounts for only 7% 
of total U.S. merchandise trade, we know the potential for 
growth in this trade relationship is tremendous. This region is 
the fastest growing region for U.S. exports and is expected, 
when you include Mexico, to surpass trade with Europe and Japan 
combined by 2010.
    Of course, this is our potential growth rate--and we must 
take the appropriate steps to realize this goal, which will 
contribute mightily to the U.S. economy and create more and 
better paying jobs for U.S. workers.
    We have been watching closely the many regional trade 
agreements being negotiated in the region over the past few 
years, most of which do not involve the U.S. While these 
regional agreements certainly help the participating nations' 
economies, I am worried about the lack of U.S. involvement. Of 
course, many initiatives we would like to be negotiating are on 
hold because we have not yet renewed Fast-Track Authority.
    I believe Fast-Track must be renewed soon and we should 
actively pursue the Free Trade Area of the Americas (FTAA) 
initiative first proposed by President Bush. The FTAA includes 
34 of the Western Hemisphere nations and, since it will be 
compatible with the WTO and build on progress made in existing 
regional trade agreements, it will further open up the growing 
markets in Latin America to U.S. exports.
    The FTAA will also help those Latin American nations which 
have been working so hard to reform their economies. While they 
have reduced the role of the governments over their economies 
and come to rely more on market-driven forces and private 
ownership, they have not yet achieved the rate of growth that 
can come from foreign direct investment, investments in 
education and infrastructure and the development of independent 
central banks and judiciaries. The FTAA will be a driving force 
in promoting this next level of reforms, and help the economies 
and workers throughout the Hemisphere.
    Thank you again, Mr. Chairman, for calling this hearing. I 
look forward to hearing from today's witnesses about the 
importance and implications of U.S.-Latin American trade and 
the FTAA.
      

                                

Statement of Rubber and Plastic Footwear Manufacturers Association

    The Rubber and Plastic Footwear Manufacturers Association 
(RPFMA) is the spokesman for manufacturers of most of the 
rubber-soled, fabric-upper footwear; waterproof footwear, and 
slippers made in this country. The names and addresses of the 
Association's members appear on appendix I.
    Rubber footwear is a labor-intensive, import-sensitive 
industry: Labor constitutes more than 40 percent of total cost; 
imports of fabric-upper footwear and of slippers take in excess 
of 80 percent of the U.S. market and imports of waterproof 
footwear in excess of 40 percent. These imports come from 
countries where wages are from one-fifteenth to one-twentieth 
of the level in the domestic industry.
    In announcing its hearing on the status and outlook for a 
free trade area in the Americas, the Trade Subcommittee stated 
that among matters to be considered would be the anticipated 
impact of such agreements on U.S. workers and industries. While 
the rubber footwear and slipper industry recognizes that 
expanded trade in this hemisphere is indeed in the interest of 
the United States, we are nonetheless concerned that the 
overall objective of trade expansion should not be at the price 
of threatening the continued existence of such an import-
sensitive industry as rubber footwear and slippers.
    A free trade agreement with Latin America is unlikely to 
enhance export opportunities for the products of this domestic 
industry because of the difficulty of competing anywhere in the 
world with such low-wage producers as China, Indonesia, 
Malaysia, and now Vietnam. On the other hand, the elimination 
of duties on imports of rubber footwear and slippers from Latin 
America would cause havoc to what is left of this domestic 
industry, particularly since countries like Chile, Brazil and 
Argentina already have a significant number of rubber footwear 
and slipper plants. Duties on fabric-upper footwear with rubber 
soles average in excess of forty percent and duties on 
protective footwear and slippers are, for most products, 
thirty-seven and half percent, and their elimination would have 
a more serious impact than in the case of virtually any other 
American industry.
    In the early 1970s, there were some 26,000 production 
employees making rubber and plastic footwear and 10,000 making 
slippers in the U.S. By the end of 1996, these figures shrunk 
to 4,500 and 2,100 respectively. This downsizing is 
attributable to the growth of the industry abroad.
    The dozen or so rubber footwear and slipper companies left 
in this country represent survival of the fittest. These 
companies believe that they can continue to survive if there is 
no further erosion in the present levels of their tariff 
protection. Although they have already found it necessary to do 
a significant amount of importing in order to remain 
competitive, a majority of their production still occurs in 
this country.
    A dramatic example of the effect on this industry of duty-
free trade is what has happened in the Caribbean. Until 1990, 
rubber footwear was excepted from duty-free treatment under the 
Caribbean Basin Initiative. The 1990 amendment to the CBI 
eliminated the exemption for footwear when that footwear is 
made with American components. As a result of that elimination 
of duties, rubber footwear imports from the Caribbean rose from 
200,000 pairs in 1990 to in excess of 12 million pairs in 1996.
    Accordingly, any agreement for a free trade area in the 
Americas should provide for an exception for the very few 
domestic industries, such as rubber footwear and slippers, 
whose continued survival would be endangered by the elimination 
of duties. Surely it was a recognition of the need for such 
limited exceptions which accounted for the language of 
paragraph eight in article XXIV of the GATT which defines a 
free trade agreement as one where ``the duties and other 
restrictive regulation of commerce ... are eliminated in 
substantially all the trade between the constituent territories 
or products originating in such territories'' (emphasis added). 
Surely the benefits which accrue from a free trade agreement 
would not be diminished by protecting the minuscule fraction of 
one percent of the country's trade represented by rubber 
footwear and slippers.
    The Rubber and Plastic Footwear Manufacturers Association 
urges that Congress, in any grant of authority for the 
negotiation of a free trade area of the Americas, should make 
it clear that the objective is the elimination of substantially 
all duties and that exceptions are to be permitted in 
extraordinary situations where the very survival of a domestic 
industry is at stake.
      

                                

Appendix I

         Rubber and Plastic Footwear Manufacturers Association

American Steel Toe
P.O. Box 959
S. Lynnfield, MA 01940-0959

Converse, Inc.
One Fordham Road
North Reading, MA 01864
(with a plant in North Carolina)

Draper Knitting Co.
28 Draper lane
Canton, MA 02021

Genfoot
673 Industrial Park Road
Littleton, NH 03561

S. Goldberg and Co.
20 East Broadway
Hackensack, NJ 07601-6892

Hudson Machinery Worldwide
P.O. Box 831
Haverhill, MA 01831

Kaufman Footwear
Batavia, NY

LaCrosse Footwear, Inc.
P.O. Box 1328
LaCrosse, WI 54602
(with plants also in New Hampshire and Oregon)

Frank C. Meyer Co.
585 South Union Street
Lawrence, MA 01843

New Balance Athletic Shoe, Inc.
38 Everett Street
Allston MA 02134-1933
(with plants also in Maine)

Norcross Safety Products
1136 2nd Street, P.O. Box 7208
Rock Island, IL 61204-7208

Spartech Franklin
113Passaic Avenue
Kearney, NJ 07032

Tingley Rubber Corporation
200 South Avenue, P.O. Box 100
S. Planfield, NJ 07080
      

                                

Opening Statement of Hon. E. Clay Shaw, Jr., a Representative in 
Congress from the State of Florida

    Mr. Chairman and members of the Subcommittee:
    Thank you for allowing me to submit this statement in 
opposition to legislation under consideration by this 
Subcommittee that would amend the Andean Trade Preferences Act 
(``ATPA'') to prohibit the provision of duty-free treatment for 
fresh-cut flowers. The Subcommittee has heard testimony on this 
specific area of Latin American trade from the bill's sponsors, 
and my colleagues Congressmen Sam Farr and Tom Campbell as well 
as domestic flower interests. As the Subcommittee considers 
this proposed legislation, I believe it is important to 
understand the significance of fresh cut flower imports to the 
Florida and the United States' economies. Imports of fresh-cut 
flowers greatly benefit the U.S. economy and U.S. consumers and 
provide a major economic stimulus to the State of Florida.
    Miami is the point of entry for most imports of fresh-cut 
flowers from Latin America, primarily Columbia, which is by far 
the largest source of fresh-cut flower imports. Indeed, $8.0 
billion worth of flowers each year are shipped into this 
country through Miami's ports and airports. About $600 million 
in annual economic activity is generated in Florida alone by 
fresh-cut flower imports.
    Fresh-cut flower imports are a major source of employment 
in Florida. Among the many jobs that may be lost or severely 
harmed by enactment of the Farr/Campbell proposal are the 6,600 
persons who handle the 30,000 boxes of flowers daily as part of 
the shipping and transportation sectors:
    100 Florida importers, with a collective payroll of $62 
million and 1,800 employees, who depend on fresh-cut flowers 
imports, and the 10 Bouquet companies that employ an additional 
600 workers.
    The pilots, airline staff and 1,400 airport personnel whose 
jobs rely on the 21 daily flights devoted to carrying fresh-cut 
flowers from Columbia to Miami.
    The 1,500 employees in the Florida trucking industry who 
move flowers throughout the U.S. for a collective annual 
payroll of $44 million.
    Additionally Florida's 1,600 supermarkets and 30 grocers, 
which have floral departments, employ 3,260 persons. These jobs 
depend on the import and sale of flowers.
    Imports of fresh-cut flowers are also important to the U.S. 
economy and U.S. consumers.
    In 1996, annual industry sales to consumers totaled $11.5 
billion. Seventy percent (70%) of this figure or $8.05 billion 
resulted from fresh-cut flower imports. The importation of 
these fresh-cut flowers supports a very substantial number of 
jobs in the United States . U.S. flower importers alone employ 
nearly 7,000 workers; air cargo companies handling flowers 
imported through Florida employ nearly 2,000 workers; and 
trucking companies moving flowers within the U.S. employ about 
1,600 workers.
    The 1,000 wholesalers handling fresh-cut flower imports 
employ 22,800 workers. Supermarkets and independent grocers, a 
market largely ignored by U.S .flower growers employ over 
30,483 workers in their floral departments. Retail florists in 
the U.S. who rely heavily on fresh-cut flower imports employ 
151,000 workers.
    Fresh cut flower imports have also benefited the U.S. 
consumer. What used to be a luxury item that few Americans 
could afford is now affordable and more widely available than 
ever before. According to a U.S. Internatioal Trade Commission 
(``ITC'') Report on the ATPA published in September 1996, of 
all imports to the U.S. receiving ATPA preferences, U.S. 
consumers reap the largest benefits from the Columbian fresh-
cut flowers. At the same time, the ITC report found that the 
displacement effect of Columbian fresh-cut flowers on the U.S. 
flower industry is ``relatively small.''
    Mr Chairman, this attempt to withdraw ATPA trade prefernces 
from fresh-cut flowers is directed at Columbia, as mentioned 
above, the largest source of fresh-cut flower imports from 
Latin America. Proponents argue that because Columbia remains 
at the forefront in traffiking in illicit drugs to the U.S. 
that we should withdraw ATPA benefits. I believe there is a 
mistaken belief among the sponsors of this legislation that the 
main goal of the ATPA was to encourage crop substitution, and 
on that basis, the ATPA has failed. In fact, Congress enacted 
the ATPA in 1991 to promote broad-based economic development, 
stimulate investment in nontraditional industries, and to 
diversify the export base of Columbia and the other Andean 
countries, Ecuador, Bolivia and Peru. The primary goal of the 
ATPA is in fact being met by the fresh-cut flower sector: a 
significant, alternative source of jobs and economic growth has 
been created and sustained, thus providing a key means by which 
to shift resources away from illicit activity and towards 
legitimate industry.
    The ATPA preferences are critical to the continued 
viability of U.S. flower wholesalers and retailers who have no 
adequate alternative supply of fresh cut flowers. Withdrawal of 
ATPA trade benefits will harm an important industry sector and 
source of jobs here in the U.S. and in Florida.
    I urge the Chairman and the Subcommittee to support the 
ATPA and oppose this legislation.
      

                                

Statement of Albert C. Zapanta, President, United States-Mexico Chamber 
of Commerce

                              Introduction

    The United States brings the world's leading economy, 
largest market and the fewest barriers to trade to negotiations 
on the Free Trade Area of the Americas (FTAA). The country also 
has one of the world's most dynamic export sectors--small, 
medium and large companies that provide jobs in the United 
States and would clearly benefit from an FTAA. Such an 
agreement will not be possible and will not be in the United 
States' interest withoug strong United States leadership. Fast-
track authorization for the President is crucial to United 
States leadership in the Western Hemisphere.
    As part of the process of examining whether the United 
States should embark on a hemispheric free trade agreement, it 
makes sense to examine the impact on the United States of the 
North American Free Trade Agreement. NAFTA has been in 
existence for three and one-half years and it is the first free 
trade agreement between countries with such different levels of 
income. After three and one-half years it is clear that NAFTA 
is good for the United States and good for Mexico and that the 
exaggerated claims both by NAFTA's proponents and NAFTA's 
opponents during the NAFTA ratification process were off the 
mark. The large number of job losses or job gains has not 
materialized. Instead, a historical process is leading toward a 
more prosperous regional economy. The U.S. took the first step 
toward a FTAA with the U.S.-Canada Free Trade Agreement in 
1989. In 1993, Congress approved NAFTA, which created a a 
comprehensive rules-based agreement between the United States, 
Canada, and Mexico. The Agreement dramatically reduced some 
tariffs immediately while other tariffs will fall to zero over 
a 5 to 15 year period.

NAFTA goes well beyond tariff reduction.

     In goods trade it opened previously protected 
sectors in agriculture, energy, textiles, and automotive trade.
     It opened up the U.S.-Mexico border to trade in 
services with specific rules in financial services, 
transportation services, and telecommunication services.
     It set rules on government procurement and 
intellectual property rights.
     It set specific safeguards including how to deal 
with subsidies and unfair practices; it set up procedures for 
dealing with private commercial or agricultural disputes; and 
it set up a process for dealing with NAFTA implementation 
concerns.
    Mexico is making far more significant changes to its 
economy because of NAFTA than the United States. Mexican 
tariffs on U.S. goods averaged 10 percent in 1993 while U.S. 
tariffs on Mexican products averaged 14 percent. Mexico is 
moving its rules on investment closer to those which prevailed 
in the United States.
    NAFTA has continued the process of opening the U.S.-Mexico 
border to increased commerce. Two way trade between the United 
States and Mexico has risen 60 percent from 1993, the year 
before NAFTA was implemented to 1996, the third year of its 
existence.
    The NAFTA has bipartisan support in the U.S. During his 
campaign in 1980, President Reagan proposed a ``North American 
Accord.'' In the mid-1980's, President de la Madrid began a 
dramatic opening of the Mexican economy leading to Mexico's 
accession to the General Agreement on Tariffs and Trade (GATT) 
in 1987. Negotiations to ``lock in'' and deepen this trade and 
investment liberalization took place under the leadership of 
President Bush with the oversight of a Democratic-led Congress. 
This agreement was passed with the strong support of President 
Clinton and the Republican leadership in the Congress.
    NAFTA has broad support in Mexico. NAFTA is publicly 
supported by the majority party in Mexico (PRI) and has the 
support of leading opposition parties.
    But Mexico is economically small compared with the U.S. 
Mexican GDP in 1996 was about $327 billion, or 4.4 percent of 
the U.S. GDP--$7,500 billion. Put another way, Mexico's economy 
is about the size the state of Florida's economy.
    Therefore, much of the rhetoric about jobs, both from 
proponents of NAFTA and from its opponents were highly 
exaggerated. The most reliable current information suggests 
that NAFTA has had almost no impact on overall employment 
levels in the U.S. However, the information does show that the 
jobs created from new U.S.-Mexico trade induced by NAFTA have 
higher wages than the jobs that have left the country. Indeed, 
broader research carried out by the Institute for International 
Economics has shown that export-related jobs pay on average 10 
percent higher than jobs related to production solely for the 
domestic market.
    U.S. employment has risen, and the level of unemployment 
has decreased during the first three years of NAFTA. The 6.4 
million net new jobs created over this three year period led to 
a decrease in the number of unemployed from 8.5 million to 7.2 
million, which was due only in the most marginal way to NAFTA. 
Rather it is due to the continued expansion of the U.S. 
economy. In fact, over this three year period, it is estimated 
that 31,000 new jobs were created and 28,000 jobs were lost due 
to NAFTA. This needs to be put into perspective. Over this 
period millions of jobs were created and lost due to ongoing 
changes in the dynamic U.S. economy.

                            Mexico's Economy

    Therefore, the peso crisis and the shifting of the U.S. and 
Mexican trade balance has had little impact on employment in 
the United States. Mexico was forced to dramatically devalue 
its peso, making its exports far more competitive, and reducing 
its imports both because they were relatively more expensive 
and because Mexico experienced a severe recession in 1995.
     The Mexican overall trade balance went from a 
$18.5 billion deficit in 1994 to a $7.1 billion surplus in 1995 
after the peso devaluation in December 1994. The impact of this 
change on the U.S. exports to Mexico was significantly less 
than the impact on Asian or European exports to Mexico. This 
was due in part to NAFTA commitments made by Mexico and due in 
part to co-production schemes between Mexico and the United 
States. This increased commerce in intermediate goods from the 
United States began with the opening of the Mexican economy in 
the mid-1980s and has accelerated with NAFTA. U.S. exports to 
Mexico slipped only $4 billion in 1995 while Mexican exports to 
the U.S. rose about $12 billion that same year.
     That U.S. jobs rose and unemployment fell during 
this $25 billion trade balance shift with Mexico is strong 
evidence that trade deficits are not a cause of job losses or 
its corrolary, that trade surpluses lead to job gains. France 
is an example of a country running a large trade surplus but it 
has an unemployment rate exceeding 15 percent. The number of 
jobs in an economy depends on macroeconomic and microeconomic 
conditions in the economy and not on a nation's trade balance.
     The fall in the Mexican economy was muted and its 
recovery accelerated because of NAFTA. NAFTA provides investors 
with an additional level of confidence and its existence 
undoubtedly helped the political case for the major rescue 
package put together at the outset of the peso crisis.
     Because of the recovery of the Mexican economy in 
1996, when GDP grew 5.1 percent, U.S. exports to Mexico have 
recovered well and are now 20 percent higher than before the 
peso crisis and 35 percent higher than before NAFTA. However, 
even with this beginning of a recovery in Mexico, large number 
of Mexico's workers are still feeling the effects of the 
devaluation and the resultant recession.
    Mexico remains exceptionally important to the U.S. Mexico's 
population of approximately 93 million is about one third the 
size of the U.S. As the third-largest market for U.S. goods and 
services, a growing, prosperous Mexico is in the interest of 
every citizen in the U.S. Not only will this lead to lower 
illegal immigration and a healthier environment in Mexico, but 
a vibrant Mexico will be better able to deal with illegal drug 
activities which are hurting both of our societies.
     The economic policies of the Zedillo 
Administration in Mexico today should lead to dynamic export-
led growth in Mexico with a stable, consumer driven economy 
which will continue to buy higher and higher quantities of 
sophisticated products made in capital intensive and high wage 
U.S. industries.
     The reality is that the U.S. trade surplus with 
Mexico in 1994, which made up part of Mexico's $30 billion 
current account deficit, was unsustainable. In order to fund 
this huge current account deficit up to December 1994, Mexico 
was forced to adopt economic policies which, over the long 
term, constrained economic growth. United States citizens (and 
Mexican citizens) need to take a longer term view of our 
bilateral economic relations.

                    Maintaining Confidence in NAFTA

    Some friction is inevitable under a large complex agreement 
such as NAFTA, but both the United States and Mexico need to 
act quickly to find solutions so that confidence in the overall 
agreement is maintained. The United States should work to 
resolve outstanding NAFTA issues as it continues FTAA 
negotiations.
     The United States should implement the 
transportation agreement negotiated under NAFTA. The NAFTA 
agreement called for trucks from both the U.S. and Mexico to be 
able to deliver goods across the border, to border states in 
Mexico and the U.S., starting in December 1995. The U.S. 
government has delayed the certification process for Mexican 
trucks. All parties agree that it is important that foreign 
trucks meet domestic safety rules. It is important for the 
future of NAFTA implementation that this breach of the NAFTA 
implementation schedule be fixed as soon as possible so that it 
does not set a precedent for partner countries to ignore 
selected NAFTA rules under strong political pressure.
     One of the key principles of NAFTA is national 
treatment. Governments must treat firms of partner countries in 
the same way they treat their own firms. One area where 
Mexico's Ministry of Transportation and Communications (SCT) 
has reneged on national treatment is in small package express 
delivery. While Mexico agreed to national treatment of this 
service in NAFTA, it has yet to implement the rules to make 
this happen.
     In the last U.S. Congress, the Senate failed to 
act on a bill which would lift the embargo placed on Mexican 
tuna caught in the eastern Pacific. Because Mexican fishing 
fleets have adopted all the accepted international procedures 
for reducing the number of dolphins killed when catching tuna, 
this bill was supported by all the main environmental groups in 
the United States. The new Congress should act quickly to lift 
this embargo.
     Both the U.S. and Mexican governments should 
reconsider actions taken in the corn broom dispute. In 
December, 1996, the U.S. invoked a NAFTA safeguard clause 
permitting a temporary increase in duties on Mexican corn 
brooms. Mexico has retaliated by raising duties on a variety of 
unrelated items. While both actions are acceptable under NAFTA 
rules, they go against the spirit of the agreement.
     The final rule issued by the U.S. Department of 
Agriculture on January 31, 1997 to overturn the 83-year ban on 
the importation of avocados from Mexico and permit their export 
to 19 Northeastern states and the District of Columbia should 
ease a major irritant in U.S.-Mexico trade relations. While 
this decision was based on scientific evidence, it could still 
face challenges from the courts or from direct Congressional 
action.

                         Environment and Labor

    The 2,000 mile U.S.-Mexico border separates two countries 
with significantly different income levels. The development of 
appropriate infrastructure to deal with increased commerce, 
continuing the process of reducing environmental degradation, 
and improving working conditions on both sides of the border, 
will be essential to maintain confidence in NAFTA.
    The United States and Mexico have made progress over the 
past three years addressing three decades of deteriorating 
environmental conditions along the U.S.-Mexico border. The 
North American Agreement on Environmental Cooperation (NAAEC) 
was approved as a side agreement to NAFTA to insure that all 
parties enforce national and international environmental laws 
and address environmental issues that arise as a result of 
NAFTA implementation.
     There has been improved environmental regulations 
and positive action to jump-start two new environmental 
institutions set up to address environmental infrastructure 
problems on the U.S.-Mexico border. Both the Border Environment 
Cooperation Commission (BECC) and the North American 
Development Bank (NADBank) have developed mechanisms for 
community participation, and have approved and allocated loan 
funds for infrastructure projects. In addition, the Border XXI 
Program, a plan by the U.S. and Mexican governments to address 
border environmental issues and assure sustainability, has 
received extensive citizen input and the final version of the 
plan was published in October 1996.
     The Commission for Environmental Cooperation (CEC) 
was created to oversee the implementation of the NAAEC.
     The U.S. Congress recently named the U.S.-Mexico 
Chamber of Commerce as the recipient of a grant--through the 
Department of Commerce--to improve the U.S.-Mexico business 
community's access to Mexico's environmental rules. The goal of 
the grant is to remove non-tariff barriers present in 
regulatory uncertainty, enhance business opportunities and 
promote sustainable environmental practices.
    The North American Agreement on Labor Cooperation (NAALC) 
rests on sound labor laws of the United States, Mexico, and 
Canada. This pact was also approved as a side agreement of 
NAFTA and permits citizens of any NAFTA country to request that 
their government examine how the labor laws in a partner 
country are being enforced. This agreement does not rewrite any 
country's labor laws, but puts public pressure on enforcement.
     For example, in one case which involved the right 
of union registration at a Mexican electronics plant, not only 
did the Mexican government meet separately with the workers and 
the plant managers, but agreed to commission a study by 
independent experts to examine the issue of union registration 
in Mexico and prepare a public report. In addition, the Mexican 
government held a series of public seminars in Mexico City, San 
Antonio, and Monterrey attended by government officials, 
academics, management, and labor representatives to discuss the 
issue of union registration and other labor law issues.

                               Accession

    The NAFTA contains a very simple clause which states that 
if agreed to by the United States, Mexico, and Canada, other 
countries can accede to this agreement. In June 1995, officials 
of the United States, Mexico, and Canada agreed that 
negotiations should begin regarding Chile's accession to the 
NAFTA.
     In the fall of 1996, when the President was unable 
to obtain fast-track negotiating authority, Chile withdrew from 
the negotiations and has negotiated separate bilateral 
arrangements with Mexico and Canada.
     Under fast tract negotiating authority, the 
Congress delegates to the President the authority to negotiate 
a trade agreement involving tariff reductions and agrees to 
either vote for or against the agreement and not amend it. This 
authority is essential--historically the Congress has been 
unsuccessful in carrying out trade negotiations because of the 
diverse views of its members and because countries are 
unwilling to negotiate with the President an agreement which 
can be changed by the U.S. Congress.
     In December 1994 the 34 democratically elected 
leaders in this Hemisphere agreed to forge a Free Trade Area of 
the Americas (FTAA) by 2005. If the strong rules-based 
disciplines contained in the NAFTA are to become the norm in 
the hemisphere, it is imperative that the President be given 
fast track authority by the Congress so that Chile can be 
admitted and momentum for this type of Hemispheric agreement 
can be obtained.
    Canada and Mexico are reaching out to other countries in 
the hemisphere and signing bilateral trade agreements. These 
arrangements put U.S. firms at a competitive disadvantage 
compared with their Canadian and Mexican counterparts.

                               Conclusion

    NAFTA has locked in fundamental economic reforms in Mexico 
and, under President Zedillo, these reforms are being widened 
and deepened. With the increase in commerce between the United 
States and Mexico, which began in the late 1980s and 
accelerated with NAFTA, the lives of the citizens of the United 
States and the citizens of Mexico are being improved. Clearly, 
the United States has benefitted from a free trade agreement. 
But NAFTA was only the first step toward a larger goal. An FTAA 
would lock in the economic reforms already established by the 
Hemisphere's democracies and further open some of the most 
important and most dynamic markets in the world. U.S. and 
Mexican firms--including many members of the U.S.-Mexico 
Chamber of Commerce--have found that this agreement has worked 
for them and their workers. Now, the Untied States should 
reassert its leadership in the FTAA process by granting the 
President Fast Track authority and the ability to negotiate on 
behalf of the United States. Congress will still have final say 
on any agreement reached by the executive branch.
      

                                

    The United States-Mexico Chamber of Commerce (USMCOC), 
incorporated in 1973 in the District of Columbia as a 501 
(c)(6) non-profit corporation, is a chartered binational 
chamber promoting trade and investment between the two American 
nations. The USMCOC represents more than 1,000 businesses and 
maintains offices in Washington, D.C., Mexico City, Los 
Angeles, San Diego, Dallas, Austin, New York, Denver, 
Albuquerque, Chicago, Tampa, Seattle, Portland, Detroit, 
Monterrey, Guadalajara and Tokyo. The following firms sit on 
the Chamber's Board of Directors.

Aguirre International
San Mateo, CA

Alestra, S.A. de C.V.
Guadalajara, Jal.

Amedex Worldwide
Miami, FL

American Breco Corporation
Houston, TX

American Trucking Associations, Inc.
Alexandria, VA

Arizona Public Service Company
Phoenix, AZ

Arthur Andersen L.L.P.
Houston, TX

AT & T Communications Americas
Mexico, DF

AT&T
Coral Gables, FL

Ater Wynne Hewitt Dodson & Skerritt
Portland, OR

Banamex, S.A.
New York, NY

Bank of America
San Francisco, CA

Bell Helicopter Textron
Fort Worth, TX

Boise Cascade
Boise, ID

Border Trade Alliance
Phoenix, AZ

Bufete Industrial
Mexico, DF

Burson-Marsteller
New York, NY

California Commerce Bank
Los Angeles, CA

CANACINTRA
Mexico, DF

CANACO
Mexico, DF

Carlsmith Ball Wichman Case & Ichiki
Los Angeles, CA

Carlsmith Ball Garcia Cacho Zurikaray y Asociados, S.C.
Mexico, DF

CEMAI
Mexico, DF

COPARMEX
Mexico, DF

Corporativo Grupo IMSA
Monterrey, NL

Deloitte & Touche L.L.P.
Long Beach, CA

DFI de Mexico, S.A. de C.V.
San Antonio, TX

DoubleTree de Mexico, S.A. de C.V.
Mexico, DF

DUMAC
Garza Garciea, N.L.

Embassy of Mexico
Washington, DC

Ernst & Young, L.L.P.
New York, NY

Feld Entertainment, Inc.
Vienna, VA

FINSA/Grupo Arguumlelles
Mexico, DF

Giromex, Inc.
San Diego, CA

Grupo Cisneros Internacional
Lakewood, CO

Grupo Editorial Expansion
Mexico, DF

Grupo ISA
Carlsbad, CA

Grupo MASECA
San Pedro Garza Garcia, NL

Grupo Multiplo
Mexico, DF

Grupo Protexa
Santa Catarina, N.L.

Guilford Mills, Inc.
Greensboro, NC

H.D. Vest Financial Services
Dallas, TX

Holland & Knight L.L.P.
Washington, DC

IBM
Armonk, NY

Instituto Tecnologico y de Estudios Superiores de Monterrey-Campus 
Mexico
Mexico, DF

International Hospital Corporation
Dallas, TX

Jenkens & Gilchrist, P.C.
Dallas, TX

Jones & Co.
Seattle, WA

Juan Woodroffe & Assoc.
San Juan, PR

KN Energy, Inc.
Lakewood, CO

KPMG Cardenas Dosal
Mexico, DF

KPMG Peat Marwick
Los Angeles, CA

Lobdell Emery
Elma, MI

Mattel
El Segundo, CA

Mid-America Committee
Chicago, IL

Mobil Oil Corporation
Fairfax, VA

NationsBank
Dallas, TX

NationsBank de Mexico
Mexico, DF

Opticas Lux, S.A.
Mexico, DF

Orion International Technologies
Albuquerque, NM

Pilgrim's Pride de Mexico
Mexico, DF

Qualcomm Incorporated
San Diego, CA

RKF International
Alpine, CA

Royal Caribbean International
Miami, FL

San Diego Gas & Electric
San Diego, CA

Seguros Monterrey Aetna, S.A.
Mexico, DF

Source One Management, Inc.
Denver, CO

Stanton Chase International
Dallas, TX

TFM/TMM
Mexico, DF

Travel Agent Magazine
New York, NY

United Parcel Service
Washington, DC

United States-Mexico Border Progress Foundation
San Diego, CA

Universidad de las Americas-Puebla
Mexico, DF

University of Texas at Dallas-Amundsen Institute
Dallas, TX

USMCOC Border Area Task Force
San Diego, CA

USMCOC Tourism Task Force
New York, NY

USMCOC Transportation Task Force
Washington, DC

Vitro, S.A.
Garza Garcia, NL

Vulcan Materials
Birmingham, AL

Vulcan/ICA
Tampa, FL

Whitehall Financial Group
Los Angeles, CA

WMC Mortgage Corp.
Los Angeles, CA

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