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



 
              U.S. TRADE POLICY OBJECTIVES AND INITIATIVES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 1997

                               __________

                             Serial 105-53

                               __________

         Printed for the use of the Committee on Ways and Means

                               ----------

                      U.S. GOVERNMENT PRINTING OFFICE
51-072 cc                     WASHINGTON : 1999



                      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

Advisory of February 25, 1997, announcing the hearing............     2

                               WITNESSES

Office of the U.S. Trade Representative, Hon. Charlene Barshefsky    17

                                 ______

Bergsten, C. Fred, Institute for International Economics.........    68
Business Roundtable, Joseph Gorman...............................    80
Center for Strategic and International Studies, Sidney Weintraub.   154
Cooper, Mitchell J., Rubber and Plastic Footwear Manufacturers 
  Association....................................................   168
Cowen, Bruce D., TRC Companies, Inc., and U.S. Chamber of 
  Commerce.......................................................   114
Denham, Robert E., Salomon Bros., Inc............................   100
Emergency Committee for American Trade, Michael H. Jordan........    96
Gibbons, Hon. Sam, Gibbons & Co., Inc............................    64
Gorman, Joseph, TRW, Inc., and Business Roundtable...............    80
Hills & Co., Carla A. Hills......................................    48
Holmer, Alan F., Pharmaceutical Research and Manufacturers of 
  America........................................................   136
Institute for International Economics, C. Fred Bergsten..........    68
Jordan, Michael H., Westinghouse Electric Corp., and Emergency 
  Committee for American Trade...................................    96
National Foreign Trade Council, John E. Pepper...................    90
Pharmaceutical Research and Manufacturers of America, Alan F. 
  Holmer.........................................................   136
Pope, Carl, Sierra Club, as presented by Daniel Seligman.........   118
Proctor & Gamble Co., John E. Pepper.............................    90
Public Citizen's Global Trade Watch, Lori Wallach................   142
Rubber and Plastic Footwear Manufacturers Association, Mitchell 
  J. Cooper......................................................   168
Salomon Bros., Inc., Robert E. Denham............................   100
Sierra Club, Carl Pope, as presented by Daniel Seligman..........   118
Sweeney, John P., Heritage Foundation............................   159
TRC Companies, Inc., Bruce D. Cowen..............................   114
TRW, Inc., Joseph Gorman.........................................    80
U.S. Chamber of Commerce, Bruce D. Cowen.........................   114
Visclosky, Hon. Peter J., a Representative in Congress from the 
  State of Indiana...............................................     9
Wallach, Lori, Public Citizen's Global Trade Watch...............   142
Weintraub, Sidney, Center for Strategic and International Studies   154
Westinghouse Electric Corp., Michael H. Jordan...................    96

                       SUBMISSIONS FOR THE RECORD

AK Steel Co. et al., joint statement and attachment..............   178
American Association of Exporters and Importers, New York, NY, 
  statement......................................................   183
American Forest & Paper Association, W. Henson Moore, statement 
  and attachments................................................   186
Association of American Chambers of Commerce in Latin America, 
  Andrew Howell, statement.......................................   189
Bethlehem Steel Corp. et al., joint statement....................   191
Flashlight Tariff Coalition, James B. Clawson, letter............   195
Jamaica, Government of, His Excellency Richard L. Bernal, 
  statement......................................................   197
Stewart, Terrence P., Stewart and Stewart, statement and 
  attachment.....................................................   205


              U.S. TRADE POLICY OBJECTIVES AND INITIATIVES

                              ----------                              


                        TUESDAY, MARCH 18, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
Crane (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

February 25, 1997

No. TR-3

                       Crane Announces Hearing to

          Review U.S. Trade Policy Objectives and Initiatives

    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 U.S. trade policy objectives and 
initiatives. The 21st century starts January 1, 2001. That's four years 
away. The hearing will take place on Tuesday, March 18, 1997, in the 
main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 10:00 a.m.
      
    Oral testimony will be heard from both invited and public 
witnesses. Invited witnesses will include United States Trade 
Representative-Designate Charlene Barshefsky, who will discuss the 
President's trade policy agenda for his second term. 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:

      
    With U.S. exports and imports of goods and service accounting for 
over 30 percent of the Gross Domestic Product, the international 
character of the United States economy is more pronounced than ever. 
Trade barriers facing U.S. exporters have a direct negative impact on 
the ability of the United States to generate economic growth and create 
new jobs. At the same time, many countries with formerly closed 
economies in Asia, Latin America, and Eastern Europe are replacing 
long-standing policies of State control with free market reforms and 
liberalized trade regimes. Developing countries, many of which are 
entering periods of high economic growth, will create new demand for 
American products and services, if the markets of these countries are 
opened to foreign imports, and the United States more actively promotes 
its exports.
      
    Possessing only four percent of the world's population and a 
relatively mature economy, the United States must have a trade policy 
which aims to capitalize on its strengths: a skilled workforce, high 
levels of innovation and productivity growth, a vigorous service 
sector, and a superior educational system. However, maintaining the 
competitiveness of U.S. firms in world markets will be achieved only if 
the United States is well-positioned to react quickly to a continually 
changing global environment. As the importance of removing a new 
generation of sophisticated trade barriers, including prohibitions on 
providing financial services, opaque procurement practices, unfair 
subsidies, arbitrary sanitary and phytosanitary standards, and 
investment restrictions grows, so does the need to exercise U.S. trade 
policy leadership where the gains for U.S. firms and workers are judged 
to be the most substantial.
      
    The 103rd Congress approved legislation implementing the results of 
two major trade negotiations, the North American Free Trade Agreement 
(NAFTA) and the Uruguay Round Trade Agreements, which established the 
World Trade Organization. Implementation of both agreements should be 
monitored to ensure that the intended benefits are fully realized. 
Several trade initiatives, including those aimed at establishing a Free 
Trade Agreement of the Americas and the Asia Pacific Economic 
Cooperation Group, are ongoing but have shown recent signs of stalling. 
Other important undertakings, such as bringing Chile and Caribbean 
Basin countries into NAFTA and the Transatlantic Agenda announced by 
President Clinton and European leaders at the December 1995 Madrid 
Summit, offer the possibility of further eliminating barriers to trade 
and investment in these important markets.
      

FOCUS OF THE HEARING:

      
    The Subcommittee requests that witnesses address: (1) appropriate 
trade negotiating objectives in a post-Uruguay Round environment and 
priorities for future trade liberalization initiatives; (2) the 
potential economic impact of new trade agreements; (3) consequences for 
the U.S. economy if trade liberalization in the world economy wanes; 
(4) implications for the U.S. economy of expanded trade arrangements, 
especially in the Western Hemisphere, to which the United States is not 
a party; and (5) whether the United States is ceding economic 
opportunities and world leadership to other nations if it were not to 
pursue additional market opportunities for U.S. firms and workers 
though various multilateral, regional, and sectoral negotiations.
      

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, Tuesday, March 11, 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, Friday, March 14, 
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 on Tuesday, April 1, 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.
      

    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 202-225-1904 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.
      

                                

    Chairman Crane. Good morning. This is a meeting of the Ways 
and Means Trade Subcommittee to consider the broad issue of 
U.S. trade policy goals and initiatives. My hope is that 
Members and witnesses will discuss the role that the United 
States intends to play in the international economy into the 
next century.
    One course is for the United States to maintain an agenda 
of active engagement with the rest of the world, accepting the 
responsibility of our traditional leadership role and 
preserving our position as the world's greatest exporter. The 
other option is to sit hesitantly on the sidelines in the next 
century, letting our competitors shape the rules under which 
U.S. firms and workers do business in international markets.
    In considering the variety of trade initiatives in which 
the United States is a participant, I am struck by the fact 
that chances for success, in many instances, will be markedly 
improved if Congress approves new trade agreement negotiating 
authority. But regardless of the outcome of the fast track 
debate, the United States must continue to remain aggressively 
engaged in trade talks in Asia, among countries in the European 
Union, and in our own hemisphere. There is much that can be 
achieved while fast track legislation is pending.
    I now recognize our distinguished Ranking Member, Mr. 
Matsui, for an opening statement.
    Mr. Matsui. Thank you, Mr. Chairman. This hearing today to 
review U.S. trade policy objectives and initiatives is 
important and timely, as Congress and the country begin to 
engage in a debate over the future direction of U.S. trade 
policy and trade negotiations as we prepare to enter the 21st 
century.
    The President has stated his intention to seek renewal of 
fast track authority to implement trade agreements. To conduct 
a successful U.S. trade policy, it is essential to rebuild a 
bipartisan domestic consensus within the private sector, as 
well as the administration and Congress, on our future trade 
negotiating priorities and objectives.
    International trade--that is, imports and exports of goods 
and services--now account for over 30 percent of our gross 
national product. Increased exports are a leading engine for 
our economic strength and growth and have created many new and 
higher paying jobs.
    The United States must maintain its leadership in seeking 
further trade liberalization around the world in order to 
maintain a strong competitive economy. At the same time, we 
must be cognizant of and address the fact that not all 
industries, companies, or workers share in the benefits of 
trade, and recognize that there are costs as well as benefits 
to increased trade.
    Globalization is a fact of life today and for the future 
and cannot be reversed. The challenge is to find better ways 
for all of our companies and workers to compete, to adjust to, 
and benefit from the global economy.
    With respect to fast track, Mr. Chairman and Members of 
this Subcommittee, the fact is that foreign countries are 
unwilling to negotiate trade agreements with us that require 
congressional approval unless they have some assurance the 
agreement they negotiate is not subject to renegotiations by 
the Congress. It would appear that until we renew fast track, 
the President's ability to manage our trade relations to open 
markets abroad will be severely restricted.
    Democratic and Republican Presidents alike have had fast 
track authority for the past 20 years and have used it 
successfully in negotiating and implementing major bilateral, 
multilateral, regional trade agreements through a process that 
involved thorough consultation with and input of the 
congressional leaders and the private sector.
    The challenge now before us is to build a broad domestic 
consensus with the United States, involving government, 
business, labor, consumers, and other private interests to 
support future market-opening trade initiatives, to achieve 
agreement on appropriate negotiating objectives and priorities 
for our country, and to provide the tools to the President 
necessary to accomplish these goals.
    Mr. Chairman, this hearing is a worthwhile first step in 
this direction. I look forward with great interest to the 
testimony today from the administration, private sector, 
academic witnesses, and others. In particular, I welcome 
Ambassador Barshefsky and congratulate her on passage last week 
of the legislation that enabled her to be confirmed as the U.S. 
Trade Representative.
    [The opening statements of Mr. Matsui and Mr. Ramstad 
follow:]

[GRAPHIC] [TIFF OMITTED] T1072.068

[GRAPHIC] [TIFF OMITTED] T1072.069

[GRAPHIC] [TIFF OMITTED] T1072.070

      

                                

[GRAPHIC] [TIFF OMITTED] T1072.071

      

                                

    Mr. Matsui. Thank you, Mr. Chairman.
    Chairman Crane. Today we will hear from a number of 
distinguished witnesses. Our first witness will be Congressman 
Pete Visclosky, who represents the First District of Indiana. 
Please proceed, Pete.

   STATEMENT OF HON. PETER J. VISCLOSKY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF INDIANA

    Mr. Visclosky. Thank you, Mr. Chairman. And as I 
understand, my entire statement will be entered into the 
record.
    Chairman Crane. Without objection.
    Mr. Visclosky. Mr. Chairman, I would like to thank you and 
the other Members of the Trade Subcommittee for allowing me to 
testify regarding U.S. trade policy objectives and initiatives. 
I would like to briefly focus my testimony on the importance of 
linking respect for internationally recognized worker rights to 
the conduct of international trade.
    Linking respect for worker rights to trade is not a new or 
radical concept in U.S. or international law. Nearly a century 
ago, the United States first banned the importation of white 
phosphorus matches because of the hideous occupational 
poisoning inflicted on workers involved in their production. 
Since 1974 the Congress has included worker rights provisions 
in at least eight trade laws with broad applicability.
    In March 1994 I joined in a bipartisan group of 67 House 
Members in sending a letter to President Clinton urging him to 
marshall international support to establish a standing 
Committee on worker rights and labor standards within the WTO 
and, on an interim basis, a GATT working party on this issue.
    Unfortunately, the Marrakesh Ministerial Declaration, 
signed in 1994, did not provide for the establishment of a GATT 
working party or WTO standing Committee on this issue because 
of strong foreign opposition to just talking about the 
relationship between the trading system and internationally 
recognized labor standards.
    Since the Marrakesh Declaration did not provide for the 
establishment of a GATT working party or a WTO standing 
Committee on worker rights, I introduced legislation in the 
103d Congress directing the President to do so. I was pleased 
that the implementing legislation for the Uruguay round of the 
GATT, which was signed into law in 1994, included a worker 
rights provision based on my legislation. This provision 
requires the President to seek the establishment of a working 
party within the WTO to explore ways in which to link the 
conduct of international trade with respect for fundamental 
worker rights.
    In December 1996 I was joined by 49 of my House colleagues 
in sending another letter to the President, urging him to 
establish a working party on worker rights and labor standards 
during the WTO's ministerial conference in Singapore. The 
President identified worker rights as a high priority and then-
Acting U.S. Trade Representative Charlene Barshefsky worked to 
address worker rights at the conference. Although signatories 
to the Singapore Declaration pledged a commitment to observe 
internationally recognized core labor standards, the United 
States was unable to convince our trading partners to establish 
a working party on worker rights within the WTO.
    While this small step forward is better than nothing, it 
falls far short of what is necessary to convince some of our 
trading partners that this is an issue that will not go away by 
sticking their heads in the sand.
    Ambassador Barshefsky has worked hard to promote worker 
rights and labor standards as part of the U.S. trade policy. I 
applaud her initiative and remain hopeful that she and the 
Clinton administration will continue their efforts to generate 
support for these issues in the international community.
    However, to date, what has been lacking is the political 
will and the resolve on the part of some of the WTO member 
nations to develop binding trade rules that advance the 
interests of workers, not just those of financiers, corporate 
managers, and consumers.
    For example, the United States and the global trading 
community must not tolerate the export of products that were 
produced by children in bondage or by adult workers who are 
denied their basic freedom to form and join an independent 
trade union.
    While the United States has repeatedly failed to convince 
our trading partners to include worker rights and labor 
standards in trade agreements, I believe there are several ways 
in which the 105th Congress can influence the process. In 
reauthorizing fast track negotiating authority, which lapsed in 
1994, the Congress should include language requiring that any 
trade agreement negotiated under the fast track procedure 
address the issue of worker rights and internationally 
recognized labor standards. If we fail to include such a 
provision in fast track reauthorization, we run the risk that 
worker rights and labor standards will continue to be perceived 
as issues of secondary importance in the formulation of U.S. 
trade policy.
    Now, more than ever, it is up to our country to take a 
decisive leadership role and insist that this long-neglected 
issue be addressed forcefully with our trading partners.
    Mr. Chairman, I hope to work with you and the other Members 
of the Subcommittee as you continue to grapple with finding 
ways in which to improve our global trading system. I thank you 
very much for providing me with this opportunity today.
    [The prepared statement follows:]

Statement of Hon. Peter J. Visclosky, a Representative in Congress from 
the State of Indiana

    Mr. Chairman, I would like to thank you and the other 
members of the Trade Subcommittee for allowing me to testify 
regarding U.S. trade policy objectives and initiatives. Today, 
I would like to briefly focus my testimony on the importance of 
linking respect for internationally-recognized worker rights to 
the conduct of international trade, and would ask that my 
entire written statement be made a part of the hearing record.
    Linking respect for worker rights to trade is not a new or 
radical concept in U.S. or international law and policy 
discussions. Nearly a century ago, the U.S. first banned the 
importation of white phosphorus matches because of the hideous 
occupational poisoning inflicted on workers involved in their 
production. When the Treaty of Versailles was signed in 1919, 
it committed the ratifying nations ``to endeavor to secure and 
maintain fair and humane conditions to which their commercial 
and industrial relations extend.'' Furthermore, when the 
Atlantic Charter was announced in 1941, President Franklin 
Roosevelt committed our nation to ``the fullest collaboration 
between all nations in the economic field with the object of 
securing for all, improved labor standards, economic 
advancement, and social security.''
    Since 1974, the Congress has included worker rights 
provisions in at least eight trade laws with broad 
applicability. Among other things, these provisions: (1) 
authorized suspension of benefits to trading partners, where 
persistent patterns of conduct deny internationally-recognized 
worker rights (as defined in Section 301 of the Trade Act of 
1974, as amended); (2) prohibited preferential tariffs to 
trading partners not taking steps to afford workers 
internationally-recognized worker rights (Generalized System of 
Preferences, Title V of the Trade Act of 1974, as amended); (3) 
required the President to seek the establishment of a working 
party in the World Trade Organization (WTO) to examine the 
relationship between internationally-recognized worker rights 
and trade (Section 131 of the Uruguay Round Agreements Act); 
and (4) specified the promotion of worker rights as ``principal 
negotiating objectives'' of the United States in trade 
agreements (Section 1101 of the Omnibus Trade Act of 1988).
    Mr. Chairman, as you and other members of this subcommittee 
may know, this is an issue that I have been involved with for 
some time. In March 1994, I was joined by a bi-partisan group 
of 67 House Members in sending a letter to President Clinton 
urging him to marshal international support to establish a 
standing committee on worker rights and labor standards within 
the WTO, and, on an interim basis, a General Agreement on 
Tariffs and Trade (GATT) working party on this issue. The 
objectives of the proposed working party were to explore ways 
in which to link the conduct of international trade to respect 
for fundamental worker rights--including the freedom of 
association, the right to organize and bargain collectively, 
and the prohibition of forced or compulsory labor. The 
imposition of uniform labor standards, such as wages and hours, 
was not an objective.
    Unfortunately, the Marrakesh Ministerial Declaration signed 
in 1994 did not provide for the establishment of a GATT working 
party or WTO standing committee on this issue because of strong 
foreign opposition to even talking about the relationship 
between the trading system and internationally-recognized labor 
standards. Instead, an eleventh-hour agreement was reached 
whereby countries were able to raise new issues, including 
labor standards, in the Preparatory Committee, which was 
charged with establishing the agenda for the WTO.
    Since the Marrakesh Declaration did not provide for the 
establishment of a GATT working party or a WTO standing 
committee on worker rights, I introduced legislation in the 
103rd Congress, H.R. 4271, directing the President to do so. I 
was pleased that the implementing legislation for the Uruguay 
Round of the GATT, which was signed into law in 1994, included 
a worker rights provision based on my bill. This provision, 
which was referenced above, requires the President to seek the 
establishment of a working party within the WTO to explore ways 
in which to link the conduct of international trade with 
respect for fundamental worker rights.
    In December 1996, I was joined by 49 of my House colleagues 
in sending a letter to the President, urging him to establish a 
working party on worker rights and labor standards during the 
WTO's Ministerial Conference in Singapore. The President 
identified worker rights as a high priority, and then-Acting 
U.S. Trade Representative Charlene Barshefsky worked to address 
worker rights at the conference. Although signatories to the 
Singapore Declaration pledged a ``commitment'' to observe 
``internationally-recognized core labor standards,'' the U.S. 
was unable to convince our trading partners to establish a 
working party on worker rights within the WTO. While this small 
step forward is better than nothing, it falls far short of what 
is necessary to convince some of our trading partners that this 
is an issue that will not go away by sticking their heads in 
the sand.
    It is my pleasure to be appearing before the subcommittee 
today with newly confirmed U.S. Trade Representative Charlene 
Barshefsky. Ambassador Barshefsky has worked hard to promote 
worker rights and labor standards as part of U.S. trade policy. 
I was pleased that, in her overview of the President's 1997 
Trade Policy Agenda, she mentioned the importance of advancing 
several ``new'' issues, including labor rights. The 1997 agenda 
explicitly states that the Clinton Administration will continue 
its strong advocacy of the need to include worker rights and 
core labor standards as part of the World Trade Organization as 
it evolves, as well as to address the issues in the context of 
bilateral and regional trading agreements.
    I applaud Ambassador Barshefsky's initiative, and remain 
hopeful that she and the Clinton Administration will continue 
their efforts to generate support for these issues in the 
international community. However, to date, what has been 
lacking is the political will and the resolve on the part of 
some of the WTO member nations to develop binding trade rules 
that advance the interests of workers, not just those of 
financiers, corporate managers, and consumers. For example, the 
U.S. and the global trading community must not tolerate the 
export of products that were produced by children in bondage or 
by adult workers, who are denied their basic freedom to form 
and join an independent trade union. The time has come for the 
international trade community to come to grips with these 
insidious problems and correct this glaring shortcoming.
    Starting immediately, there are some constructive actions 
that can be taken by the U.S. to build more international 
support and persuade WTO member nations to act collectively 
against brutal systematic labor repression. First, the 
President should make a clear and unequivocal commitment and 
corresponding public pronouncement that the establishment of a 
WTO working party on worker rights and trade should be added to 
the on-going work program of the WTO. In keeping with this 
goal, the USTR must elevate worker rights to a top-tier 
priority for all future trade negotiations. As long as they 
remain one of many negotiating objectives, they will continue 
to be bargained away in favor of commercial and sectoral 
interests.
    Another suggestion I would make is that we need to persuade 
our trading partners, who have shown reluctance to even talk 
about the relationship of internationally-recognized labor 
standards to trade, to discuss their concerns. Until there is a 
working party within the WTO to deal specifically with these 
concerns, it will be difficult to get beyond the rhetoric and 
hyperbole. However, as an intermediate step, I would welcome a 
White House-convened international summit this year to help 
break the ice. The U.S. could lead in this area by inviting the 
labor and trade ministers from a group of, perhaps, 10 to 15 
developed and developing countries to a conference on worker 
rights and trade. At a minimum, a summit devoted exclusively to 
discussing the relationship of internationally-recognized 
worker rights to the conduct of international trade would 
illuminate the specific arguments--pro and con--that need to be 
carefully examined. Hopefully, an international consensus could 
be galvanized among a core group of countries from which a 
broader WTO working group could be built.
    As trade barriers continue to fall, and the U.S. plays a 
crucial role in negotiating trade agreements, such as the 
Uruguay Round, I feel that it is incumbent upon the U.S. 
government to persuade our trading partners to demonstrate 
respect for basic worker rights and labor standards. We should 
look for effective bilateral leverage to use in persuading 
opposing countries that it would be preferable, and in their 
self-interest, for all trading nations to agree upon ways to 
strengthen and better enforce the rules of fair and open trade 
so as to discourage systematic labor repression. Enhanced 
worker rights will empower workers everywhere to help 
themselves and to share more fully in the benefits of trade 
within countries, as well as among them. It will also help 
ensure that U.S. workers and companies are not put at a 
competitive disadvantage simply because a trading partner does 
not have the same respect for worker rights and labor standards 
that we do.
    While the U.S. has repeatedly failed to convince our 
trading partners to include worker rights and labor standards 
in trade agreements, there are several ways in which the 105th 
Congress can influence this process. In reauthorizing fast-
track negotiating authority, which lapsed in 1994, the Congress 
should include language requiring that any trade agreement 
negotiated under the fast-track procedure address the issue of 
worker rights and internationally-recognized labor standards. 
If we fail to include such a provision in fast-track 
reauthorization, we run the risk that worker rights and labor 
standards will continue to be perceived as issues of secondary 
importance in the formulation of U.S. trade policy. Any one or 
a combination of these options would be a significant step 
forward from where we stand coming out of Singapore. Now, more 
than ever, it is up to the United States to take a decisive 
leadership role and insist that this long-neglected issue be 
addressed forcefully with our trading partners.
    Mr. Chairman, although we may have different views on this 
important subject, I hope to work with you and other members of 
the subcommittee as you continue to grapple with finding ways 
in which to improve our global trading system. Thank you, 
again, for allowing me this opportunity to share my views with 
you. I would be happy to answer any questions you, or other 
members of the subcommittee, might have.
      

                                

    Chairman Crane. Thank you, Mr. Visclosky.
    Are there any questions for our witness?
    Mr. Rangel. Thank you.
    Most all of us agree with the general theme of what you are 
talking about. I participated in the WTO ministerial in 
Singapore, and when you start talking with the Chinese about 
these things, they look at you with glazed eyes because they 
are saying, absolutely, that they have tens of millions of 
people on welfare working in these state plants, and they are 
not thinking about having them compete in the world market. You 
want to talk transition, they will talk transition, but these 
people are not productive; nor can their security afford for 
them to be left out there.
    Then when you go to Chile, of course, they do not have any 
problems with anything you want to put in an agreement because 
they say these are the things they would be doing without a 
treaty, so it is no problem.
    How do we specifically state what we believe are the 
minimum standards that workers should have and what their 
environmental conditions should be when we enter into a trade 
agreement with a country?
    Mr. Visclosky. Mr. Rangel, I think we have to do two 
things. One is to suggest to countries such as Chile that we do 
expect them to abide by the statutes they have on the books. In 
many of these instances, the countries who are very flagrant 
violators of international labor standards actually do have 
those legal policies in existence; they do not abide by them.
    I think the other important thing we have to stress to them 
is that we are not looking to gain ourselves an unfair trade 
advantage. If a country, for example, has a lower wage rate 
that is culturally and historically a fact of life, I am not 
looking. I do not think any of us are looking to raise that in 
an unfair fashion. That is fine.
    But again, I think just common decency and humanity would 
indicate that there is something wrong with small children 
stitching soccer balls and carrying bricks and working in hard 
labor.
    And the other point I want to make is, all I am suggesting 
and asking for is that we establish a working group to have 
meaningful conversations about this.
    Mr. Rangel. Well, let's talk fast track. What language is 
acceptable to you? Would you accept a working group to pass 
fast track?
    Mr. Visclosky. Mr. Rangel, I would like more than a working 
group. As a practical matter, I think that would be about as 
far as we could push the situation politically.
    Mr. Rangel. What language would you like to see in the fast 
track?
    Mr. Visclosky. Mr. Rangel, I introduced legislation two 
Congresses ago, and I would recommend that to the 
Subcommittee's attention.
    Mr. Rangel. Was that similar to the language that was in 
the NAFTA Agreement?
    Mr. Visclosky. It is not, not to the NAFTA Agreement. This 
was incorporated as far as implementing the bill for Uruguay 
round of the GATT. It was essentially suggested to the 
administration that we talk about this issue. I would like 
something more compulsory as far as a commitment from WTO 
member countries that they will abide by universally recognized 
core labor standards. That would be my ultimate goal.
    And again, as a practical matter, could we force that issue 
in the next year or two? Again, I would be doubtful that we 
could.
    In the end, I would like to see some binding conditions as 
far as, again, just basically accepted international labor 
standards. As a practical matter, I was born 47 years ago; I do 
not think that is going to happen tomorrow morning. But I think 
as a bare minimum, we ought to demand that there be a working 
group established and serious negotiations, with the long-term 
view that there be requirements on international labor 
standards. But again, to proceed in a deliberate fashion, 
recognizing that there is very strong committed international 
opposition to our position.
    Mr. Rangel. You are talking about an American working group 
or an international working group?
    Mr. Visclosky. We have asked that there be a working group 
under the WTO. If we enter into bilateral agreements, it ought 
to be between the countries involved in that bilateral 
agreement.
    What I would be looking for, to be honest with you, is to 
have as many lines in the water as possible. We are still 
trying to force the issue with the WTO. For example, if you 
enter into a bilateral agreement with Chile then again, in the 
best-case scenario, I think we ought to have some definitive 
standards as far as labor rights. Barring that, we ought to 
have a specific working group that is serious about 
establishing those compulsory standards.
    Mr. Rangel. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Thank you, Peter. I think I understood what you 
said in response to a question by Mr. Rangel, that you could 
not support an extension of current law? Is that my 
understanding, or you could support an extension of current 
law?
    Mr. Visclosky. Mr. Matsui, I am becoming a doubter about 
fast track authority, to be honest with you. I voted against 
NAFTA. I voted for GATT, but I am increasingly concerned about 
the effect it is having on people who are employed or want to 
be employed in my congressional district. I have some general 
concern.
    On the other hand, if you see fast track reauthorized, I do 
think we ought to use that as a vehicle to press some of these 
very important issues.
    Mr. Matsui. Let me say this. I think all of us share your 
concerns. What we are doing now is dealing with less developed 
countries that obviously do not have the standards of the 
European countries, the United States or even some of the Asian 
countries, such as Japan. And at the same time, we need to get 
into these countries and have their markets because if we do 
not, the developed countries of Europe, Japan, and others will 
go in there and we will be left in the cold.
    We have somewhat of a dilemma. I share your concerns, but 
one of the reasons the WTO was so critical in 1994 when we 
passed it was because that is the body, the organization that 
we want to take many of these issues in the future, to try to 
get an international consensus on some of these issues 
pertaining to labor, the environment, and some of these other 
matters.
    I think what we need to do is give this process some time. 
The WTO has only been in existence for some 2 years now, and I 
think over time we will find that if we allow it to grow, it 
will become a strengthened organization that could begin to 
debate some of these very issues.
    But the concern I have is that if we try to impose what we 
believe to be strong standards that we have on some of these 
less developed countries, they will not negotiate with us and 
then other countries will go in there and take these markets 
over.
    And, as you know, the export opportunities in the United 
States now are about 30 percent of the GDP of this country and 
it will undoubtedly take a larger share, given the fact that 
the economy is pretty internationalized now. The economies of 
Latin America, and obviously Asia, are the young, growing 
economies of the world. Somehow, we have to make sure that we 
get into those and compete in them.
    I think if we are allowed to do that, we can compete 
against any country or any company in the world.
    Mr. Visclosky. Mr. Matsui, I guess I would have a couple of 
comments on that. I appreciate your observation that we are 
only 2 years down the road. The administration last December 
was very aggressive in Singapore about again, simply 
establishing a working group to talk about this. We did not 
enjoy success in that endeavor.
    We have an international labor organization. I had 
representatives from the organization in my office late last 
year. They have no enforcement authority. They have talked and 
they have negotiated for years on this issue to, from my 
observation, no avail at all.
    I want to open up free trade and the possibility of exports 
to these countries. I also am very concerned about imports from 
those countries. And I think there are two values here: One, 
the moral value, and I think the values we hold in our 
democracy to make sure everyone who labors is treated fairly. 
From a selfish standpoint, I must tell you I think to the 
extent we can encourage people to raise their standards, we 
help ourselves become more competitive.
    And again, getting back to Mr. Rangel's point, I was born 
47 years ago. I have no false expectations that something 
mandatory could be forced on individuals. But to the extent 
every time we enter into one of these agreements we make it 
clear to that prospective trading partner that we are deadly 
serious about labor rights and we want to have serious talks 
with them about this, I think we help move that negotiation 
process along with the WTO.
    Mr. Matsui. Well, I appreciate your comments. I would only 
point out what you pointed out, that Ambassador Barshefsky was 
very effective in Singapore, and I think we finally got this on 
the map, on the radar screen, and it became an international 
issue, something that we had not seen in the past. This was 
obviously a very first step in a long process.
    But thank you for your testimony. I really appreciate this 
opportunity.
    Mr. Visclosky. Thank you.
    [The following was subsequently received:]
    [GRAPHIC] [TIFF OMITTED] T1072.072
    
      

                                

    Chairman Crane. I thank you, too, Congressman.
    Mr. Visclosky. Mr. Chairman, thank you very much.
    Chairman Crane. We appreciate your presentation.
    Our next witness will be Hon. Charlene Barshefsky, U.S. 
Trade Representative-Designate.
    Ambassador Barshefsky, it is with great pleasure that I 
welcome you here today to discuss the President's trade agenda 
for his second term. I must say it will be heartening to 
finally erase that word ``designate'' from your title.
    Speaking on behalf of many of my colleagues on the 
Subcommittee, you serve as our envoy, and we want you to have 
the tools and stature that you need to conclude the best deals 
possible for U.S. workers and firms.
    Looking through your written testimony reminds me of the 
fact that as deputy, you were present when many of the trade 
initiatives facing the United States were set in motion. In the 
Free Trade Agreement of the Americas negotiations and in the 
APEC talks, the United States committed to the target dates of 
2005 and 2010, respectively, for achieving free trade.
    During the next 4 years, your task is to set the course 
that will achieve these two key bipartisan goals.
    I look forward to your testimony and that of our other 
distinguished witnesses on how we can best move the trade 
agenda forward.
    And now we look forward to hearing from you, Madam 
Ambassador.

       STATEMENT OF HON. CHARLENE BARSHEFSKY, U.S. TRADE 
                         REPRESENTATIVE

    Ms. Barshefsky. Thank you, Mr. Crane. I am pleased to 
report that the President signed the joint resolution last 
night. So, in fact, the word ``designate'' is gone.
    Chairman Crane. Oh, I am very pleased to hear that because 
we have all been waiting here with expectation. 
Congratulations.
    Ms. Barshefsky. Thank you very much. If I might, on a 
personal note, thank you and all of the Members of the 
Subcommittee and the Full Committee for your encouragement and 
support.
    It is a pleasure to appear before you today to set forth 
the administration's views on the direction of trade policy. Of 
course, no discussion of that policy should begin without 
reaffirming our commitment to a bipartisan partnership with 
Congress. That has been a cornerstone of our past success. Only 
bipartisanship will lead to future success. I pledge to work 
closely with all Members of the Subcommittee and the Full 
Committee to advance U.S. trade interest, to expand exports, to 
create more and better jobs and opportunities for Americans 
today and tomorrow.
    We should begin by recognizing that our economy is the 
strongest in the world, that expanded trade has played an 
important role in building that strength, and that no country 
in the world is better positioned than we to take advantage of 
the enormous opportunities presented by a global economy. We 
are at a unique moment and we need to seize it now. Our 
competitors cannot beat us, but we can lose if we put ourselves 
on the sidelines.
    As we look toward the next 4 years, consider our situation. 
Our economy is the envy of the world. We are in the sixth year 
of current economic expansion. Over the past 4 years we have 
created nearly 12 million new jobs. The G-7 combined barely 
created 600,000.
    We have seen a resurgence in U.S. competitiveness. We are 
once again the world's largest exporter, setting historic 
records: Manufactured exports up 42 percent; high-tech exports, 
45 percent; services, 26 percent; agriculture up 40 percent. We 
are the world's largest producer of semiconductors and we are 
the world's largest producer of automobiles. We are the most 
competitive major economy in the world.
    Our economic expansion has been investment led, building a 
foundation for even greater economic success in the future. In 
1995 total business investment in the United States was more 
than $800 billion. Our industrial production in the last 4 
years is up nearly 18 percent. In Japan it is up 5; in Germany 
it is a negative 2.
    The growth of our industrial capacity is at its highest 
level since the seventies. We have more manufacturing jobs than 
we had 4 years ago, and the industrial Midwest has gone through 
a virtual renaissance of manufacturing and productivity.
    Trade policy has contributed significantly to the economic 
strength of our country today. From the early weeks of the 
administration, the President made it clear that we would 
compete and not retreat behind walls. We would not accept the 
status quo, whereby too often trading partners took advantage 
of our open market while maintaining closed markets at home.
    We have relentlessly pursued an agenda of opening foreign 
markets and breaking down barriers--multilaterally, regionally 
and bilaterally. We have negotiated, as you know, over 200 
trade agreements, all designed to advance our economic and 
trade interests. In the past 4 years we completed the Uruguay 
round. We completed the NAFTA which increased our exports to 
Mexico and kept Mexican markets open despite the worst economic 
crisis in Mexican modern history. We have worked tirelessly to 
break down market access barriers in Japan, reaching 24 
agreements and increasing our exports 43 percent in 4 years.
    We have led the world in setting tougher standards for 
trade with China. We breathed new life into APEC. We have led 
multilateral effort in this hemisphere to build the Free Trade 
Area of the Americas. We initiated the effort regarding the 
creation of a United States-European Union transatlantic 
marketplace. We took the lead in combating bribery and 
corruption in government procurement, in respecting core labor 
standards, and in pursuing an agenda to make trade and 
environmental policies mutually supportive.
    We have vigorously enforced our trade laws and agreements, 
filing 46 enforcement actions and 23 WTO cases. And, over the 
last 3 months, we have completed an information technology 
agreement and an agreement on basic telecommunications, two 
far-reaching multilateral agreements reducing trade barriers 
around the world for our most competitive industries.
    We pursued these initiatives because we recognize that 
trade is increasingly important to the future of our Nation. It 
is nearly 30 percent of GDP, up from 13 percent in 1970. 
Exports over the last 4 years have generated roughly one 
quarter of our economic growth, and these are good jobs. They 
pay better than nontrade-related jobs. Exports support about 
11.3 million jobs in the United States, 1.4 percent of which 
were created in the last 4 years.
    None of this is to suggest that we do not face challenges 
and continuing problems. Many markets around the world remain 
closed to our exports. And to the extent our trade deficit is a 
result of these barriers, particularly on a bilateral basis, 
they must be reduced. Too many Americans are left behind in the 
current economic expansion without the skills or education to 
benefit from the increased opportunities. Neither government 
nor the private sector should rest while that is the case. And 
I recognize that for those Americans who have lost jobs because 
of trade or technological change or corporate downsizing, it is 
cold comfort that the overall picture is positive.
    But, Mr. Chairman, in considering the direction of future 
trade policy, we need to start by recognizing that our economy 
is stronger than it was 4 years ago and far stronger than it 
was 10 years ago. None of us should be complacent, but our 
economic success is no accident. We put our government's 
market-opening efforts behind our companies, workers, and 
farmers at precisely the time they were at their most 
competitive.
    After years of doubt and soul searching about our country's 
ability to compete, we have successfully, together, defined a 
distinctively American partnership to win in a tough global 
economy. But this is hardly the time to rest on our laurels.
    As we contemplate the next 4 years in trade, we face a very 
clear choice and the choice is this. We can recognize that the 
American economy is the model for the world and continue to 
open foreign markets and seize the initiative when it comes to 
international competition. We can recognize the extraordinary 
opportunities that are presented in which developing nations 
want and need the full range of our goods, our services, and 
agriculture. We would face up to problems as we identify them, 
working to put in place education, training and adjustment 
policies needed to help those who are not benefiting from the 
new economy, advancing core labor standards, and protecting the 
environment, being vigilant to the consequences and potential 
threat of forced technology transfer.
    But we would be starting from the proposition that we have 
been basically on the right track and that we should stay fully 
engaged, using all our tools to take advantage of the 
opportunities that present themselves, as we did when we forged 
the ITA.
    Or, on the other hand, we can convince ourselves, against 
the evidence, that we are on the wrong track. We can choose our 
course guided by a picture of economic decline and 
disinvestment, that there is no resemblance to what is 
happening in our country. We can ignore our trading interests 
and opportunities around the world. We, instead, can let 
ourselves bog down in an endless debate over NAFTA and 
primarily our relations with Mexico. We can, in short, lose our 
momentum, abdicate our position of strength, either permit 
markets to stay closed or let others seize the initiative from 
us and gain preferential treatment. The choice is that clear.
    With all we have accomplished in the last 4 years, the 
world has continued to change in ways critically important to 
understand. We must recognize the dangers of an action, and I 
want to turn to this for a moment.
    In every region of the world, but particularly Asia and 
Latin America, the two fastest growing regions, governments are 
pursuing strategic trade policies and preferential 
arrangements, forming relations around us rather than with us.
    In this post-cold war economy, countries are creating new, 
exclusive trade alliances, to the potential detriment of U.S. 
prosperity and U.S. leadership.
    Examples abound. MERCOSUR is a customs union, as you know, 
with ambitions to expand its scope to all of South America. 
Argentina, Brazil, Paraguay, and Uruguay, which form MERCOSUR, 
are the largest economy in Latin America, with a GDP of about 
$1 trillion. MERCOSUR has struck agreements now with Chile and 
Bolivia. They are discussing agreements with the Andean 
countries, such as Colombia and Venezuela. They are discussing 
agreements with the Caribbean Basin.
    The MERCOSUR ambition is driven, in part, by decades-old 
visions of a Latin America united by free trade, by also has a 
clear strategic objective regarding commercial expansion and a 
stronger position in world affairs.
    The EU has begun a process aimed at reaching a free trade 
agreement with MERCOSUR. They have concluded a framework 
agreement with Chile to that end. The President of France, who 
was just in the region, said, ``Latin America's essential 
economic interests lie not with the United States but with 
Europe.''
    China has targeted Mexico, Argentina, Brazil, Chile, and 
Venezuela as strategic priorities in Latin America. That is to 
ensure that key Latin countries are receptive to its broader 
agenda and to itself as a rising power.
    Japan has undertaken high-level efforts throughout Asia and 
Latin America in country after country.
    ASEAN is forming a Southeast Asian trade area that will 
include 400 million people and some of the fastest growing 
economies of the world. It is a region where China, Japan, 
Korea, and the EU are focusing competitive energy.
    Argentina's President Menem recently suggested a MERCOSUR-
ASEAN Free Trade Agreement. Mexico wants to be the commercial 
hub between North and South America and serve as a venue in 
which to enter North, Central, and South America from Asia and 
Europe. It is jointly pursuing free trade with Europe and is 
reaching out to Asia. It has concluded agreements with 
Colombia, Venezuela, and Costa Rica and is negotiating with 
Honduras, El Salvador and Nicaragua and now has initiated talks 
with MERCOSUR.
    Chile has a similar strategy. It has concluded agreements 
with MERCOSUR, Mexico, Colombia, Venezuela, Ecuador. It intends 
to start negotiations with Central America and Asia. Japan is 
its largest export market. Chile sees itself as a bridge from 
MERCOSUR to Asia and back and is positioning itself in that 
way.
    In the Asia-Pacific region, competition comes from many 
sources and is the most intense in the world. Japan has been 
well ahead of the United States in East Asia in terms of 
corporate presence. And in more recent years, Korean chaebols, 
their conglomerates, have likewise pursued an aggressive 
strategy.
    The countries of Southeast Asia, some of the most dynamic 
economies of the world, are integrating into ASEAN. That will 
give those countries advantages over the United States, 
particularly in agriculture.
    The point, Members of the Subcommittee, is that 95 percent 
of the world's consumers live outside our boundaries and 85 
percent of them reside in the developing world. Our ability to 
create jobs, to sustain our standard of living, will depend in 
no small part on how successful we are relative to our 
competitors in embracing trade opportunities offered by these 
markets.
    We should not be indifferent to currents that can be 
identified even by a casual read of the newspapers. In my view, 
we have all the talents needed to compete successfully, but our 
competitors are determined, they are sophisticated, they are 
strategic, and they are focused. Many U.S. firms are already 
seeing evidence of this, to their disadvantage.
    I believe our trade policy must be driven by two factors: 
First, an emphasis on building prosperity at home through the 
expansion of our exports, built on a strong foundation of 
reciprocity as we proceed; and second, ensuring that we are 
strategically well positioned in the world to advance our 
economic, trade, and broader interests, including regional 
stability, through a growing number of enduring trade 
relationships, particularly where those arrangements put us at 
the center of activity.
    The principle underlying our trade policy must be to 
support U.S. prosperity, U.S. jobs, and the health of U.S. 
companies. The outgrowth of that policy must be continued U.S. 
leadership as the world's indispensable nation, transmitting 
values of democracy, market economics, human rights, and the 
rule of law to our partners.
    Given the evidence of concerted efforts by our competitors 
to improve their position and the potential erosion of U.S. 
leadership, we need to respond with our most effective and 
strategically powerful trade policy. We need to position 
ourselves as the most important player in the global 
constellation of trade activity now and into the future. We 
need to be positioned to play a catalytic role in all key 
regions of the world. We must utilize the full range of our 
tools of leverage on the trade front while, of course, we 
continue to enforce our trade agreements.
    There are some who believe that simply opening markets on a 
global scale is the be-all and end-all, no matter how it is 
done and no matter who benefits. I take a little different 
view. It is imperative we open markets in a manner consistent 
with the rules of the WTO, but we must make sure Americans 
benefit directly from this process. And to do that, Americans 
must drive the rules of the global landscape and the opening of 
markets. There is no other way to protect our jobs, our vital 
trading interests, or our global leadership.
    In the next 4 years the administration believes we must 
keep on opening foreign markets and breaking down barriers. We 
cannot fully confront the competitive challenges we face 
without an aggressive reciprocity-based push on the 
multilateral, bilateral, and regional fronts, and I will 
highlight just a few initiatives.
    On the multilateral front, within 4 years WTO negotiations 
will occur in key areas: Agriculture, services, intellectual 
property, government procurement, financial services. We will 
also pursue various sectoral arrangements along the lines of 
the ITA and the Telecom Agreement.
    The built-in agenda from the Uruguay round provides further 
opportunities to advance our agenda. We will be reviewing 
technical barriers to trade, sanitary and phytosanitary rules, 
customs valuation, import licensing procedures, the rules of 
origin and a number of other areas, including State trading 
activities in the agricultural sector.
    Indeed, even within the OECD, we are already in active 
negotiations on an investment agreement to ensure equitable and 
fair treatment for U.S. investors, as well as negotiations on 
bribery and corruption, competition policy, and transparency in 
government procurement.
    On the regional side, Latin America and the Caribbean are 
the fastest growing export markets for the United States. If 
trends continue, it will exceed the EU as a destination for 
U.S. exports by 2000 and exceed Japan and the EU combined by 
2010. It is also the fastest growing region in the world. With 
regard to the regional agenda, the United States is committed 
not only to concluding the FTAA by 2005 but also to make 
concrete progress by 2000.
    We are at a key juncture. Chile should be the first step in 
the process. The region views what we do with Chile as a litmus 
test for future plans. Chile is both symbolic of the 
opportunities in the region and the region's rising 
significance to our longer term economic and strategic 
interests. At the same time, of course, we remain committed to 
the Caribbean Basin Trade Enhancement Act.
    The Asia-Pacific region is enormous in scope and has major 
implications for the future of the United States. It contains 
the fastest growing economies of the world. It has a total 
population of nearly 3 billion. We estimate that reaching the 
goal of open markets in APEC would increase U.S. exports in 
goods alone by 27 percent or $50 billion annually. A step 
toward the ultimate APEC goal would be market-opening 
agreements with key economies or key sectors, to provide our 
exporters with strategic advantage.
    With Europe, our focus will be on nontariff barriers, which 
continue to impede transatlantic trade.
    Africa is a region rich in resources and potential. We must 
engage that region with determination, to help ensure its 
effective and sustainable development and democratic 
governance.
    On the bilateral side, we recognize that certain problems 
can only be addressed effectively with the degree of 
specificity on a bilateral basis. We will continue to be 
engaged in a very aggressive bilateral push with respect to 
Japan and China, Argentina and Korea, Canada, and many other 
countries. Now, as in the past, market access in many cases 
will occur only through intensive bilateral efforts. This also 
includes intense scrutiny under our enforcement capacity.
    We can pursue portions of this agenda and of our vision 
with existing trade tools, like section 301 or section 1377 on 
Telecom or title VII, which we will renew by executive order. 
But to seize the opportunities in the global economy, to fully 
meet competition, to provide us with strategic positioning that 
will determine our future in the next century, the President 
needs a new granting of trade agreement implementing authority 
or fast track.
    Fast track is a key component of our trade arsenal and it 
is the one component that is missing. For this reason, the 
President has emphasized the importance of renewing fast track 
and has asked me to work with Members of Congress of both 
parties to forge a strong and workable consensus.
    Clearly, this should not be a matter of party or politics. 
Every President since President Ford has had fast track 
authority for key periods. For over 60 years, reacting to the 
lessons of the Smoot-Hawley tariff, America has led the effort 
to open foreign markets and increase U.S. and global 
prosperity.
    Persistent market opening has led to a period of increased 
global commerce unprecedented in world history. It has created 
enormous opportunities for our companies and workers, provided 
a seedbed for democracy abroad, and helped further greater 
stability in a still uncertain world. We should not turn our 
back on that pattern of leadership, which continues today.
    There is no substitute for our ability to implement 
comprehensive trade agreements. The absence of procedural 
authority is the single most important factor limiting our 
capacity at this time to open markets and expand American 
exports and trade opportunities.
    Mr. Chairman, let me spend a moment to discuss fast track 
and NAFTA in context. There is no question that many important 
issues characterize our relationship with Mexico: Trade, drugs, 
immigration, worker welfare, the environment, and others. Those 
issues existed before we negotiated the NAFTA; they will exist 
in the future.
    Mexico is a developing country with which we share an 
enormous border. It is inescapable that issues of this type 
will be part of our bilateral agenda for years to come. NAFTA 
is not and cannot be the full long-term solution to the 
problems that we may encounter, but by keeping Mexico on the 
path to prosperity through market reform, it can be part of the 
solution.
    The fast track debate is something entirely different. The 
fast track debate is and should be about our ability to conduct 
a global trade policy, to advance our global trade interests, 
and to remain the global leader in this world.
    Many of the issues in the Mexico debate relate to our 
shared and unique border. They do not address the need to seize 
trillions of dollars in global infrastructure opportunities in 
Asia. They do not give us the tools to continue cutting 
European agricultural subsidies. They do not help us respond to 
preferential trading relationships or exclusionary practices to 
which the United States is subject. We must keep our focus, and 
the focus is the challenge of tomorrow.
    Our competitors would like nothing better than for the 
United States to sideline itself, debating NAFTA and, in 
particular, our relationship with Mexico, for years to come 
while they moved ahead. It would be a great, serious, self-
inflicted wound. America is poised to seize great 
opportunities. Our competitors cannot beat us; we can only lose 
by removing ourselves.
    Similarly, we can no longer allow our disagreements over 
the relationship between trade, labor standards, and 
environmental protection to prevent us from granting the 
President fast track authority. We simply have to forge a 
consensus on this subject, which eluded us in 1994 and 1995. I 
have been consulting broadly with Members of Congress, 
business, labor, environmental groups, and others, and we will 
continue to do so. I do not intend to put forward a specific 
formulation today, but I wanted to share several thoughts.
    It is important to recognize that a commitment to the 
protection of core labor standards and their relationship to 
trade is not new and is not unique to the United States. The 
international commitment to address the issue goes as far back 
as the Havana Charter, which was the effort to establish the 
International Trade Organization after World War II. We were 
gratified that at the WTO ministerial in Singapore, the world 
acknowledged, for the first time, the importance of core labor 
standards in a ministerial declaration, but we did fight for 
stronger steps. Advancing worker rights and labor standards is 
in our national interest and it is consistent with our deepest 
national values.
    Making environmental and trade policy mutually supportive, 
although a somewhat newer public policy phenomenon on a global 
scale, similarly enjoys strong support in our country and 
internationally. The 1992 Rio Sustainable Development Summit, 
the 1994 Summit of the Americas, and ongoing work in the WTO 
all reflect an international commitment to the importance of 
making these policy areas mutually supportive.
    In my view, the challenge is how to maximize progress in 
three areas which are of importance to us: Expanded market 
access and global leadership, advancing worker rights and core 
labor standards, and promoting environmental protection and 
sustainable development.
    We are committed to a strategy of pursuing our goals, but 
also maintaining flexibility, rather than pretending that one 
prescription fits all countries or all cases. Based on my 
experience over these past 4 years, I think there is no 
substitute to building a consensus at home behind a strategy to 
advance our objectives on core labor standards and 
environmental protection.
    I am also certain that we will not convince other nations 
to improve their labor standards, to improve environmental 
protection, or to adhere to a rule of law by denying the 
President the ability to negotiate trade agreements with them. 
We will, however, cripple our own export performance and lose 
jobs at home.
    Mr. Chairman, let me conclude by saying that President 
Kennedy once described himself as an idealist without 
illusions. I think that description captures very well 
President Clinton's approach to trade. He and those of us who 
serve in the administration genuinely believe that expanded 
trade can contribute to our prosperity and to global growth, 
particularly in the developing world, where poverty is still 
widespread.
    But we have no illusions as to the challenges ahead. Every 
trade barrier that is there is there for a reason: Economic, 
political, bureaucratic, cultural. Some countries only want to 
export and not import.
    The competition around the world will continue to be 
intense. We have reasons to be confident, but only if we forge 
a domestic consensus that allows us to move ahead. We need to 
get down to business. The hard work of the past 4 years only 
gives us the opportunity to do the hard work of the next 4 
years.
    Mr. Chairman and Members of the Subcommittee, thank you.
    [The prepared statement follows:]

Statement of Hon. Charlene Barshefsky, U.S. Trade Representative

    Thank you, Mr. Chairman and Members of the Committee. I am 
pleased to appear before you today.
    I appreciate this opportunity to set forth the 
Administration's views on the direction of trade policy. When I 
entered the field of international trade twenty two years ago, 
trade was really the province of a relatively few academics, 
trade technicians, and a relative handful of interested members 
of Congress. Those days are long past. As trade has become more 
central to our economic health, it has understandably become a 
matter of great importance to virtually all members of Congress 
and to people in all walks of life across our country. This 
Administration, and any future Administration, bears the 
responsibility of explaining our trade policy clearly and 
building broad political support for it. To advance that goal, 
I pledge today to engage--as much as possible--in what 
President Truman once called ``plain speaking.''
    No discussion of our trade policy should begin without 
reaffirming our commitment to a bipartisan partnership with 
Congress. No trade policy can ultimately succeed without the 
support of the Members. Bipartisanship has been a cornerstone 
of our past success and will continue to be in the future. I 
pledge to work closely with all members of this Subcommittee--
and the full Ways and Means Committee--to advance the cause of 
opening foreign markets and thereby expanding exports and 
creating more and better jobs and opportunities for Americans 
in the workforce today, and their children who will be joining 
it in the coming years.

               Trade and the Strength of the U.S. Economy

    We should begin by recognizing that our economy is the 
strongest in the world; that expanded trade has played an 
important role in building that strength; and that no country 
in the world is better positioned to take advantage of the 
enormous opportunities presented by a growing global economy. 
In fact, we are at a unique moment and we need to seize it now. 
Our competitors cannot beat us, but we can lose if we put 
ourselves on the sidelines.
    As we look toward the next four years, consider our 
situation:
     Our economy is the envy of the world. We are in 
the sixth year of the current economic expansion. Over the past 
four years, we have created nearly 12 million new jobs, while 
the G-7 created roughly 600,000. We have the lowest budget 
deficit as a percent of GDP of all the G-7 nations. Our 
combined unemployment and inflation--the so-called misery 
index--are at the lowest level since 1963. Countries around the 
world seek to emulate the ``American model.''
     We have seen a resurgence in U.S. competitiveness. 
We are once again the world's largest exporter setting historic 
records in manufactured goods, high technology goods, services, 
and agriculture. Over the last four years, our manufactured 
exports are up 42%, high technology exports jumped 45%, service 
exports climbed 26% and farm exports rose 40%. We are the 
world's largest producer of semiconductors and the largest 
producer of automobiles. The World Economic Forum has found 
America to be the most competitive major economy in the world 
for three years running.
     Our economic expansion has been investment-led, 
building the foundation for even greater economic strength. In 
1995, total business investment in the U.S. was more than $800 
billion. Our industrial production is up nearly 18% in real 
terms over the last four years. Japan's production is up 5 
percent and Germany's has declined by 2 percent over this 
period. Growth of our industrial capacity growth is at its 
highest level since the 1970's. We have more manufacturing jobs 
than we had four years ago. The industrial Midwest has gone 
through a virtual renaissance of manufacturing and 
productivity.
    Trade policy has contributed significantly to the economic 
strength of our country today. From the early weeks of the 
Administration, the President made it clear that we would 
compete, not retreat behind walls. We would not accept the 
status quo whereby too often our trading partners took 
advantage of our open market while maintaining closed markets 
at home. We have relentlessly pursued an agenda of opening 
foreign markets, and breaking down foreign market barriers--
multilaterally, regionally and bilaterally.
    We committed to work for a system where all trade nations, 
developed and developing, would adhere to the same set of basic 
rules, and we have made important strides in that regard with 
the creation of the WTO and elsewhere. We have not yet fully 
leveled the playing field for U.S. companies, workers and 
farmers, but we have clearly made progress. The world is 
generally more open to U.S. exports than it was when the 
President took office, and far more open than when Congress, on 
a bipartisan basis, passed the landmark 1988 Trade Act which 
gave us and our predecessors the clear direction and the tools 
to open markets around the world.
    This Administration has negotiated over 200 trade 
agreements, all designed to advance our economic and trade 
interests. In the past four years:
     We completed the Uruguay Round, the largest trade 
agreement in world history, which will add $100-200 billion to 
GDP annually when fully implemented.
     We completed the NAFTA, which increased our 
exports to Mexico, and kept Mexican markets open despite the 
worst economic crisis in Mexican modern history.
     We worked tirelessly to break down market access 
barriers in Japan, which have presented one of the central 
trade challenges for the past twenty years, reaching 24 
agreements and increasing our exports 43% in four years (with 
exports covered by these agreements growing roughly twice as 
fast).
     We led the world in setting tougher standards for 
trade with China: battling to open a highly protected market, 
negotiating landmark agreements in intellectual property and 
textiles, and insisting that China's accession to the WTO occur 
only on commercially meaningful terms.
     We breathed new life into APEC, starting with the 
President's leadership in 1993, spelling out a long term vision 
for free and fair trade, making progress more concrete year by 
year, culminating with the key role played by APEC in 
completing the Information Technology Agreement (ITA), and 
anchoring our country more firmly in the fastest growing region 
of the world.
     We have led the multilateral effort in this 
hemisphere to build the Free Trade Area of the Americas (FTAA) 
by 2005, with concrete progress by 2000, deepening our 
commitment to our own hemisphere, recognizing the extraordinary 
progress of open markets and democracy throughout the region.
     We initiated the effort regarding the creation of 
the U.S.-EU Transatlantic Marketplace. We have been working 
closely with the private sector to improve market access.
     We took the lead in combating bribery and 
corruption in government procurement, in respecting core labor 
standards, and in pursuing the agenda to make trade and 
environmental policies mutually supportive.
     We have vigorously enforced our trade laws and 
agreements using every tool possible and making it clear that 
agreements, if not implemented by our trading partners, will be 
enforced. In the past four years we have brought 48 trade 
enforcement actions. We have filed 23 cases to enforce U.S. 
rights under the new dispute settlement procedures of the WTO, 
having filed 15 complaints last year alone.
     Over the last three months, we have completed the 
Information Technology Agreement (ITA) and the Agreement on 
Basic Telecommunications--two far-reaching multilateral 
agreements reducing trade barriers around the world for our 
high technology industries. The ITA will benefit producers of 
such products as semiconductors, computers, telecommunications 
equipment and software. These industries support 1.5 million 
manufacturing jobs and 1.8 million related service jobs. This 
agreement amounts to a global tax cut of $5 billion. The 
telecommunications accord is expected to generate approximately 
1 million U.S. jobs over the next 10 years and save billions of 
dollars for the American consumer. We estimate the average cost 
of international phone calls will drop by 80 percent--from $1 
per minute on average to 20 cents per minute over several 
years. The cost of U.S. domestic calls should also fall as the 
agreement helps raise investment in the U.S. in competitive 
telecommunications networks.
    We pursued these initiatives because we recognized that 
trade is increasingly important to the future of our nation. 
Trade is now equivalent to nearly 30 percent of GDP, up from 13 
percent in 1970. Exports over the last four years have 
generated roughly one quarter of our economic growth. And these 
are good jobs; they pay 13-16% more than non trade-related 
jobs. That's one reason why over 68% of the jobs created in the 
U.S. between 1994-96 paid above the median wage. Exports 
support an estimated 11.3 million U.S. jobs, and over 1.4 
million of these jobs were generated by increased exports over 
the last four years.
    None of this is to suggest that we don't face challenges 
and continuing problems. Many markets around the world remain 
closed to our exports and, to the extent our trade deficit is 
the result of these barriers, particularly on a bilateral 
basis, they must be reduced. Far too many Americans are left 
behind in the current economic expansion, without the skills or 
education to benefit from the increased opportunities. Neither 
government nor the private sector should rest while that is the 
case. And I recognize that for those Americans who have lost 
jobs because of trade or technological change or corporate 
downsizing, it is cold comfort that the overall picture is 
positive.
    In considering the direction of future trade policy, 
however, we need to start by recognizing that our economy is 
stronger than it was four years ago, and far stronger than it 
was ten years ago. None of us should be complacent, but our 
country's economic success is no accident. We put our 
government's market opening efforts behind our companies, 
workers and farmers at precisely the time when they were at 
their most competitive. After years of doubt and soul-searching 
about our country's ability to compete, we have together 
succeeded in defining a distinctively American partnership to 
succeed in a tough global economy. As we consider what comes 
next, we can take pride, for a moment, in what we, together, 
have accomplished.

              A Moment of Choice; The Dangers of Inaction

    But only for a moment. This is not the time for resting on 
our laurels. As we contemplate the next four years in trade, we 
face a very clear choice.
    We can recognize that the American economy is the model for 
the world, and continue to open foreign markets and seize the 
initiative when it comes to international competition. We can 
recognize the extraordinary opportunities presented by the 
growing global economy, in which developing nations, which want 
and need the full range of our manufactured goods, services and 
agricultural products, are poised to fuel continued global 
growth. We would face up to problems as we identify them 
together: working to put in place education, training and 
adjustment policies needed to help those who are not 
benefitting from the new economy; advancing core labor 
standards and protecting the environment; being vigilant to the 
consequences and potential threat of forced technology 
transfers. But we would be starting from the proposition that 
we have been basically on the right track, and we should stay 
fully engaged, using all our tools, taking advantage of 
opportunities that present themselves as we did when we saw the 
chance to reach an ITA.
    Or we can convince ourselves, against the evidence, that we 
are on the wrong track. We can choose our course guided by a 
picture of economic decline and disinvestment that bears no 
resemblance to what is happening in our country. We can ignore 
our trading interests and opportunities around the world, and 
let ourselves instead bog down in an endless debate over NAFTA, 
but primarily our relations with Mexico. We can, in short, lose 
our momentum, abdicate our position of strength, either permit 
markets to stay closed, or let others seize the initiative from 
us and gain preferential treatment. The choice is that clear.
    With all we have accomplished in the past four years, the 
world has continued to change in ways that are critically 
important to understand. We must recognize the dangers of 
inaction. In every region of the world, but particularly Asia 
and Latin America, the two fastest growing regions of the 
world, governments are pursuing strategic trade policies and, 
in some cases, preferential trade arrangements, forming 
relations around us, rather than with us, and creating new 
exclusive trade alliances to the potential detriment of U.S. 
prosperity and leadership. Example abound:
     MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) is 
a developing customs union with ambitions to expand its 
association agreements to all of South America. MERCOSUR is the 
largest economy in Latin America and has a GDP of roughly $1 
trillion and a population of 200 million. It has struck 
agreements with Chile and Bolivia, is discussing agreements 
with a number of Andean countries (Colombia, Venezuela, etc.) 
as well as countries within the Caribbean Basin. The MERCOSUR 
ambition is in part driven by the decades old vision of a Latin 
American free trade area, but also has a clear strategic 
objective regarding commercial expansion and a stronger 
position in world affairs.
     The EU has begun a process aimed at reaching a 
free trade agreement with MERCOSUR, the largest market in Latin 
America, comprised of Argentina, Brazil, Paraguay, and Uruguay, 
with a GDP of over $1 trillion. They have also concluded a 
framework agreement with Chile that is set up to lead to a free 
trade agreement. The President of France, just in the region, 
said we ``will have to set the foundations for a new and 
ambitious partnership,'' with Latin America, adding that Latin 
America's ``essential economic interests... lie not with the 
United States but with Europe.'' President Chirac was traveling 
with four Cabinet officials and 20 leading French businessman.
     China has targeted Mexico, Argentina, Brazil, 
Chile and Venezuela as ``strategic priorities'' in Latin 
America. China wants to enhance commercial ties and ensure that 
key Latin countries are receptive to its broader global agenda 
as a rising power, both in the WTO and other fora. The Chinese 
leadership has undertaken an unprecedented number of trips to 
Latin America in that last two years, and Latin America is its 
second fastest growing export market.
     Japan has undertaken high level efforts throughout 
Asia and Latin America to enhance commercial ties through 
investment and financial initiatives. The Prime Minister of 
Japan recently visited Latin America seeking closer commercial 
ties and a greater Japanese commercial presence in all 
respects.
     ASEAN is forming a free Southeast Asian trade area 
that will include 400 million people and some of the fastest 
growing economies in the world. It is a region where China, 
Japan, Korea and the EU are focusing competitive energies. In a 
bold initiative indicative of the new dynamic in the global 
economy, Argentina's President Menem recently suggested a 
MERCOSUR-ASEAN free trade area--an agreement that would 
encompass over 600 million people.
     Countries within this hemisphere are equally 
aggressive. Mexico wants to be the commercial hub between North 
and South America, but also serve as a venue in which to enter 
North, Central and South America from Asia and Europe. It is 
jointly pursuing a free trade area with Europe and is reaching 
out to Asia. President Zedillo and his Cabinet have undertaken 
numerous missions to Asia and have been well received. It has 
reached trade agreements with Colombia, Venezuela, and Costa 
Rica and is negotiating with Honduras, El Salvador and 
Nicaragua. It has initiated talks with MERCOSUR.
     Chile has a similar strategy. It has concluded 
agreements with MERCOSUR, Mexico, Colombia, Venezuela and 
Ecuador. It intends to start similar negotiations with Central 
America and has an eye toward agreements with Asia. Japan is 
its largest export market, but Chile sees itself as a bridge 
from MERCOSUR to Asia and back, and is positioning itself with 
its MERCOSUR neighbors for that purpose. It has also struck an 
agreement with Canada that includes a range of market opening 
elements.
     In the Asia-Pacific region, competition comes from 
many sources, all of which have contributed to a declining 
share of U.S. exports to the region. Competition within Asia is 
the most intense. Japan has been ahead of the U.S. in East Asia 
in terms of corporate presence, and especially in the past 
decade, in terms of the amount of overseas development 
assistance (ODA) it is willing to spend to advance its 
commercial interests. In more recent years, Korean chaebols 
have likewise pursued an aggressive strategy to both invest and 
attain market share in dynamic East Asian economies, ranging 
from textiles to steel to autos.
     The countries of Southeast Asia, some of the most 
dynamic economies in the world, are integrating through its 
ASEAN Free Trade Area. The integration gives other ASEAN 
countries access in some key areas where U.S. exporters would 
otherwise have an advantage, such as in agricultural products, 
particularly processed food products.
    Ninety five percent of the world's consumers live outside 
our boundaries, and 85 percent of them reside in developing 
countries. These are the large growth regions. Last year, the 
developing world imported over $1 trillion in manufactured 
goods from the industrialized countries, and this is the tip of 
the iceberg. The infrastructure needs alone of the developing 
world are estimated to be enormous. For example, in just 8 of 
the large developing countries, traditional infrastructure 
needs (telecommunications, power, transportation and petroleum 
infrastructure) are estimated to be over $1.6 trillion.
    Our ability to create jobs and sustain our living standard 
in the next century will depend, in no small part, on how 
successful we are, relative to our competitors, in embracing 
the trade opportunities offered by these emerging markets. We 
should not be indifferent to currents that can be identified 
simply by reading the newspapers. In my view, we have all the 
talents needed to compete successfully, but our competitors are 
determined, sophisticated, strategic and focussed. Many U.S. 
firms are already seeing evidence that their competitors are 
engaged in an intensive effort to rework the rules of these 
dynamic marketplaces to their advantage.
    A recent example illustrates the dangers. In November 1996 
Canada reached a comprehensive trade agreement with Chile that 
will eliminate Chile's 11% across-the-board tariff starting 
this year. Northern Telecom recently won a nearly $200 million 
telecommunications equipment contract over U.S. companies in 
part because to buy from a U.S. producer meant an additional 
$20 million in costs (duties) relative to purchasing from 
Canada.
    We have done much to level the playing field in the past 
four years, but in this case, we are sitting on the sidelines, 
spotting Canadian competitors an 11% price advantage every time 
we compete in the Chilean market. We will suffer that handicap 
again and again, in country after country, if we do not stay in 
the game of opening markets for our companies and workers. 
Looking at this sobering pattern, we need to reaffirm the 
commitment of the President in 1993, to ``compete, not 
retreat.''

                       Our Global Trading Agenda

    Our trade policy must be driven by two factors: our 
emphasis on building prosperity at home through the expansion 
of our export and trade opportunities built on a strong 
foundation of reciprocity as we proceed; and ensuring we are 
strategically well positioned in the world to advance our 
economic, trade and broader interests, including regional 
stability, through a growing number of enduring trade 
arrangements, particularly where those arrangements put us at 
the center of activity. The principle underlying our trade 
policy must be to support U.S. prosperity, U.S. jobs and the 
health of U.S. companies. The outgrowth of that policy is 
continued U.S. leadership as the world's indispensable nation 
transmitting the values of democracy, market economics, human 
rights and the rule of law.
    Given the evidence of concerted efforts by our competitors 
to improve their position around the world, and the potential 
erosion of U.S. leadership, we need to respond with our most 
effective and strategically powerful trade policy. We need to 
position ourselves as the most important player in the global 
constellation of trade activity now and into the future. We 
need to be positioned to play a catalytic role in all key 
regions of the world. We must utilize the full range of our 
tools of leverage on the trade front while at the same time 
continue to enforce our trade laws and agreements vigorously.
    There are some who believe that simply opening markets on a 
global scale is the be-all-and-end-all, no matter how it is 
done or no matter who benefits. I subscribe to a different 
view. It is imperative that we open markets in a manner 
consistent with the rules of the WTO, but we must make sure 
Americans benefit directly from this process, and to do that 
Americans must drive the rules of the new global landscape and 
the opening of markets. There is simply no other way to protect 
our jobs, our vital trading interests or our global leadership 
on trade.
    In the next four years, the Administration believes we 
should keep on opening foreign markets, and breaking down 
foreign trade barriers. We believe in this for our own export 
performance, for our own jobs and for own prosperity at home. 
The ITA and the telecommunications agreement provide vivid 
evidence of how our country can benefit from important sectoral 
agreements. We will continue to use the multilateral system, 
and have provided recent evidence of just how much can be 
accomplished multilaterally. At the same time, we cannot fully 
confront the competitive challenges we face or open the major 
emerging markets around the world without an aggressive, 
reciprocity-based push on the regional and bilateral fronts.

Multilateral Efforts

    Within four years, major WTO negotiations will occur in 
several areas where the United States is a top global 
competitor: agriculture, services, and the rules for 
intellectual property rights. This year we will be resuming WTO 
negotiations on financial services, a sector where U.S. 
companies excel. At the same time, the Administration will work 
with industry and workers to search out ever more opportunities 
in key sectors. We will continue to look for sectoral 
opportunities to benefit U.S. exporters to build on the 
successes we have had in recent months.
    Building on the positive outcome of the negotiations on the 
ITA and telecommunications, we are turning our attention to the 
WTO financial services negotiations which resume in April. We 
are committed to achieving a meaningful and comprehensive 
agreement by the end of the year. Earlier efforts to reach 
agreement were not successful due to inadequate offers by key 
countries. To successfully conclude these negotiations this 
year, our trading partners must signficantly improve their 
commitments based on the GATS principles of market access, 
national treatment and MFN. However, with the precedent that 
has now been established in the telecommunications agreement, 
we hope to see improved offers in the financial services talks.
    Negotiations to further open the $526 billion global 
agriculture market are to be initiated in 1999. While the 
Uruguay Round reduced some of the most difficult barriers to 
agricultural trade, helping us to attain a record level of 
agricultural exports in 1996, our work is far from done. 
Removing agricultural barriers wherever they exist is one of 
our highest priorities of the next four years, so follow-on 
negotiations in the WTO are extremely important. We will work 
hard with our allies on this issue to move ahead.
    Services negotiations to expand this $1.2 trillion global 
market--where U.S. firms exported more than $220 billion in 
1996 (est.) with a surplus of $74 billion--are to start in 
January 2000. The trade related intellectual property rights 
(TRIPs) agreement which protects, for example, the interests of 
fast-growing U.S. copyright industries exporting over $400 
billion a year, is to be reviewed, with key elements examined 
beginning before then. We must do everything possible to expand 
opportunities for such vibrant industries.
    The ``built-in agenda'' from the Uruguay Round provides 
other opportunities to open foreign markets. In a world trading 
environment increasingly less characterized by traditional 
tariff barriers, the built-in agenda is in many respects aimed 
at clearing away the impediments left by non-tariff barriers--
be they deliberate or the unintended consequence of bureaucracy 
and inefficiency.
     For example, the rules governing technical 
barriers to trade (covering product standards, technical 
regulations and associated procedures such as testing and 
certification) are scheduled to be reviewed by December of this 
year, just as sanitary and phytosanitary rules affecting trade 
in agricultural goods will be reviewed by January of next year. 
These reviews will play an important role in our broader 
efforts to ensure that the development and application of 
product standards and environmental, health and safety 
regulations are technically justified and do not serve as 
disguised protectionist measures.
     Similarly, bringing about the full implementation 
of the customs valuation agreement by 2000, particularly by WTO 
members in key emerging markets, will help to ensure that our 
exports to those markets are not impeded by improper or 
incorrect customs valuation methods which might artificially 
distort the price of our products and erode the benefits of 
Uruguay Round market access gains.
     Likewise, the upcoming reviews of pre-shipment 
inspection and import licensing procedures can make a big 
difference in opening up access to the growing markets of low-
and middle-income countries, where governmental reliance on 
pre-shipment inspection and import licensing to compensate for 
underdeveloped domestic customs administrations can sometimes 
result in unjustified trade barriers through commercial 
uncertainty and corruption.
     Negotiations for harmonizing the rules for 
determining the origin of internationally traded products are 
also due to be completed by July 1998. A harmonization 
agreement will significantly enhance commercial predictability 
and will reduce the ability of governments to manipulate origin 
rules as a means of ``reclassifying'' products under a higher 
tariff. For those U.S. industries which source their parts and 
components from around the world for production in various 
countries, these rules are critical to their ability to predict 
costs and conduct business.
     The launch this year of new negotiations to 
improve and expand the coverage of WTO rules on government 
procurement can facilitate U.S. efforts to improve our access 
to the lucrative infrastructure projects now planned or under 
way in the rapidly growing regions of the world. We estimate 
that Asia alone will provide opportunities for up to $1 
trillion in business for such projects over the next decade.
     The U.S. will push for broader and clearer 
reporting of state trading activities which will lead to a 
better understanding of the relationships between state trading 
enterprises (STEs) and governments and of the types of 
activities in which STEs engage. Due to our concerns about the 
state trading activities of other countries, especially in 
agricultural products, there is heightened scrutiny of STEs in 
the WTO.
    We also have a full agenda of accession negotiations 
regarding the WTO. As always, we are setting high standards for 
accession in terms of adherence to the rules and market access. 
Accessions offer an opportunity to help ground new economies in 
the rules-based trading system. As I indicated earlier, the 
Administration believes that it is in our interest that China 
become a member of the WTO; however, we have been steadfast in 
leading the effort to assure that China's accession to the WTO 
would occur only on commercial, rather than political, grounds. 
The pace of China's accession negotiations depends very much on 
Beijing's willingness to improve its offers.
    While China's accession has attracted far more attention, 
the United States takes every opportunity to pursue American 
interests with the 28 applicants that are now seeking WTO 
membership, and to give leadership to the process. Russia's WTO 
accession could play a crucial part in confirming and assuring 
Russia's transition to a market economy, governed by the rules 
of law and international trade. Discussions so far on Russia's 
accession, while still at an early stage, have been quite 
positive and we look for more progress. We are excited about 
the prospects of the accession of many of the former Soviet 
Republics, and the Baltic States. Others, like Saudi Arabia and 
Vietnam, are also becoming more active.
    Within the Organization for Economic Cooperation and 
Development, we are in active negotiations over the 
Multilateral Agreement on Investment to ensure equitable and 
fair treatment for U.S. investors. In both this forum and the 
WTO, we are also actively engaged in negotiations on bribery 
and corruption, competition policy and transparency in 
government procurement.

Regional Efforts

    Latin America and the Caribbean were the fastest growing 
market for U.S. exports in 1996. If trends continue, it will 
exceed the EU as a destination for U.S. exports by the year 
2000, and exceed Japan and the EU combined by the year 2010. It 
is also the second fastest growing region in the world, having 
transformed itself over the last decade in a manner unnoticed 
by some, but with profound positive implications for the United 
States. The Administration recognizes the enormous opportunity 
to build on this historic transformation.
    With regards the regional agenda, the United States is 
committed not only to concluding the FTAA by 2005, but also to 
concrete progress by 2000. A May 1997 hemispheric trade 
Ministerial meeting is to determine how and when these critical 
negotiations will be launched, and a second Summit of the 
Americas will take place in Chile in early 1998. We are at a 
key juncture in this process. The President will be visiting 
the region in April and May of this year. We are now turning to 
the negotiating phase of the FTAA and believe that the second 
Summit of the Americas set for March 1998 in Santiago is the 
venue to launch the hemispheric negotiations.
    Chile is our first step in the FTAA process. The region 
views what we do with Chile as a litmus test for our plans for 
the region. Chile is symbolic of the opportunities in the 
region and the region's rising strategic significance to our 
longer term economic interests. U.S. exports to Chile area up 
148 percent since 1990. Chile is a leading reformer in Latin 
America and its kind of reform is in the economic interests of 
the U.S. to ensure a growing export market well into the next 
century.
    At the same time, and with building the FTAA very much in 
mind, the Administration remains committed to Caribbean Basin 
Trade Enhancement and will be working with the Congress on 
legislation to accomplish this objective. We believe it is 
important to provide the countries of this vital region with 
the right kinds of incentives to be full participants in the 
FTAA effort while at the same time provide the most effective 
tools possible to assist them in this effort.
    The Asia Pacific region is enormous in its scope and has 
major implications for the future of the United States in many 
ways. It contains the fastest growing economies in the world, 
largely emerging economies with a total population nearing 3 
billion people. Within the Asia Pacific Economic Cooperation 
(APEC) forum, we estimate that reaching the goal of open 
markets would increase U.S. goods exports alone by 27 percent 
annually, or almost $50 billion a year. More specifically, APEC 
is embarked on a program of early liberalization in key 
sectors. Sectoral initiatives, such as the ITA, will be 
critical to further anchor the United States in Asia through 
growing U.S. exports in key technologies. In addition, as a 
step towards the ultimate APEC goal, market-opening agreements 
with key economies (or key sectors) of the Asian Pacific rim 
would provide U.S. exporters with a strategic advantage over 
U.S. competitors in the region. It would also provide the 
United States with a strong economic anchor in Asia, a key step 
in this region bursting with vitality and opportunity.
    With Europe, our focus will be on non-tariff barriers which 
continue to impede transatlantic commerce, most particularly 
regulatory barriers and a variety of agricultural impediments. 
Approximately half of our $126 billion of merchandise exports 
to the EU require some form of EU certification in addition to 
U.S. requirements. Redundant testing and certification 
procedures increase the base cost of exports. Our business 
community strongly supports our current negotiations to 
complete Mutual Recognition Agreements (MRAs) to eliminate 
redundant testing between the United States and the EU. The 
areas under discussion include telecommunications, electronics, 
medical devices, pharmaceuticals and recreational craft. At the 
same time, we will be steadfast in our bilateral discussions 
and in the WTO to convince the EU to honor its commitments to 
U.S. agriculture. We recognize this is a major priority of the 
agricultural sector and it is a major priority of this 
Administration.
    Africa is a region rich in resources and potential, which 
we should engage with determination to ensure its effective and 
sustainable development and democratic governance. We recently 
completed preparation of a report to Congress on the 
Administration's trade and development policies for Sub-Saharan 
Africa. There is an urgent need to integrate Sub-Saharan Africa 
into the international trading system. We also believe the 
achievement of this goal lies in African countries reforming 
their own economies and in our encouraging this process.

Bilateral agreements

    We recognize that certain problems can only be addressed 
effectively, and with a degree of specificity necessary, on a 
bilateral basis. Thus, we will continue to be engaged in 
bilateral market opening efforts with virtually every country 
in which we have a trading relationship: from Japan on 
telecommunications, photographic film, paper and other issues, 
to Canada on copyright protection, to Argentina on patents, to 
Korea on autos--the list is lengthy and significant. There 
should be no misunderstanding. Now, as in the past, market 
access in many cases will only occur through intense bilateral 
efforts. This includes the intense scrutiny necessary under our 
enforcement capacity.

                 The Importance of Fast Track Authority

    We can pursue portions of our agenda with our existing 
tools. But, to seize the opportunities in the global economy 
and to fully meet the competition, the President needs a new 
grant of trade agreement implementing authority, or fast track. 
Fast track is a key component of our trade arsenal. For that 
reason, the President has emphasized the importance of renewing 
trade agreement implementation authority and has instructed me 
to work with members of both Houses and both parties to forge a 
strong and workable grant of fast track authority.
    Clearly, this should not be a matter of party or politics. 
Every President since President Ford has had fast track 
authority for key periods. For over 60 years, reacting to the 
lessons of the Smoot-Hawley tariff, America has led the effort 
to open foreign markets and increase U.S. and global 
prosperity. When the GATT was first formed in 1947, global 
tariffs averaged 40 percent among industrial nations. Today--
after decades of bipartisan American leadership--global tariffs 
are closer to 5 percent and still declining with the Uruguay 
Round phase-in, and we have set the rules for bringing down 
many nontariff barriers. That persistent market opening has led 
to a period of increased global commerce unprecedented in world 
history. It has created enormous opportunities for our 
companies and workers, provided a seedbed for democracy abroad 
and helped further greater stability in a still uncertain 
world. We should not turn our back on that pattern of 
leadership, which continues as recently as the completion of 
the ITA and the telecommunications pact.
    There is no substitute for our ability to implement 
comprehensive trade agreements. The absence of agreed 
procedural authority to do so is the single most important 
factor limiting our capacity at this time to open markets and 
expand American exports and trade opportunities in the new 
global economy. Such authority is a prerequisite to U.S. 
negotiating credibility and success on major trade fronts.

                    Fast Track and NAFTA in Context

    Mr. Chairman, let me spend a moment discussing NAFTA 
because I think it is very important to put it in the right 
context as we move forward.
    There is no question that many important issues 
characterize our relationship with Mexico: trade, drugs, 
immigration, worker welfare and the environment, to name a few. 
Those issues existed before we negotiated NAFTA and they will 
exist in the future. Mexico is a developing country with which 
we share a huge border. It is inescapable that issues of this 
type will be part of our bilateral agenda for some time. NAFTA 
is not--and cannot be--the full, long-term solution to problems 
we may encounter, but by keeping Mexico on the path to 
prosperity through market reforms, it can be a part of the 
solution.
    Mr. Chairman, the fast track debate is and should be about 
our ability to conduct a global trade policy--and to advance 
our global trade interests. Many of the issues in the Mexico 
debate relate to our shared and unique border. They do not 
address the need to seize the trillions of dollars in global 
infrastructure opportunities in Asia to be created in the next 
decade. They do not give us the tools to continue cutting 
European agricultural subsidies. They do not help us respond to 
preferential trading relationships, or exclusionary practices 
that limit the United States. We must focus on the challenges 
of tomorrow.
    Our competitors would like nothing better than for us to 
sideline ourselves, debating NAFTA and our relationship with 
Mexico for several more years while they move ahead. It would 
be a serious, self-inflicted wound. America is poised to seize 
great opportunities. Our competitors cannot beat us; we can 
only lose by removing ourselves.

                      Trade, Labor and Environment

    Similarly, we can no longer allow our disagreements over 
the relationship between trade, labor standards and 
environmental protection to prevent us from granting the 
President fast track authority. We simply have to forge a 
consensus of this subject which eluded us in 1994 and 1995. I 
have been consulting broadly with members of Congress, 
business, labor and environmental groups, and will continue to 
do so. I do not intend to put forward a specific formulation 
today, but wanted to share several thoughts in this area.
    It is important to recognize that a commitment to 
protection of core labor standards and their relationship to 
trade, is not new, nor is it unique to the United States. The 
international commitment to address this issue goes back as far 
as the Havana Charter, which was the effort to establish the 
International Trade Organization after World War II. We were 
gratified that at the WTO Ministerial in Singapore, the trading 
of the nations of the world acknowledged, for the first time in 
a Ministerial declaration, the importance of core labor 
standards to trade, although we fought for stronger steps. 
Advancing worker rights and labor standards is in our national 
interest and it is consistent with our deepest national values.
    Making environmental and trade policy mutually supportive, 
although a somewhat newer public policy phenomenon on a global 
scale, similarly enjoys strong support in our country, and 
internationally. The 1992 Rio Sustainable Development Summit, 
the 1994 Summit of the Americas, and ongoing work in the WTO 
all reflect an international commitment to the importance of 
making these policy areas mutually supportive.
    In my view, the challenge is how to maximize progress in 
three areas which are of major importance to us: expanded 
market access, advancing worker rights and core labor 
standards, and promoting environmental protection and 
sustainable development. We are committed to a strong strategy 
of pursuing our goals, and maintaining flexibility rather than 
pretending that one prescription would fit all countries or all 
cases. Based on my experience over these past four years, I 
think there is no substitute for building a consensus at home 
behind a strategy to advance our objectives on core labor 
standards and environmental protection. I am also certain that 
we will not convince other nations to improve their labor 
standards or environmental protection by denying the President 
the ability to negotiate trade agreements with them. We will, 
however, cripple our own export performance and lose jobs at 
home.

                               Conclusion

    President Kennedy once described himself as ``an idealist 
without illusions.'' I think that description captures well 
President Clinton's approach to trade. He, and those who work 
for him, genuinely believe that expanded trade can contribute 
to our prosperity, and to those around the world, particularly 
in the developing world where poverty is still widespread. But 
we have no illusions about the challenges ahead. Every trade 
barrier facing us is there for a reason: economic, political, 
bureaucratic, cultural. Some only want to export and not 
import. The competition around the world will continue to be 
intense. We have reasons to be confident, but only if we forge 
a domestic consensus that allows us to move ahead. We need to 
get down to business. The hard work of the past four years 
gives us only the opportunity to do the hard work of the next 
four.
      

                                

    Chairman Crane. We want to express our appreciation to you 
for your commitment and your hard work as we witnessed in 
Singapore, and I like your emphasis on a global trade strategy, 
supported by fast track negotiating authority. We look forward 
to getting our compromises negotiated with one another on that 
issue.
    Most observers would agree that the APEC process of 
reducing trade barriers has been slow. Would you consider the 
possibility of bilateral trade agreements with specific member 
countries of APEC in order to reinvigorate the progress toward 
free trade in Asia? And what are the advantages of bilateral 
trade agreements over regional ones?
    Ms. Barshefsky. Mr. Chairman, I think that progress in 
APEC, while perhaps slow, nonetheless is actually fairly 
persistent and continuing. I think we have made important 
strides.
    I do not think anyone in this room, even 5 years ago, would 
ever have thought that the region, the Asia-Pacific region, 
would agree to the concept of free and open trade by a date 
certain. I think that was simply beyond the purview of most of 
our collective imagination. Nonetheless, that commitment has 
been made and steps are being taken toward the realization of 
that goal.
    In terms of catalyzing the APEC process, there is no 
question that perhaps a targeted bilateral trade agreement or 
two would act to move that process along very much in a 
direction important to U.S. interests. Of course, as you know, 
the region is very diverse economically, culturally. It is 
divided by a differing history, and it is separate from us in 
ways quite different from our own hemisphere in terms of 
culture and oftentimes overall outlook. Providing leadership in 
APEC through the ability to negotiate trade agreements would be 
very important for our longer term objectives.
    The advantages over bilateral agreements versus regional 
agreements are, in part, ones of timing and, in part, ones of 
substance. I think it is true to say that the fewer number of 
countries one negotiates with, typically the less compromise 
one needs to make. The greater number of countries and the 
greater their range of interests, the harder it is oftentimes 
to forge consensus, and sometimes that requires more 
compromise.
    Of course, as we demonstrated last April in the 
telecommunications talks, there are points beyond which the 
United States will not compromise and we will simply walk away. 
That strategy proved valuable when we forged a much more 
important agreement just several weeks ago.
    But we do think that bilateral agreements do have their own 
advantages relative to regional, and regional arrangements may 
have certain advantages relative to multilateral.
    Chairman Crane. The proliferation of free trade agreements 
that you outline in your testimony, especially in Latin 
America, is resulting in a tangled web of conflicting rules 
governing United States businesses operating in the region. 
Will the Free Trade Agreement of the Americas negotiation help 
to build some commonality and order into the process of trade 
liberalization in our hemisphere?
    Ms. Barshefsky. That is precisely one of the reasons to do 
the FTAA. There are a series of conflicting rules in our own 
hemisphere, not merely with respect to, for example, customs 
procedures or business operations but with respect, for 
example, to intellectual property rights, differences in tariff 
treatment, still even some differences in the classification of 
products. These are, in their own way, barriers that hamper the 
free flow of goods and hamper our ability to maximize our 
exports, particularly our export performance relative to other 
countries.
    The idea behind the FTAA is to forge a more common set of 
rules, particularly on the commercial side, to avoid these 
kinds of impediments.
    Chairman Crane. And finally, President Clinton and EU 
President Santor agreed in December 1996 to conclude 
negotiations by January 31 of this year on a package of mutual 
recognition agreements. MRAs permit products tested and 
certified as meeting required technical regulations or 
standards in one country to be sold without further approval in 
another country. What is the status of this negotiation, and 
when do you expect a successful result?
    Ms. Barshefsky. The negotiations have proceeded apace. We 
are further along still in some areas than in others. A 
particular point of dispute between the United States and the 
EU has been on pharmaceuticals and the extent to which testing 
requirements can be harmonized. That is a difficult area, 
impacting as it does, of course, on public health and safety.
    We are continuing to pursue these discussions with the EU. 
We believe we already have in hand an acceptable MRA package. 
The EU would like to see more, and that is the conflict we are 
going to have to resolve in the coming weeks.
    Chairman Crane. Thank you very much.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Again, congratulations, Ambassador. I am very happy to see 
you finally confirmed and now our official U.S. Trade 
Representative.
    Ms. Barshefsky. Thank you.
    Mr. Matsui. I appreciate your testimony in the sense that 
many of my colleagues are trying to make the whole issue of the 
reauthorization of fast track linked to NAFTA. You know, one 
could make the same argument that you need fast track because 
of the United States-Israell Free Trade Agreement, the 
Caribbean Basin Initiative, or the Free Trade Agreement with 
Canada.
    Fast track really is not about NAFTA. As you stated in your 
testimony, the problems with Mexico are varied, in the sense 
that there are a lot of issues involved in this.
    I hope that my colleagues and those that are going to 
debate this issue will follow your example and talk about the 
need for fast track in terms of the whole issue of our 
strategic relationship with many of the countries we deal with 
and not make this a debate on NAFTA or Mexico or the drug 
problems or immigration or any other issue pertaining to 
Mexico.
    Perhaps you can, and you have, but perhaps in some detail 
you can tell me what your thought would be if we do not give 
you the authorization on fast track. What will happen over the 
next 4 years? I think we have a very limited window, perhaps 
this year and perhaps early next year. What would be the 
consequences of that, if fast track authority were not granted 
to you and the President?
    Ms. Barshefsky. I think, Mr. Matsui, I prefer to think 
positively on the subject because I do believe that there is an 
understanding of the important role that our ability to export, 
our ability to remain the world's most competitive nation plays 
with respect to our domestic prosperity and our ability to lead 
the world.
    We are in an extraordinary position. We are the world's 
most competitive economy. Our industries are at their most 
competitive time. We are operating at a time when our major 
trading partners are in a less advantageous position. The 
European economies remain weak relative to ours. The Japanese 
economy remains weak relative to ours.
    We are in a position to advance our interests at this point 
in time as in no other point in time in recent history. We must 
take advantage of that positioning, and we must use it to 
create for ourselves a situation in which our leadership 
remains paramount in the global community.
    We ought to be at the center of a constellation of trading 
relationships around the world. It is that positioning that 
creates not only our economic prosperity, but also creates the 
kinds of strategic alliances that must be built in the face of 
a world that is no longer either divided or together because of 
cold war alliances. We need a new tool for alliance building.
    We can, in effect, kill two birds with one stone. We can 
use trade to forge our own domestic prosperity while, at the 
same time, build longer term strategic alliances to enhance our 
own global positioning and ensure our leadership.
    Ultimately, trade policy should be about that. It should be 
about our ability to remain exactly what the United States is. 
That is our focus. Fast track is one of the important tools in 
maintaining that goal.
    Mr. Matsui. Thank you. I have no further questions at this 
time.
    Chairman Crane. Thank you.
    Mr. Houghton.
    Mr. Houghton. Thank you, Mr. Chairman. Madam Ambassador, it 
is nice to see you here. Thanks very much for coming.
    Ms. Barshefsky. Thank you.
    Mr. Houghton. I really have two questions. The first is 
about fast track. I totally agree with you that we have to do 
this and we have to do it soon. One of the things I think we 
forget is that the U.S. Congress is not sitting on a pinnacle 
of its own. It is in competition with the Diet, the Bundestag, 
and a variety of other countries and economies around this 
world. Therefore, as you know in business, timing is everything 
and this is important timing.
    However, let's just assume for the moment that the forces 
of evil are at work against you and many of us who believe in 
fast track and it does not happen. Are you not able, with your 
arsenal of tools, to do a variety of other things which, in 
effect, almost produce the same economic benefits for this 
country in this area, competing against what will be a large 
bloc which is the MERCOSUR bloc? That is number one.
    Number two is, Is there any element of timing which is 
important in terms of the ASEAN Free Trade Agreement? We talk 
about this but when we do, we always think about China. It 
looms over the horizon as something so important. But what are 
those things which we need to do now because of the same 
competitive forces we have in South America with the ASEAN 
nations?
    Ms. Barshefsky. Certainly, as I indicated in my testimony, 
there are a variety of things on the trade agenda that can be 
accomplished without fast track and indeed for which we do not 
require fast track authority. But you are asking me whether, 
through strictly bilateral tools, which is what we have now, we 
can accomplish, for example, a catalyzing of the FTAA process 
or a catalyzing of the APEC process, whether we can go beyond 
simple mutual recognition agreements with Europe and move into 
other areas. You are asking me whether, using only bilateral 
tools, we could expand the ITA or the Telecommunications 
Agreement just entered into or financial services.
    If that is the question, the answer is that the United 
States needs the authority to negotiate and enter into 
comprehensive arrangements. And let me use the ITA as an 
example. But for the fact that we had residual negotiating 
authority in the Uruguay Round Implementing Act, there would be 
no ITA. I am in the position that a number of the companies in 
the ITA have come to us to say, ``Can you expand the product 
coverage?'' And the answer is, No, I cannot. I do not have the 
tariff proclamation authority to do it.
    We, in the ITA, further negotiated for the right to raise 
nontariff barriers in information technology products. I cannot 
negotiate those nontariff barriers on a pluralateral basis in 
the ITA without fast track authority.
    Now, I could do it bilaterally, country by country, product 
by product, which is like taking an ice pick to Everest.
    The short answer is fast track authority has always been, 
for every President since President Ford, an important part of 
the trade arsenal, and it remains an important part of the 
trade arsenal today.
    With respect to ASEAN, we have a variety of initiatives 
with the ASEAN countries to expand exports and to enhance the 
trade relationship between the United States and ASEAN. That 
relationship could be strengthened by additional initiatives, 
which we are looking at. And, of course, the extent to which we 
can pursue closer economic ties with one or another ASEAN 
nation, the relationship would be further enhanced.
    Mr. Houghton. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Thank you.
    Again, let me join the Subcommittee not only in 
congratulating you but in sharing how proud you made us feel as 
a congressional delegation at the World Trade Organization 
Ministerial. The respect that our trading partners have for you 
raised our level of pride for our country.
    Of course, our Helms-Burton Act causes us quite a bit of 
embarrassment and there is no sense discussing this with you, 
since you do not create our trade policy but you enforce it, 
and you do it well. But whomever you talk with, I hope you 
share with them that there is no need for a great nation like 
ours to resort to just immoral, illegal, unconstitutional, and 
sensitive trade policies against the smallest country in the 
world when we are setting these lofty standards that are being 
respected by countries. We have to stand by our own rules.
    Now, on the bipartisanship of fast track, it is true we 
have enjoyed that for decades. But it seems now that the 
question as to what would be the minimum standards we would 
expect that people would treat their workers or just how much 
damage a trading partner can do to the environment, I think 
whether Republican or Democrat, there is a minimum standard.
    The question is, Do we get in and micromanage it or do we 
encourage labor leaders to negotiate contracts? And it would 
seem to me that we have reached the point where there is a 
great division that exists in the Congress.
    I would strongly suggest, since it is more than just a 
bipartisan difference, that the President might speak to some 
of the people who feel so strongly about this and raise the 
question of national security as it relates to trade because it 
is more than just language; it is how it is perceived.
    And when we start to agree with each other, we have to be 
saying the same things, even though it took a long time to get 
there. And it seems to me that it is very, very important that 
we not allow ourselves to hold back the fast track for 
political reasons. I think only the President can put some of 
his political clout on the line to let both Democrats and 
Republicans know that what we are talking about is in our 
national interest, and if anything is going to be worked out, 
he is going to have to play a role in that.
    Last, I am glad you included education in your opening 
remarks. I do hope the State Department, as well as your 
agency, realizes that when we talk about the hopes and dreams 
of America, we are not just talking about corporate 
stockholders.
    A lot of people do not have access to that bridge that the 
President refers to. With low-income jobs becoming ever more 
scarce as they go overseas, we have to build that bridge for 
every American.
    Again, it is just something that you do not have to comment 
on now. I refuse to believe that we can enter these 
multinational trade agreements and we cannot talk about drugs.
    Ms. Barshefsky. What was that?
    Mr. Rangel. Drugs, narcotics, illicit drugs coming into 
this country.
    Ms. Barshefsky. I did not hear you.
    Mr. Rangel. As we tear down the barriers for a freer trade, 
we know that we are opening up the opportunity for drug dealers 
and, unfortunately, in many cases leaders of countries.
    I do not want to take away from the sophistication of what 
you do. Nor do I want to dramatically change the rules of how 
you do business with these so-called diplomats. But you should 
be able to share with them that there are some steamrollers 
coming down that are not that sophisticated and they had better 
put narcotics on the table when we are talking about anything, 
because the question is not how much corporations and 
government benefit from free trade but how much people benefit 
from free trade.
    We could not have anyone stronger than you. I intend to be 
supportive of you, but I do hope that you make it clear that I 
will be raising those items whenever I get a chance. And 
congratulations again.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you, Mr. Rangel.
    Mr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman.
    Good morning. Welcome.
    Ms. Barshefsky. Good morning.
    Mr. McDermott. As I was reading your testimony last night, 
sort of in anticipation of coming here, I could not help but be 
struck by the fact that although Mr. Crane and Mr. Rangel and I 
and others have been working on an African trade initiative, I 
find only one short paragraph in your testimony. And I was 
puzzled by the implications of one of the sentences. It says, 
``We believe that the achievement of this goal''--that is, 
trade with Africa--``lies in African countries reforming their 
own economies and in our encouraging this process.''
    It seems to me that African countries have been subjected 
to World Bank and IMF strictures for a considerable period of 
time, but the thing that has been missing over the course of 
time has been the U.S. Government stepping in. And once the 
stick has been used, the carrot has been missing.
    I wonder if you could talk just a little bit about what 
your feelings are because you do not develop that at all. You 
spend a lot of time talking about fast track and other things, 
which obviously are important, but if the title of one of your 
subparts of this was the dangers of inaction, it seems to me 
the dangers of inaction for the United States in Africa are 
that we turn that population of 600 or 700 or 800 million 
people over to everyone else in the world and we sort of cede 
it to the Europeans and to the Japanese. It does not seem like 
a good policy for the United States to cede that large a 
market.
    Ms. Barshefsky. I agree with you entirely. Europe holds 
about 30 percent of the share in Africa; the United States 
holds 7 percent. Part of that has to do with historic 
relationships between the former European colonies and Europe. 
Part of that has to do with our own almost inexcusable ignoring 
of an entire continent.
    There is no question that United States leadership will be 
critical to the success of reform in Africa. By that I mean of 
course African nations and their leadership have to make the 
right decisions, have to pursue paths of reform, have to reduce 
corruption, have to be even more concerned about levels of 
poverty, health, and so on. But if the United States is not 
leading the way in many of those areas--providing technical 
assistance, providing expertise, providing trade and trade 
benefits--I think it is going to be very difficult for those 
countries to move forward and to regain their former stature.
    I will tell you a statistic which I find astonishing. 
Thirty years ago Africa was far wealthier than Asia. Thirty 
years ago. What has happened? This is a question of profound 
importance to the United States.
    We, as you know, have an Africa initiative in the 
administration. It is one that I think some would feel does not 
go far enough, but we are trying to create at least a baseline 
and common understanding, first off, of the extent of the 
problem and then second, of the existing programs that we have 
now, those that are good and those that are not any good; and 
third, what the future direction ought to be.
    And, as you know from this report we just released, there 
are three areas in particular that the United States believes 
it can be particularly helpful on with respect to Africa. Trade 
is one and in that regard, one of the things that we would like 
to look at with the Subcommittee is the reorientation of our 
GSP Program to benefit the least developed of the developing 
countries. And that is in particular Subsaharan African, and 
this is something we would like to work on with the 
Subcommittee. That is one small piece but trade, including 
working with the bank, the fund, the other international 
financial institutions.
    Second, the whole process of regulatory reform. Africa is 
bogged down--many countries are bogged down in a bureaucratic 
morass. Infrastructure, even of a business nature, is not 
there, but there are rules and regulations that abound. The 
question is how does one rationalize this system so that 
business can take place in a productive way?
    And then the third area, of course, is to strengthen 
democracy and democratic reform, hoping to undergird stability 
in the region. These are all areas where the United States has 
to begin leading. I think as a country, we have been remiss in 
the obligations we have, not only as a superpower, but also 
because we are ceding extraordinary advantage to other 
countries.
    Let me give you one example that may not be so obvious. 
China has courted Africa, courted Africa assiduously. The trade 
minister in China, my direct counterpart, has been to Africa 
about eight or nine times in 1996 alone. If I am not meeting 
with her, she seems to be in Africa.
    Why is that? Two reasons. First of all, the tremendous 
economic potential that is in Africa. But second, and for the 
United States this is perhaps even more interesting and 
fundamental, China wishes to bring Africa within its orbit so 
that in multilateral institutions--the WTO or the U.N.--it has 
a base of power to challenge that of the United States.
    Why on Earth would we let that happen unchecked and 
unregarded? We need to, as we are doing now, think through 
again our policies with respect to Africa and make sure we are 
also a global player on that continent.
    Mr. McDermott. I would just say one thing. I hope we do not 
require Africa to improve everything in democracy building 
before we make the moves with the 14 or so countries that we 
could make relationships with. We certainly did not require the 
Asians to do that. And I think there is certainly room for us 
to move at least in a dozen or so countries in Africa now, 
rather than wait for some perfection of their democratic 
processes.
    I appreciate your thoughts and we will talk with you 
further about it.
    Thank you.
    Chairman Crane. Mr. Herger.
    Mr. Herger. Thank you, Mr. Chairman.
    Madam Ambassador, I would like to emphasize my strong 
opinion that it is essential that the administration place as 
much emphasis on enforcing international trade agreements as it 
places on negotiating them. Fully implementing, closely 
monitoring, and strictly enforcing our trade agreements are 
pivotal to our national interest. Absent such strict monitoring 
and enforcement, I fear, our agreements will become simply U.S. 
concessions for benefits that never fully materialize.
    I am concerned, for example, about strict monitoring and 
enforcement without exception of the 1996 United States-
Canadian lumber agreement; yet this is a generic problem 
applying to all our trade agreements.
    Madam Ambassador, will you ensure that agreement 
implementation, monitoring, and enforcement receive the highest 
attention at USTR and, in particular, will you ensure that USTR 
does whatever is necessary to maximize enforcement efforts 
throughout the interagency process?
    Ms. Barshefsky. I think the points you have made are very 
well taken, that USTR will continue, as we have over the past 
number of years, to enforce vigorously the trade agreements 
that we enter into.
    If we have trade agreements with countries, we have two 
choices. Either they implement or we have to enforce. If we do 
not enforce, there is no credibility in the process and no 
credibility to the agreements negotiated.
    In the last 4 years, we have brought 46 enforcement 
actions. We have also brought 23 WTO cases, 15 in the last year 
alone. All of that, I think, demonstrates the importance to 
this administration of strict enforcement.
    In addition, we created a separate monitoring and 
enforcement unit at USTR to better concentrate our resources on 
that important task, and Commerce has set up a parallel 
organization. We tend to do more of the litigation; they tend 
to do more of the strict monitoring of trade agreements 
compliance, but together, we cover the waterfront.
    Mr. Herger. Thank you. Another example, Madam Ambassador, 
is my concern about recent tariff increases on shelled and in-
shell almonds imposed by the Indian Government. As you know, 
the U.S. exports nearly 50 million dollars' worth of almonds to 
India annually. Many of these almonds are grown in and around 
my district in northern California.
    I understand the Department of Agriculture has sent 
correspondence to India on this matter and plans to follow up 
with a telephone call to the Indian embassy tomorrow. Both 
occasions will be used to inform the government of India that 
it has breached its agreement on almonds with the United 
States.
    I would hope you would use your position to take this issue 
on personally and see that it is appropriately resolved. And 
will you work with the President to reopen this market for the 
United States in accordance with the Indian agreement 
negotiated by Ambassador Kantor?
    Ms. Barshefsky. Congressman, we are already involved in 
this with USDA. We have already spoken to the Indian Ambassador 
about this issue. This tariff change occurred--we learned of it 
at the end of last month. It was a change that appeared in the 
Indian budget. Obviously, this is unacceptable and we will be 
working very, very hard to rectify the situation one way or 
another.
    Mr. Herger. Thank you very much, Madam Ambassador, and I 
join in congratulating you on your recent Senate confirmation.
    Ms. Barshefsky. Thank you very much.
    Mr. Herger. You are welcome.
    Chairman Crane. Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman.
    Madam Ambassador, I have supported fast track every time, 
NAFTA and MFN for China, but I am disturbed, somewhat 
disturbed, anyhow, by some of your responses to Mr. Rangel and 
to Mr. McDermott about two different questions.
    Our Government has taken the position that with respect to 
trade with China, we delink considerations of human rights and 
political restructuring from the economic issues of trade and 
investment, and we proceed down two different tracks. Now, 
whether that is right or wrong, that is what we do.
    We can do no less, it would seem to me, when it comes to 
the Africa question. I do not know the commitment of every 
country in Africa to democratization, but I certainly know the 
commitment that China does not have in that area. And it is not 
to be overlooked as we talk about how to get after this whole 
issue of trade investment.
    I hope that when we discuss these questions in the future, 
we will talk about them in the same way we talk about delinking 
these issues with China. That is the first thing.
    The second thing, because I know this time runs very 
quickly, is on Mexico. I am from Louisiana and we are overrun 
by drugs in our State because of the traffic from Mexico. Seven 
years ago, eight years ago, we did not have the problem. Now 
crime is rampant because drugs are driving crime.
    I have not required, in my experience, any votes connected 
to any of the concerns. We have talked about how important 
environmental considerations were and labor considerations 
were, but we have tried to give the administration a great deal 
of freedom in this area.
    Now drugs have become a very prominent question. This has 
to be on the table with Mexico. It has to be discussed. It has 
to be addressed and it has to be dealt with because it is not 
much of a neighbor who throws garbage into your back yard, and 
that is what is happening here.
    I hope that we will take these two issues very seriously, 
deal with Africa as we deal with China, as Mr. McDermott says, 
with Asia, have the two-track policy proceed hard. It does not 
mean we ignore the democratic problems but we proceed very 
strenuously on those on the diplomatic side, and we work hard 
on the State Department side to get that done.
    But on the trade and investment side, we treat Africa as a 
good venue for trade and investment, and we encourage it with 
everything we have to do it with.
    You asked the question why Asia is doing better than Africa 
30 years later. It is obvious to me: Western investment. It is 
not because Asian Governments are less corrupt or because they 
are more industrious. They simply became investment venues that 
we had an interest in. And in the last 15 years we have raised 
the per capita income there because we have brought jobs and 
investment there. And if we take jobs and investment to Africa, 
you will see the economic turnaround there, as well.
    That is my comment.
    Ms. Barshefsky. Thank you. If I may, Congressman, in 
identifying the ways in which we believe the United States can 
assist African nations--that is, trade and investment, issues 
of regulatory reform and rule of law and democracy--I was not 
intending to indicate that somehow these are linked or one 
could not proceed with one if one did not proceed with the 
others simultaneously or as preconditions. I was merely 
identifying the areas where we believe the United States has 
particular expertise or can be of assistance.
    There is no question that standing on its own, trade and 
investment is key, is key to the recovery of many African 
nations and will also be key to their stability. And so as a 
principal objective, obviously it is to see if we cannot 
enhance the trade and investment areas, if you will, to start 
the ball rolling.
    The issue of GSP is one such possibility. Working with the 
bank, the fund, and so on presents another series of 
possibilities. Perhaps agreeing with Congress on some new 
initiatives could be yet a third possibility. But I do think it 
is vitally important that we work in Africa to help create in 
Africa not only development but sustainable economic 
development while, at the same time, we do work on other areas, 
such as democratic governance, rule of law, commercial policy--
the full range of issues one might expect if one were 
attempting genuinely to assist these countries to economic 
recovery. So in that, I am agreeing with you.
    I think, on the question of drugs and Mexico, of course 
there has been quite a debate in this chamber about that. The 
administration's position on recertification is, I think, well 
known, and that is a genuine feeling on the part of the 
administration that the Mexican Government has been a 
cooperative partner in the fight against drugs. And evidence 
presented included the fact that the Mexican Government now has 
very strong criminal laws, enforcement activity is way up, 
criminal prosecution has increased, the eradication of drugs 
fields and so on has increased in Mexico, so on and so forth. 
But there is no question that this is an issue of critical 
concern.
    You know this, I know: We are 4 percent of the world's 
population; we consume 50 percent of the world's illegal drugs. 
We obviously, therefore, also have some significant domestic 
business to attend to.
    But I take the point. I understand the significance of the 
drug issue and its ramifications and implications for U.S. 
policy, and we would like to work with you.
    Chairman Crane. The gentleman's time has expired.
    Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman and thank you, 
Ambassador, for being here.
    Given that U.S. agriculture is one of the shining examples 
of how good trade is for America, I was pleased to see your 
office reported that you will be focusing more on agricultural 
issues. As we all know, trade is one of the big stars of 
American exports--$30 billion in trade surplus in agriculture 
and a total of $60 billion in agricultural exports.
    My question is that reports have indicated that you will be 
elevating agricultural issues at the trade office, and I 
wondered if you could provide me with some details of what 
resources, in terms of time and personnel, will be devoted to 
agriculture and what differences might we see as a result of 
your efforts and maybe some of the long- and short-term 
changes.
    Ms. Barshefsky. The administration is committed and I am 
committed to elevating the profile of agricultural trade 
issues. Agriculture is our largest good export. We hit record 
agricultural exports in 1995. In 1996 we broke that record and 
hit a new record. I think USDA forecasts for 1997 are a little 
bit of a downturn in exports, still at very high levels, but 
they have made some weather-related projections which indicate 
a little bit of a downturn from 1996 but probably still above 
the 1995 level.
    In terms of USTR, USTR has a very, very excellent 
agriculture shop but in my view, we need to expand that shop, 
buildup a little more expertise in that shop, and elevate the 
profile and the rank of our negotiators in that shop so that 
they are dealing with the appropriate counterparts in foreign 
countries.
    In addition, Dan Glickman and I have spent a fair amount of 
time talking about ways that USTR and USDA can be better 
coordinated than we are. Of course, USDA sets agricultural 
policy. On any agricultural trade issues, they are on our 
delegation, and vice versa. But oftentimes even with that, we 
are not quite as well coordinated as we should be. And, of 
course, trading partners love to see a less than perfectly 
coordinated U.S. Government response. We will be working on 
that aspect as well.
    Mr. Camp. The United States-European Union trade and 
investment relationship is usually described as a very strong 
one and a balanced one and that is perhaps because of the size 
of it, but we do seem to have an unusually large number of 
disputes in the agricultural sector.
    I wonder if you could just share why you think we face so 
many problems with the EU in the farm sector and how we might 
resolve some of those difficult issues.
    Ms. Barshefsky. The words ``dispute'' and ``EU 
agriculture'' seem to go hand in hand. If you look at the range 
of agricultural trade disputes around the world, and the list 
is long and the number of countries is many, relations with the 
EU still stand out as being particularly nettlesome.
    I think the reason for that has to do, in part, with EU 
internal politics, the domestic politics of the individual 
member states, the fact that in some areas, the United States 
is far more competitive and more aggressive than the EU, and 
the EU view oftentimes in industrial sectors of containment.
    If you look at the way the EU treated Japan policy for 
many, many years, it was not a market access-driven policy, as 
the United States policy was. It was, instead, a policy of 
containment--shutting their own market, keeping Japan out. The 
result was a diminution in competitiveness of the EU's own 
industries.
    There are some similarities between that kind of 
containment policy and EU agriculture policy, which seeks to 
shut out competitors from the EU market. The result has been a 
decline in competitiveness in many EU agricultural sectors, 
particularly in sectors like bioengineered agricultural 
products, which rely on very high technology.
    We have identified a range of problems, bilateral problems, 
in the agriculture sector with the EU and our intent would be 
basically to go down the list one by one, doing our best to 
resolve them.
    I should also add that agriculture negotiations begin again 
in the WTO in 1999, and we would like to be somewhat better 
positioned than we are right now before those negotiations 
begin.
    Mr. Camp. Thank you.
    Chairman Crane. Mr. Nussle.
    Mr. Nussle. Thank you, Mr. Chairman.
    I would like to, first of all, associate myself with the 
comments of Mr. Camp and his questions and also add my interest 
obviously in the agricultural sector.
    In your testimony, and it is not numbered but it is under 
the title of ``Fast Track and NAFTA in Context,'' Madam 
Ambassador, you state that ``Fast track debate is and should be 
about our ability to conduct a global trade policy and to 
advance our global trade interests. They do not address the 
need to seize trillions of dollars in global infrastructure 
opportunities in Asia. They do not give us the tools to 
continue cutting European agricultural subsidies. They do not 
help us respond to preferential trading relationships or 
exclusionary practices that limit the United States.''
    I guess my first question is in the area of--when do we get 
to deal with those issues, and how? Because really, for us, 
fast track, from our constituents' standpoint, gives away our 
ability in many instances to deal with some of that minutia, so 
to speak. How do we deal with those issues outside of the 
context of fast track?
    Ms. Barshefsky. Let me first, I think, correct a 
misimpression. That is the extent to which fast track would 
impinge on a member's ability to get involved in the minutia, 
to use your word.
    Of course, if you look at the history of fast track, you 
see that accompanied with it are a series of consultative 
prerequisites and member contact, without which, actually, fast 
track can be denied.
    The result is that if you look at agreements like the 
Uruguay round agreements or NAFTA, the level of congressional 
consultation was unprecedented because fast track itself 
depended on the adequacy of consultation with Congress.
    Our view, continuing in that tradition, is that if 
anything, fast track tends to increase the consultations 
between the administration and individual members on the full 
range of issues that are of concern to them.
    Now, I do not see that any member's ability to influence 
policy is particularly different with fast track or without. 
The key is that administration and members must work together 
to fashion the appropriate policy on the particular issues or 
range of issues of concern.
    I made the comment earlier that without fast track, on some 
of the issues that you addressed, for example, agricultural 
subsidies in Europe, we are relegated to using bilateral tools. 
If we are going to tackle agricultural subsidies in Europe, 
bilateral tools will not work. Europe will not move 
bilaterally. We have been through 30 years of this with Europe, 
and I think that is an uncontestable proposition. They will 
only move in the context of multilateral or broader talks, and 
for us to implement the outcome of those talks, fast track 
authority is needed or neither Europe nor our trading partners 
will enter into the discussion.
    Mr. Nussle. And that is my confusion because you say in 
your statement that fast track is not about that and now what 
you are saying----
    Ms. Barshefsky. Oh, I am sorry. Then perhaps the statement 
was inartfully drafted. What we are saying is that the question 
of Mexico is not related to how we pursue infrastructure in 
Asia or agricultural subsidies in Europe or other issues. The 
question of Mexico, which may raise concerns for members, 
certainly is one that should be addressed, but not one that 
resolves the rest of our global trade agenda and not one that 
serves to do anything other than put our competitors in a more 
advantageous position and let Europe rest with the agricultural 
subsidies it still employs.
    Mr. Nussle. Well then, let me ask, because I just had a 
town meeting in Waukon, Iowa, and Allamakee, Iowa, and John 
Simmons and Ollie Emerson grilled me--they are two residents 
from that corner of the woods, and they grilled me quite a bit 
on the whole issue of how many jobs we have lost to Mexico, how 
easy it is for companies to move to Mexico, how difficult and 
bad the NAFTA Agreement has been, and why we should, as a 
result, pull in the reins in many instances.
    There have been too many sets of figures out about all of 
this different information. Could you maybe put some of this to 
rest today? What have we lost or gained in terms of jobs? How 
many companies have moved or expanded, either in Mexico or 
here? We need that information in order to, in some instances, 
battle misperceived information or misunderstood information.
    Ms. Barshefsky. As you know, the administration believes 
that NAFTA has been a very, very good agreement for the United 
States. Our exports to Mexico now are at record levels, a 
historic high, despite the worst Mexican recession in recent 
history. Our export recovery in this recession was very, very 
short with Mexico. That is to say that our exports dipped in 
1995, rebounded very, very strongly in 1996.
    During the last recessionary downturn in Mexico, caused by 
peso devaluation, which was in 1982, our exports fell by one-
half and they took 7 years to recover.
    The reason we have done so much better in the Mexico 
economy now is that NAFTA has undergirded Mexican market-
opening reform. Mexico has had no choice but to stay on the 
NAFTA schedule. That means continually opening its market to 
U.S. exports, despite its recessionary downturn. We feel that 
NAFTA has been a very good agreement.
    On the questions that you raise, rather than perhaps 
misspeak and give you yet a different set of figures or 
slightly different, I would be happy to provide you with quite 
detailed information.
    Thank you.
    Chairman Crane. And I might add a footnote to what 
Ambassador Barshefsky said and that is we are enjoying the 
equivalent of full employment right now in this country. But 
beyond that, we had an incident in Chicago that Mayor Daley 
told us about. They could not find tool and dye workers. They 
had to import legal immigrants, import legal immigrants for $20 
an hour jobs.
    There is a lot of distortion and misrepresentation on that 
question of job loss.
    Mr. Levin.
    Mr. Levin. Thank you, Mr. Chairman. I welcome the chance to 
participate.
    Ambassador, congratulations on your confirmation. I am glad 
you are here, very glad.
    Ms. Barshefsky. Thank you.
    Mr. Levin. Your testimony has tried to provide a context 
for this discussion and I applaud you for doing that. There can 
be some differences as to what the context looks like but I 
think essentially you are saying we ought to take another look 
before we leap, not taking too long.
    And I think especially as trade has been evolving and trade 
issues have been evolving more and more with developing 
nations, we need to have a context. We need to take that kind 
of a hard look, not an academic one but a hardheaded one.
    In your testimony, in the effort to provide a context, at 
the end you talk about the important issues of 
interrelationships of the economy with labor and environmental 
issues. In your testimony you say, ``Advancing worker rights 
and labor standards is in our national interest and is 
consistent with our deepest national values.''
    Then you go on, on the next page, to say, ``In my view, the 
challenge is how to maximize progress in three areas which are 
of major importance to us: Expanded market access, advancing 
worker rights and core labor standards, and promoting 
environmental protection and sustained development.''
    Then you say, actually a bit earlier, your conclusion: ``We 
simply have to forge a consensus of this subject that alluded 
us in 1994 and 1995.''
    I am not sure we will bridge all the differences or there 
will be a full consensus, but I think your testimony, if we 
look at it carefully, will help to advance a hardheaded dialog.
    I think NAFTA is relevant. It is not the whole story. We 
need to look both at our exports and their imports.
    Let me ask you, though, in the time you and I have 
remaining, to just say a word about why you say advancing 
worker rights and labor standards is in our national interest? 
I assume you mean our national economic interest. You also say 
it is consistent with our deepest national values.
    I think most people would agree with that. I am not sure 
how much agreement there is on the statement ``Advancing worker 
rights and labor standards''--as you put otherwise, ``core 
labor standards''--is in our national interest. Why is that?
    Ms. Barshefsky. Let me say that the United States has long 
sought to act in a manner to improve working conditions around 
the world through various multilateral fora, through various 
regional arrangements, through various cooperative arrangements 
with various countries.
    This is an important issue for a number of reasons. One, of 
course, is the question of U.S. workers competing against 
workers who make substantially lower wages. Some of that may be 
justified by comparative advantage or differing economic 
circumstances, but a more serious question arises when that 
disparity is a result of an enforced government policy to keep 
it that way.
    So, too, the question, for example, of child labor has 
substantial bearing on the United States and our longer term 
economic prospects. To the extent countries engage in bonded 
labor, forced child labor, countries that have no mandatory 
education or very little in the way of educational systems, we 
see no way for its domestic population to get out of a vicious 
cycle. But these countries become greater and greater exporters 
around the world. And, of course, we are in competition with 
those exports.
    There is a double blow which is the lack of development in 
those countries and the lack of regard for its own workers or 
people and then, of course, the competitive situation.
    But I think, at the same time, we have to recognize that 
labor is only one variable in the cost of production and in 
most industries it is actually the least important variable in 
that cost, with infrastructure and the cost of capital playing 
a much more substantial role in a country's outward 
competitiveness in the global marketplace.
    As far as our core values go, of course for the United 
States, we are a land of opportunity. The notion that 
governments would knowingly discriminate among classes with 
respect to labor, would force children into occupations that 
are plainly hazardous, would keep a segment of population 
relegated to a particular status is abhorrent, I think, to the 
U.S. way of thinking.
    Mr. Levin. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Crane. We want to express profound appreciation to 
you, Ambassador Barshefsky, for all of the hard work you have 
done thus far, and we look forward to burdening you even more 
in the future and we look forward to working with you, too.
    Thank you for coming.
    Ms. Barshefsky. Thank you so much.
    Chairman Crane. Our next witness follows the tough 
negotiator who has just been here before our Subcommittee. She 
had quite a reputation for the tenacity she demonstrated when 
she represented the United States in NAFTA and Uruguay round 
negotiations under President Bush.
    In continuation of our bipartisan tradition, I want to 
express appreciation to Ambassador Carla Hills for accepting my 
invitation to join us today. We are very much indebted to you, 
Carla, for coming. With that, you may proceed.

   STATEMENT OF CARLA A. HILLS, CHAIRMAN AND CHIEF EXECUTIVE 
   OFFICER, HILLS & CO.; AND FORMER U.S. TRADE REPRESENTATIVE

    Ms. Hills. Thank you, Mr. Chairman. I was delighted to 
receive your invitation to share with you my thoughts on trade 
policy.
    As the world's largest exporter, importer, and investor, we 
have a major national interest in ensuring that global commerce 
continues to flourish in ways that maximizes our opportunities 
and minimizes the risks for our citizens, and history tells us 
that we make a difference.
    America exercised post-war leadership to open the global 
economy, and the results were spectacular. World trade, global 
growth, and the U.S. economy soared.
    In the eighties, when protection began to hinder our 
growth, the United States pushed for another round of trade 
talks. In the nineties, our leadership in the Uruguay round and 
in the NAFTA helped lock in market reforms. Without our 
leadership, the world would be a very different place today, to 
the detriment of our citizens.
    To maintain our influence internationally, we need to do 
four things better: First, develop a broader domestic consensus 
and understanding that U.S. prosperity depends on remaining 
globally engaged; second, be more clear, consistent, and 
decisive in our trade policies. At the outset, we must think 
carefully about what it is we want, say what that is, mean what 
we say, and do what we say we will do; third, we need to lead 
by example, abiding by the agreements that we negotiate, if we 
expect others to do so; and more carefully weigh the growing 
burdens on trade from the use of economic sanctions as a means 
of furthering our nontrade objectives; and finally, we need to 
cultivate international support for our positions.
    As we look ahead to the future, our trade policy must 
promote open markets. But even with the best of policies, our 
Nation cannot effectively lead if our trade negotiators cannot 
deliver on the deals they negotiate. Thus, the immediate 
challenge is for this Congress and this administration to agree 
on new trade agreement approval authority traditionally known 
as fast track.
    Fast track seeks to harmonize the powers that the 
Constitution grants Congress to regulate international commerce 
with the constitutional powers given the President to negotiate 
with foreign powers. Fast track was conceived as a result of a 
bipartisan recognition that our trade team could not negotiate 
effectively if their counterparts knew that if they struck a 
deal, a second negotiation would follow with Members of 
Congress. Such a two-step process would inevitably lead the 
nations with whom we negotiate to hold something back.
    To take advantage of future and current opportunities, the 
2-year stalemate over the relationship between trade and 
standards for labor and the environment must come to an end.
    Assuming fast track is granted, a top priority should be to 
move forward with Chilean accession to the NAFTA. Two 
administrations, Republican and Democrat, have concluded that 
it well serves our national interest to bring Chile into the 
NAFTA, for the NAFTA constitutes the type of comprehensive 
agreement that we should want to take root in this hemisphere.
    Its market-opening provisions have substantially raised 
trade among all three parties. Unfortunately, that positive 
outcome has been overshadowed by Mexico's financial crisis. But 
the NAFTA had nothing to do with Mexico's financial 
difficulties, nor has it been detrimental to any of the 
parties' interest.
    Quite the opposite is true. The NAFTA helped ensure that 
Mexico remain committed to an open economy, and as a result, it 
has bounced back much more rapidly than most expected, and 
United States entrepreneurs retained access to the Mexican 
market allowing them to sell a record $57 billion in exports 
last year.
    Chilean accession to the NAFTA is important in itself and 
for the signal that it would send about America's commitment to 
hemispheric trade liberalization.
    At the 1994 Summit of the Americas, the hemisphere's 
leaders unequivocally committed to negotiate a comprehensive 
Free Trade Area for the Americas by the year 2005. Since then, 
the momentum for a hemispheric free trade has stalled, largely 
because of our indecision. As a result, integration is 
proceeding without U.S. leadership, creating problems for us. 
The proliferation of agreements is creating a morass of 
conflicting rules for our businesses. U.S. firms are 
disadvantaged in the region, as nations lower trade barriers 
without our participation. And as the hemisphere moves forward, 
we are losing the influence to ensure that integration reflects 
our economic interest.
    Trade ministers meet in Brazil in May, and the United 
States could enhance its influence there if our negotiators had 
an expression of congressional support through the passage of 
fast track.
    Asia is another key region where, like Latin America, we 
ought to be exercising the leadership befitting our great 
Nation. By exercising leadership on trade and economic issues 
in two of the fastest growing regions of the world, Asia and 
Latin America, we can maximize our commercial opportunities and 
advance our trade objectives.
    In addition to regional liberalization, we need 
internationally agreed rules to govern global commerce. That is 
why three administrations worked hard to conclude the Uruguay 
round agreements, which in addition to substantial trade 
liberalization created the WTO and provided that trade 
ministers meet every second year to continue to remove trade 
barriers.
    At the first WTO ministerial meeting this past December, 
ministers concluded the Information Technology Agreement, which 
will save our entrepreneurs about $1 billion. In mid-February, 
WTO members agreed to open basic telecommunications worldwide, 
a market valued at about $600 billion annually.
    Ambassador Barshefsky and her team deserve high praise for 
both of these agreements.
    We can do more. In agriculture and services, we have only 
started to liberalize. Negotiations in both are set to resume 
in 1999, and the United States should be positioned to lead in 
these important areas. We need rules in investment. A more 
controversial area is the relationship between trade and 
standards governing labor and the environment.
    Just as the United States lacks a domestic consensus on how 
to address these issues, there is no consensus in the WTO. In 
my view, we need first to agree on our objectives, then use 
available fora to negotiate internationally agreed standards, 
just as we have done in our more effective international 
environmental agreements. Once we have the standards, we can 
tailor appropriate enforcement mechanisms.
    Another issue that will affect trade policy is the terms on 
which new members enter the WTO. Of the 34 nations applying, 
the largest is China. China's entry into the WTO, based upon a 
sound protocol of accession, is very much in our Nation's 
interest. It will ensure us increasing access to the Chinese 
market and give us a multilateral forum in which to deal with 
our trade differences.
    To achieve the strongest protocol of accession, our 
negotiators should be in a position to tell the Chinese that 
Congress will grant permanent MFN if the terms of their 
accession meet our specific concerns.
    Mr. Chairman, I am happy to answer your questions.
    [The prepared statement follows:]

Statement of Carla A. Hills, Chairman and Chief Executive Officer, 
Hills & Co.; and Former U.S. Trade Representative

    Mr. Chairman and members of the Subcommittee, thank you for 
inviting me to discuss with you U.S. trade policy objectives and 
initiatives.
    Many people have questioned whether the United States can or should 
continue to be the leader of the global economy. Over the past four 
years, a variety of voices on all sides of the political spectrum have 
said the United States should look to its domestic interests and reduce 
its global involvement.
    These views suggesting an ``either-or'' choice between our foreign 
and domestic interests cause me discomfort. It is increasingly hard to 
draw a line between the two. Nor do I find it persuasive that by 
withdrawing from global endeavors, we are somehow better able to solve 
our economic problems here at home.
    It is true that the world has benefited substantially from U.S. 
economic leadership. But the principal beneficiaries have been our own 
citizens, who have been blessed with five decades of unparalleled 
prosperity.
    In my view, self-interest alone should persuade us to maintain our 
global leadership on trade and economic issues, which does not always 
mean control, but certainly means influence.

                Importance of Trade to the United States

    The United States has an enormous stake in the continued 
growth of world commerce. We are the world's largest exporter. 
Last year we sold $837 billion abroad, or almost $3,100 for 
every man, woman, and child in our country.
    We also are the world's largest foreign investor and host 
to foreign investment. Just looking at direct investment, in 
1995 (the most recent year for which data are available), our 
stock of direct investment abroad was $711 billion overseas, 
and the stock of foreign direct investment in the United States 
was $560 billion.
    Our global trade and our investment earnings and payments 
now equal about one-third of our $7 trillion economy.
    We are inextricably linked to the global economy. And that 
linkage has helped fuel America's substantial growth over the 
past half century.
    Hence, we have a major interest in ensuring that global 
commerce flourishes in ways that maximize opportunities and 
minimize risks for our citizens. History tells us that we can 
make a difference.

     U.S. Economic Leadership Has Shaped the World to Our Advantage

    U.S. economic leadership over the past 50 years has shaped 
the global economy very much to our benefit.
    Following the Second World War, it was our leadership that 
opened the global economy in the belief that economic 
interdependence would encourage political stability.
    To that end, we led a coordinated effort to establish a 
series of international institutions, including the General 
Agreement on Tariffs and Trade--the GATT--to promote global 
trade and economic growth. And we launched the Marshall Plan to 
stimulate recovery in Europe and, in turn, stimulate markets 
for our exports.
    The results were spectacular. In the quarter century 
following the war, world trade soared 500 percent, the global 
economy grew at the fastest sustained rate ever, nations 
devastated by the war rebuilt, and the United States enjoyed 
the highest growth in its history.
    In the 1980s, as trade protection began to hinder world 
growth, the United States pushed for a new trade round to 
modernize and strengthen the global trading system. The Uruguay 
Round, launched in 1986, went beyond tariffs to services, 
intellectual property rights, and investment--areas of rapidly 
growing commercial importance.
    In the early 1990s, U.S. trade leadership caused a sea 
change in economic policies around the world.
    It is no exaggeration to claim that our successful 
negotiation of the North American Free Trade Agreement in 1992 
did far more than stimulate trade throughout North America. It 
also:
     Breathed new life into the then-stalled Uruguay 
Round;
     Encouraged the 18 nations of the Asia-Pacific 
region to adopt a set of principles to liberalize trade and 
investment over the next 25 years; and,
     Placed liberalization at the top of the agenda in 
the Western Hemisphere, where for the first time hemispheric 
leaders have committed to negotiate a free trade agreement by 
the year 2005.
    Our economic, political, and military leadership over the 
past five decades has not only helped to ensure that the 
freedoms we cherish are enjoyed by an ever-widening range of 
people, but also has created an international climate that is 
more secure.
    We have helped build a world that is increasingly in our 
image, and our success in stimulating change more and more 
appears to be self-sustaining. Last year, for example, a 
military coup in Paraguay failed, thanks to threatened 
political and economic pressure brought by Paraguay's partners 
in MERCOSUR--Argentina, Brazil, and Uruguay, who themselves 
have changed dramatically since 1989.
    Similarly, in Venezuela, despite vows at his inauguration 
to pursue populist statist policies, President Raphael Caldera 
found he could not swim against the tide of global economic 
reform and has moved to restore free-market orthodoxy.
    Just imagine if the United States had failed to lead 
economically and politically over the past 50 years, how 
different the world would look today, to the grave detriment of 
basic U.S. interests.

         The U.S. Still Needs to Be the World's Economic Leader

    If, as we turn the corner into the next century, the United 
States fails to exercise economic leadership, we could 
jeopardize the peace and prosperity for which we paid so dearly 
this century. For example:
    We want open markets as that is the best way to ensure 
world growth and stability.
    We want nations making a transition from statist economies 
to market regimes to be integrated into the global economic 
system.
    We want developing nations, which purchase about 40 percent 
of our exports, to prosper.
    We want all nations to adopt sound macroeconomic policies 
to ensure stable, non-inflationary growth. That will enable 
freer flows of trade and investment and increased growth, and 
allow nations to deal more effectively with issues of
    security, population, poverty, pollution, social equity, 
disease, terrorism, and drug trafficking--challenges that are 
difficult to contain within national borders.
    Most of our economic objectives require cooperation among 
nations. If we drop out, there is less likelihood that 
cooperation will occur and more likelihood that we will not 
like the outcome.

                  Leadership in Today's Global Economy

    Believing, as I do, that the United States is unwise in the 
extreme not to maintain its influence with respect to global 
economic issues, the question is what needs to change. I would 
suggest attention in four areas.

Rally Domestic Support

    First, we need to develop a broader domestic understanding 
that the United States must remain engaged globally if it is to 
prosper.
    In trade, for example, for most of the post-World War II 
era, there was a strong domestic consensus in favor of 
promoting free and open markets here and abroad to strengthen 
ties with our allies, reduce economic frictions, and spur 
global and U.S. economic growth--all to the end of containing 
communism.
    With the Cold War's end, that consensus has started to 
unravel. Trade, which once was viewed as a ``no-brainer,'' now 
is seen by too many as a ``no-gainer.'' This is a very 
dangerous trend.
    Yet there has been little effort by our national leaders to 
defend and promote our trade policies and to explain the 
importance to our economy of global commerce--imports as well 
as exports. The vacuum has been filled disproportionately by 
those who seek to turn back the clock and retreat into a 
``Fortress America'' of protectionism.
    Trade is truly a virtuous circle, but we need to educate 
people about its virtues or risk losing them.

Be Clear and Consistent

    Second, we need to be more clear, consistent, and decisive 
in our policies. We must think carefully about what it is we 
want, say what this is, mean what we say, and do what we say we 
will do.
    Public indecision and inconsistency costs us support at 
home and abroad. Let me illustrate with two examples.
    In 1993, there was a long delay before the Administration 
unequivocally came out in support of the NAFTA. That worried 
the agreement's proponents in both parties, who wondered if the 
Administration would be there at the end. It energized the 
opposition and turned what should have been an easy approval 
vote into a cliff-hanger.
    And, it badly hurt our standing in Asia when the United 
States announced in June 1993 that it would not renew most-
favored-nation (MFN) status for China unless it made progress 
on human rights. For 11 months, China was criticized publicly 
for its lack of progress. In 1994, when the United States 
announced that it would both renew MFN and delink it from human 
rights, the Chinese, as well as people at home and abroad, were 
astonished.
    It was the right decision, but the way in which we handled 
it made our subsequent negotiations in Asia more difficult on a 
range of issues. Making threats that we do not or belatedly 
discover that it is in our own best interest not to keep erodes 
our credibility.

Lead by Example

    Third, we must abide by the agreements we negotiate if we 
expect others to do so.
    When the United States announced 100-percent tariffs on $6 
billion of Japanese cars without first taking its case to the 
WTO, it trumpeted to the world that it would ignore the WTO's 
dispute settlement mechanism. Our ``shoot first and litigate 
later'' approach set an unfortunate example that could cost us 
in the future.
    Also, we need to weigh the growing and unpredictable burden 
on our trade from the use of economic sanctions as a means of 
furthering foreign policy and other non-trade objectives. 
Between 1993 and 1996, we imposed sanctions on some 35 nations 
unrelated to trade and economic issues. Where, after careful 
analysis, we conclude that we must take remedial actions, our 
actions must be effective (unilateral sanctions almost never 
are) and reasonably related to the conduct we oppose.
    When our security is at stake, I believe we have every 
right to take action that we deem in our national interest. But 
as we have concerns about attempts to intrude upon our 
sovereignty, we should be careful when our actions infringe on 
the rights of other nations to pursue economic and foreign 
policies that sometimes differ from our own.

Cultivate Friends and Allies

    Finally, we need to cultivate international support for the 
positions we take. That requires diplomacy and effective 
coalition building early on.
    In the Uruguay Round, our ability to work with other 
agricultural-exporting nations helped rein in Europe's trade-
distorting subsidies. The negotiation of the Information 
Technology Agreement is a more recent example of the success we 
can achieve when we build a core group of supporters and then 
seek to expand the group.
    There are times when unilateral action may be necessary, 
as, for example, when U.S. interests are being harmed but no 
internationally agreed rules exist to protect them. But 
unilateralism should be used sparingly, for we waste valuable 
political capital, particularly when we ignore the 
international rules that do exist.

                 A Trade Policy for the New Millennium

    Although global trade and investment are more open today 
than at any time in the past eight decades, the United States 
still faces a series of challenges.
    To advance our national interest and enhance our 
prosperity, our trade policy should seek to promote open world 
markets through multilateral action; bilateral or regional 
action; and, on rare occasions when necessary, unilateral 
action. These elements, wisely employed and tailored to the 
circumstance, can be mutually reinforcing.
    We should give action at the multilateral level our highest 
priority, for it is there that we can build major market 
openings that deliver the maximum opportunity for our 
entrepreneurs and create a more predictable, rules-based 
environment in which they can do business. Regional and 
bilateral agreements may enable us to pursue more focused 
strategies and achieve faster, deeper, and more comprehensive 
liberalization than may be possible in a multilateral context. 
Also, these narrower agreements may provide a base upon which 
to build broader support for our trade and investment 
objectives.

New Trade Agreement Implementing Authority

    Even with the best of trade and investment objectives and 
the most carefully conceived strategies, the United States will 
not be a leader, and our nation's trade negotiators will not be 
effective, if they do not have the ability to deliver on the 
deals they negotiate.
    Thus, the first, and in my view, the immediate challenge 
facing the United States is for this Congress and this 
Administration to agree on new trade agreement implementing 
authority--traditionally known as ``fast-track'' authority.
    Fast track constitutes a cooperative process between the 
Congress and the Executive Branch for negotiating and approving 
trade agreements that seeks to harmonize the exercise of the 
power that the Constitution grants the Congress to regulate 
commerce with the power it grants the President to negotiate 
with foreign nations. Historically, the Congress lays out 
specific negotiating objectives for the Administration and is 
closely consulted by the Administration during trade 
negotiations. In return, the Congress votes to approve or 
reject--amending--the agreement that the Administration 
negotiates.
    Fast track was conceived as a result of bipartisan 
recognition that our trade team could not effectively negotiate 
for our nation if their counterparts knew that if they struck a 
deal, a second negotiation would follow with members of 
Congress.
    Such a two-step process would inevitably cause nations with 
which we negotiate to hold something back for the second 
negotiation. Nations repeatedly have told us that without such 
procedures, they will not negotiate significant trade 
agreements with us.
    We need new fast-track authority to take advantage of 
current opportunities--bringing Chile into the NAFTA and moving 
forward with the Free Trade Area of the Americas and the Asia 
Pacific Economic Cooperation Forum (APEC)--as well as other 
opportunities that may present themselves in the future.
    The two-year stalemate between those who want our trade 
agreements to focus solely on trade and economic issues and 
those who want them in addition to cover labor and 
environmental issues must come to an end.

NAFTA Expansion

    Assuming fast track is granted, our first priority should 
be to expand the membership of the North American Free Trade 
Agreement--NAFTA--through Chilean accession to that agreement.
    Chile has led the process of economic reform in Latin 
America and has enjoyed 13 straight years of economic growth. 
Over the past five years, two Administrations--Republican and 
Democrat--have promised to negotiate with Chile to bring it 
into the NAFTA.
    The NAFTA constitutes the type of agreement we should want 
to take root in this hemisphere. It provides for full 
elimination of all tariffs, including agriculture; broad market 
openings for services providers; world-class protection of 
intellectual property rights; protection for the rights of 
investors; and a mechanism for settling our trade disputes.
    In the first year of the agreement, its market-opening 
provisions led to record trade among all three NAFTA partners. 
Unfortunately, that positive outcome was overshadowed by 
Mexico's financial crisis, and the NAFTA's opponents were quick 
to say that the United States never should have entered into 
the agreement.
    But the NAFTA had nothing to do with Mexico's financial 
difficulties. Nor was it detrimental to any of the parties' 
interests.
    Indeed, quite the opposite is true. The NAFTA helped to 
ensure that Mexico remains committed to an increasingly open, 
deregulated, and competitive economy.
    Thanks in large measure to trade, Mexico's economy has 
bounced back much faster than most analysts predicted. Last 
year's economic growth topped five percent. And, demonstrating 
a restoration of its financial credibility, Mexico raised $16 
billion on international financial markets and, on January 15, 
repaid--3 years ahead of schedule--the final $3.5 billion 
borrowed from the United States to help it through the peso 
crisis.
    The United States has been a beneficiary of this rebound. 
Despite the peso's devaluation, our exports to Mexico set a new 
record of almost $57 billion in 1996, nearly 24 percent higher 
than in 1995, and substantially above any year prior to the 
NAFTA. This stands in stark contrast to what happened after the 
1982 financial crisis, when restrictions Mexico imposed cut our 
exports by half, and it took six years before they returned to 
pre-crisis levels.
    Mexico is by no means out of the woods economically, and it 
faces very serious social and political challenges. It is a 
nation in transition, just as much as the nations of Eastern 
Europe and the former Soviet Union. But President Zedillo is 
trying to move Mexico in the right direction, and the NAFTA has 
encouraged that movement.

Free Trade Area of the Americas

    Chilean accession to the NAFTA is important in itself and 
in terms of the signal it would send about America's commitment 
to economic reform and trade liberalization in the hemisphere.
    Free trade throughout the Americas is a logical sequel to 
the NAFTA and the Enterprise for the Americas Initiative 
launched by President Bush in 1990, which ushered in a wave of 
good will in Latin America toward the United States and support 
for continued trade and economic reform.
    Hemispheric trade liberalization was enthusiastically 
endorsed at the December 1994 Miami Summit of the Americas. 
There, all 34 leaders in attendance committed for the first 
time ever to negotiate a free trade agreement for the Americas 
as comprehensive as the NAFTA by the year 2005.
    Since then, although work on the Free Trade Area of the 
Americas (FTAA) has continued at the technical level, progress 
at the political level has stalled. The stalemate over fast-
track authority and the 1996 election put the United States on 
the sidelines, unable to lead by offering a credible plan of 
action on which it could deliver.
    While we have dawdled, others have moved forward. MERCOSUR, 
the common market comprising Argentina, Brazil, Paraguay, and 
Uruguay, has signed free trade agreements with Chile and 
Bolivia, creating a market of 225 million consumers with a 
combined GDP of roughly $1 trillion. Mexico has negotiated 
numerous free trade agreements throughout Latin America and is 
in talks with the European Union. And Canada has signed an 
agreement with Chile, giving Canadian exporters and investors 
an edge over U.S. companies.
    In short, integration in the hemisphere is proceeding, but 
without U.S. participation or leadership. The dangers to us are 
several.
    First, the proliferation of competing free trade 
arrangements in the hemisphere is increasingly creating a 
morass of conflicting rules for our businesses operating in the 
region.
    Second, U.S. entrepreneurs are at a growing competitive 
disadvantage as other nations in the region lower trade 
barriers among themselves without U.S. participation.
    Third, as the hemisphere moves forward, the United States 
becomes less relevant to the process, and we lose influence and 
the opportunity to ensure that integration takes account of our 
economic interests.
    The United States still has time to act. Trade ministers 
are set to meet in Belo Horizonte, Brazil, in May. The United 
States has proposed an ambitious agenda for that meeting. Its 
voice at that meeting and throughout the hemisphere would be 
immeasurably strengthened, and its counsel much more likely 
taken, if Ambassador Barshefsky and her team could go to Brazil 
with a strong expression of Congressional support through the 
passage of fast-track authority. We could then reclaim our role 
as leader in the process of hemispheric integration, a process 
we started over a decade ago with the U.S.-Canada Free Trade 
Agreement, continued through the NAFTA, and can complete with 
the FTAA.

APEC

    Asia is another region where our national interest requires 
that we exercise leadership with respect to trade and 
investment liberalization.
    The World Bank projects that Asia will grow eight percent 
annually over the next decade, outpacing growth in the rest of 
the world by more than two-to-one.
    By the year 2000, it is estimated that 600 million Asians 
will have disposable incomes as high as the average in the 
industrialized world at the start of this decade.
    Because Asian economies together comprise one quarter of 
the world's economic output and an even larger share of our 
global commerce, how reforms progress in this important region 
will in large measure determine what can be achieved globally.
    Since 1993, leaders of the geographically far-flung 
economies that comprise the Asia-Pacific Economic Cooperation 
forum--APEC--have met annually. APEC includes the diverse 
economies that rim the Pacific, such as China, Hong Kong, and 
Taiwan; Indonesia, Thailand, and Singapore; Japan, Malaysia, 
and South Korea; Australia, Canada, and the United States.
    In 1994, APEC leaders agreed to eliminate their trade and 
investment restrictions: the industrialized economies to meet 
that goal by the year 2010, and the developing economies to do 
so by the year 2020.
    In subsequent annual meetings, they have adopted specific 
market-opening measures. Because these 18 nations produce half 
the world's output, other nations increasingly pay attention to 
agreements reached by the APEC members on trade and investment 
issues.
    The endorsement by APEC this past November of the 
Information Technology Agreement--aimed at eliminating tariffs 
on items connected with information technology, such as 
computers, semiconductors, and LAN equipment--paved the way for 
the World Trade Organization in December to conclude the 
agreement, which will save our entrepreneurs over $1 billion.
    Ambassador Barshefsky and her team deserve great credit for 
their skillful handling of this negotiation.
    By exercising leadership in two of the fastest-growing 
regions of the world--Asia and Latin America--we can maximize 
our commercial opportunities for our entrepreneurs and our 
workers and advance our trade objectives.

The World Trade Organization

    But for U.S. entrepreneurs to obtain maximum opportunities 
in the global economy, it is essential that we have a body of 
rules to govern international commerce agreed to by all the 
players with whom they trade or would like to trade.
    That is why three Administrations pushed so hard for a 
successful conclusion to the Uruguay Round of multilateral 
trade negotiations. The Uruguay Round agreements, approved by 
the Congress in 1994, cut global tariffs, and, for the first 
time, opened services markets, lowered barriers and subsidies 
in agriculture, strengthened protection for intellectual 
property rights, and made dispute settlement under the newly 
created World Trade Organization--the WTO--faster and more 
certain.
    As part of improved dispute settlement, nations are turning 
to the WTO with much greater frequency to settle trade 
disagreements. Since the WTO entered into force in 1995, some 
45 distinct matters involving 68 requests for consultations 
have been referred to the WTO. The United States has been a 
complainant in just over half (23) of these matters. Of these 
23 cases in which the United States has filed a complaint, we 
have won or settled 6 cases, 9 are before active dispute 
settlement panels, and 8 are either pending consultations or 
awaiting the formation of a formal dispute settlement panel. Of 
the 10 matters in which we are a respondent, we settled 4, lost 
3, and 3 are still under consideration.
    The Uruguay Round agreements also provided that trade 
ministers will meet every second year in an effort to continue 
to remove barriers to trade and investment.
    At their first ministerial meeting this past December in 
Singapore, the ministers not only reached a consensus on the 
issues they would tackle in the future--liberalization of 
telecommunications, financial services, agriculture and 
investment--they also concluded the Information Technology 
Agreement I mentioned earlier.
    In mid-February, the WTO concluded an accord opening basic 
telecommunications worldwide. This market, valued at roughly 
$700 billion annually, up to now has been dominated by state-
run monopolies. U.S. companies excel in this sector, and the 
accord is another outstanding accomplishment for Ambassador 
Barshefsky and her team.
    We can do more. The Uruguay Round agreements only started 
the liberalization process with respect to agriculture, where 
subsidies in developed countries alone still cost consumers 
almost $350 billion annually, and tariffs in some foreign 
markets reach 900 percent.
    And while many services were covered, many were not. 
Negotiations in both sectors are set to resume in 1999, and the 
United States should be in a position to lead in these 
important areas so vital to our economic success.
    Investment is another area where we need internationally 
agreed rules. Although negotiations are proceeding under the 
auspices of the Organization for Economic Cooperation and 
Development (OECD) on a Multilateral Agreement on Investment 
(MAI), the OECD has a limited membership--Europe, North 
America, Japan, Australia, New Zealand, and South Korea. I 
worry that non-members may be unwilling to accept commitments 
over which they had no say. At the Singapore meeting, WTO trade 
ministers agreed to exploratory work in this area. Since 
investment issues often are inextricably linked to services 
issues--for example the right to establish a local office or 
repatriate earnings--I believe we should encourage the WTO to 
move beyond exploratory work to serious investment 
negotiations.
    A more controversial area is the relationship between trade 
and labor and environmental standards. Just as the United 
States lacks a domestic consensus on how to address these 
issues, there is no consensus in the WTO.
    As a practical matter, those who argue that any new trade 
agreements signed by the United States should include labor and 
environmental provisions enforceable by trade sanctions are 
putting the cart before the horse.
    In both areas we need first to agree on the governing 
norms. We have a variety of fora in which to discuss these 
issues and to negotiate internationally agreed standards. We 
should use these fora to develop international consensus on the 
standards we wish to adopt, as we did in environmental 
agreements such as the Convention on International Trade in 
Endangered Species, the Montreal Protocol on Substances that 
Deplete the Ozone Layer, and the Basel Convention on the 
Control of Transboundary Movements of Hazardous Wastes and 
Their Disposal. Once we have internationally agreed values and 
standards, we can tailor the enforcement mechanism to the 
particular accords, which may include some form of trade 
sanction for goods that violate those standards, as with the 
agreement protecting endangered species.
    Another major issue confronting the WTO, which is relevant 
to U.S. trade policy, is the over 30 countries seeking 
membership in the WTO--many of whom just a few years ago, such 
as Russia, China, Vietnam--would have turned their backs on the 
disciplines WTO membership requires.

                                 China

    One of the largest is China.
    It makes little sense to talk about a World Trade 
Organization in which a country with 20 percent of the world's 
population, having an almost $1 trillion economy, and which is 
the world's eleventh largest exporter, is not a member.
    China's entry into the WTO, based upon a sound protocol of 
accession, is very much in our nation's interest. WTO 
membership would put China on a predictable path of economic 
reform that would ensure us of increasing access to the Chinese 
market. It would also give us a multilateral forum in which to 
deal with our trade differences without giving up our right to 
use our domestic trade laws if China reneged on its commitments 
to open its markets.
    Our negotiators have consistently sought to ensure that 
China agrees to commercially meaningful commitments to open its 
market, protect the rights of exporters and investors, enhance 
the transparency of China's laws and regulations, and abolish 
restrictions that are not WTO-consistent in its protocol of 
accession.
    Complicating these negotiations for the United States is 
our annual review process required by the Jackson-Vanik law to 
renew China's most-favored-nation (MFN) status. MFN is a 
misnomer. In today's world, it is the normal, non-
discriminatory treatment we grant about 160 other nations.
    Since China already has permanent MFN status from every 
other major WTO member, the value of WTO membership to it is 
greatly reduced without the assurance of permanent MFN from the 
United States.
    But unless the Jackson-Vanik law were repealed, China would 
not obtain permanent MFN trading status from us even if it 
joins the WTO.
    The Jackson-Vanik law is a relic of the Cold War. Under its 
provisions, for a President to give a Communist nation MFN 
status, the law requires that he certify annually the fact that 
their citizens are free to emigrate.
    We have differences with China, but immigration is not one 
of them. We have thousands of Chinese students enrolled in our 
schools and thousands of Chinese visitors each year. Instead, 
we use the occasion of the Jackson-Vanik review to debate 
China's conduct in a number of non-trade areas.
    Our negotiators should have every means available to ensure 
that they can negotiate the strongest, most commercially 
meaningful terms of accession for China as possible. To me, 
that means that the Administration should be explaining to the 
Congress the reasons why we should grant China permanent MFN 
status if we get a solid accession agreement. If the 
Administration could say to the Chinese, ``We have consulted 
closely with the Congress, and we believe we will be able to 
obtain permanent MFN status provided the terms of your WTO 
accession are clearly in our commercial interest,'' it cannot 
help but enhance the chances of successfully concluding the 
strongest protocol of accession for China's entry into the WTO.

                               Conclusion

    For half a century, the United States has been an active 
participant in building the global trading system. It has been 
a voice for removing the barriers that divide the nations in 
the world, in the belief that shared economic opportunity would 
unite us.
    As we look to the new century, we should look back with 
pride on our accomplishments and forward with hope for the 
future. We have earned the respect of our trading partners in 
this century to shape events in the next.
      

                                

    Chairman Crane. Thank you very much.
    In contrast to other trade agreements we have successfully 
consummated, such as with Canada and Israel, the Uruguay round, 
and NAFTA, by contrast, have some very vocal opponents in this 
country, as Mr. Nussle was touching upon. How can we make a 
better case that NAFTA is successfully achieving what was 
intended when you first negotiated it?
    Ms. Hills. I think our leaders need to speak out on the 
merits of the NAFTA. There is absolutely no question that this 
agreement enhances our national interests. It has given us the 
opportunity to expand our exports. It has protected us from 
restrictions that Mexico in the past has imposed upon our 
exports. It has opened up a market, and it has galvanized 
liberalization and economic reform throughout the hemisphere.
    Chairman Crane. I think one unfortunate thing was the 
timing of that devaluation and the misunderstanding that has 
been aggravated by some political candidates as to a cause-and-
effect relationship. But it is a burden and as Mr. Nussle 
indicated, I am sure we have all had feedback from back home 
that is negative and ill informed, and I commend you for your 
comment.
    Another thing is, Ambassador Barshefsky testified that 
because of the degree of openness of the U.S. economy, no other 
country in the world is in a better position to take advantage 
of the large opportunities presented by this expanding global 
economy, and you agree that U.S. firms and workers stand up 
well to international competition.
    Ms. Hills. Absolutely, Mr. Chairman. We are the most 
competitive nation in the world.
    We also have very low trade barriers. I cannot understand 
why people would argue against our seeking to bring down high 
barriers in markets where we want to sell, when already the 
barriers that surround our markets are negligible or nil.
    Chairman Crane. Well, I couldn't agree with you more. We 
have got to get your message out, too.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    I would like to thank Ambassador Hills for being here 
today, and obviously, your testimony and all of the work you 
have done over the years, particularly as you were U.S. Trade 
Representative a few years ago, we appreciate everything you 
have been doing for our country.
    I just have one basic question. It was a followup on the 
Chairman's question. In terms of fast track, if we don't get it 
in the near future or any time over the next 2 or 3 years, what 
will happen in terms of MERCOSUR and the Latin American market, 
which is a young market, one obviously that we would like to 
continue to do trade with, particularly exports with countries 
like Argentina, Brazil, and perhaps others? Perhaps you can lay 
out a scenario of what would happen if we don't obtain a fast 
track.
    Ms. Hills. Without fast track, we cannot effectively 
negotiate the hemispheric free trade or even a trade agreement 
with the southern cone, the MERCOSUR group of nations, and 
South American liberalization will proceed without us.
    Already, our entrepreneurs are expressing dissatisfaction 
over the differing rules that they encounter because of the 
proliferation of trade agreements, and as tariffs are lowered 
among nations where we have not been a participant, we, of 
course, are disadvantaged economically.
    Mr. Matsui. I understand that, in fact, a few chief 
executive officers of manufacturing concerns had suggested to 
me they may have lost business opportunities because, for 
example, the tariffs on computer equipment between Brazil and 
Argentina, or at least exports into Argentina from Brazil, the 
tariff is very low. Whereas, the United States exports to 
Argentina, the tariffs are rather high. Is that one of the 
problems that is going on now in terms of the disadvantage U.S. 
exporters have, particularly in the manufacturing equipment 
area?
    Ms. Hills. Absolutely, Mr. Matsui, and the mention was made 
of wheat earlier. The fact is, Canada can send wheat to Chile 
as a result of its agreement with Chile on more competitive 
terms than our farmers.
    Mr. Matsui. In terms of the comments made by Ambassador 
Barshefsky, fast track is not about NAFTA. Fast track is about 
our strategic interest, and I know you refer to that in your 
comments, but could you elaborate on that somewhat in terms of 
why it is important and why is it not appropriate, even though 
I agree with you in terms of the value of NAFTA? I think NAFTA 
had value when it was obviously much better in terms of our 
bilateral relationships to have NAFTA than not to have NAFTA, 
but perhaps you can discuss the whole concept of why this issue 
should be delinked from the whole discussion of NAFTA.
    Ms. Hills. The discussion should be hinged on our need to 
be a leader in the world, to shape events to our economic and 
strategic advantage, and if our trade negotiators cannot go to 
the bargaining table and negotiate market openings in the 
fastest growing regions of the world, we are competitively 
disadvantaged, and that simply has to be corrected.
    We have been sidelined for 2 years, and some consensus and 
compromise must be reached on this issue of fast track, or we 
are going to do our Nation a grave disservice.
    Mr. Matsui. Thank you very much, Ambassador Hills.
    Chairman Crane. Mr. Houghton.
    Mr. Houghton. Ambassador Hills, it is great to see you 
here. We are benefiting from the things you did when you were 
in office, and we are enormously appreciative of your 
leadership here.
    I asked Ambassador Barshefsky about the ASEAN nations, and 
I am still a little confused about this because we have certain 
targets. Obviously, the MFN or the WTO as far as China is 
concerned, there are certain issues with Japan. Clearly, we 
have the relationships with Europe, and we are now trying to 
battle with fast track, with Chile, in order to compete with 
the MERCOSUR agreement, but what should we be doing in APEC or 
with the ASEAN nations that we are not now doing?
    Ms. Hills. Asia is the fastest growing region in the world. 
Its growth for the next decade is going to outpace growth in 
the rest of the world by more than 2 to 1. We are a mature 
economy, with 5 percent of the people, and producing about one-
quarter of the output. Needless to say, we must be in these 
markets that are so vibrant and growing.
    At the turn of the century in just 3 years, there will be 
600 million Asians with incomes that are as high as Europe had 
at the beginning of this decade. Asia is a market of enormous 
potential.
    As a leader, we want to be in a position to benefit from 
opportunities all around the globe. I think Ambassador 
Barshefsky was absolutely right. We have interests in moving 
forward on open issues in the WTO.
    Of course, we want Japan to deregulate and provide more 
market opportunity.
    In the Latin American region, which is the second fastest 
growing region, we are more likely to be in that region than 
either Europe or the Asians.
    APEC, of which we are a member, produces half the world's 
output. So we want liberalization to take place in that region. 
We want to be a mover and a player in the Asia-Pacific Economic 
Cooperation Forum.
    The 7 ASEAN nations, soon to be 10, are a vibrant part of 
APEC. The ASEANs have agreed to open their market by the year 
2003. We should be talking to them about how we can participate 
and encourage further liberalization because this is a very 
interesting market for U.S. producers.
    Mr. Houghton. Just to continue here for a moment, we should 
be talking to them, and we should be talking to every country, 
and particularly those that have a decent market and are 
growing very fast economically, but is there anything 
specifically that we should be doing, similar to the fast track 
authorization in the ASEAN area?
    Ms. Hills. Mr. Houghton, the fast track authorization would 
enable us to more effectively do something specific in all 
regions. If we don't have fast track, you can erase all the 
nations, all the regions, and the whole world for future trade 
liberalization.
    The ASEANs are an important component of the Asia-Pacific 
Economic Cooperation Forum, which meets annually in November. 
We were, I think, successful in achieving a market opening in 
the information technology agreement in December because we had 
reached a consensus with the 18 APEC members in November. In 
other words, it set up that agreement so that we could carry it 
to a successful conclusion with the rest of the world.
    So, yes, there are many specific things we can do with the 
ASEANs which are part of APEC, and with APEC as a whole. As a 
world leader, we should be there, but we need fast track to 
effectively be there.
    Mr. Houghton. Thank you very much.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Madam Ambassador, let me join with the rest of 
our colleagues in thanking you for the great foundation you 
laid as we move forward in expanded trade.
    One of the things you spelled out in your testimony is that 
we should abide by negotiations we have already agreed to. How 
would you fit Helms-Burton into that category, now that you are 
no longer with any administration?
    Ms. Hills. I, Mr. Rangel, am not a proponent of unilateral 
sanctions, primarily because I don't think they work.
    Second, I am a proponent of consistency. A consistent theme 
in U.S. policy has been to deal with closed economies by trying 
to get them to open through engagement with the world.
    Third, when we have nontrade objectives as a result of 
grave offense, and quite honestly, Cuba has caused us the 
gravest offense, I would like to see our response be 
commensurate with the offense caused. When we use trade 
sanctions to deal with nontrade offense, we hurt ourselves, on 
the one hand, and we do not accomplish our objectives, on the 
other.
    Mr. Rangel. I need your advice because I don't believe 
Castro should just walk away after the atrocities that he has 
committed on so many good people, but I agree with you, 100 
percent, that we shouldn't cause more pain than we are 
receiving relief by doing it. If you find any way that I could 
be effective in doing the things that you believe should be 
done, if there is a way to do it without causing embarrassment 
to our country, that would be the way I would want to do it.
    It is unfortunate how a loud-mouthed person like me has to 
be so quiet when I am overseas listening to my country being 
condemned for something that over here I condemn, but over 
there, I just have to say, Well, we are driving the bus, you 
know, and that is it.
    The second thing is the President speaks a lot about this 
bridge that we have to build to the next century. There is no 
question that you can see the way our trade is going as we 
shift to services and goods for overseas. We are losing a lot 
of low-skilled jobs.
    What made the country so great was that immigrants could 
come and do anything, but they knew their kids would have 
access to a decent education and they would win.
    You have no idea of the hopelessness that prevails in many 
communities where the schools are just not functioning. Now, I 
am so pleased with the President having cleared this GI bill 
for everyone. But internationalists such as you, are there 
papers you read that perhaps our work force is not keeping up 
with the competition or expanded trade? Or are the increased 
number of people in jail--it is 1.6 now, which is comparable to 
a large number of people who just are old or untrained--is that 
considered just one of the costs of doing business? Can we move 
forward from an economic point of view, locking up folks and 
not doing better in the school system? Could we survive 
competitively even if we sought not to do these social things?
    Ms. Hills. Well, as a society, Mr. Rangel, we will want to 
address these very serious issues.
    Mr. Rangel. I know that.
    Ms. Hills. We can try to open markets, and our trade can 
thrive and our economy can grow, but trade policy won't solve 
all the issues that face our society. We must give attention to 
education and to upgrading the skills of our people and to 
eliminate dependency.
    Mr. Rangel. Let me reframe the question. I am not saying 
this is the right thing to do, or do we want to do it, or 
should we do it, or whether it is local or State. I am not 
talking about that.
    I am just saying that if the rule prevailed and we accepted 
it, that an education is not a Federal issue and should be left 
up to the local and State governments to decide. And if, for 
whatever reason, we find an ever-increasing number of young 
people going to jail, and the Congress would say that, too, is 
local and we can't do anything about it, my question to you, 
not as a social worker and not as an educator and not as a 
criminal justice major: Considering the expenses it takes to 
lock up people and that we will need to continue to compete as 
it relates to the skills of the work force, is there any 
discussion as to whether there is a disparity in the air? 
Forget the reason why.
    Ms. Hills. My response would be that, obviously, if we have 
a festering and growing social problem, it is a difficult and 
costly issue for our economy to carry, but far more than that, 
we should want to correct the problem because we are the Nation 
that we are.
    Mr. Rangel. Well, you know that that is a humane, decent 
answer, but I want an economist that would assume that someone 
else would do the right thing, and they would just give me the 
statistical data, and that is how far can we go ahead.
    We find out what the expense is of doing business. We can 
look at it, as we did with slavery, and say, you know, be kind, 
be gentle, do the right thing, but we have got to get this 
cotton picked.
    In this particular case, we have got to be competitive with 
the rest of the world. But you know where I am going, and if 
you find anything along those lines that would justify me 
forcing this country to do the right thing because they have to 
do it, it is a heck of a lot easier than me talking with my 
colleagues saying that education is a national concern, it 
shouldn't be left up to local school boards. So, if you could 
help me with that, too, I would appreciate it.
    Ms. Hills. I would be delighted.
    Mr. Rangel. Thank you for all the good you have done.
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman.
    Ambassador Hills, good to see you again.
    Ms. Hills. Thank you.
    Mr. Ramstad. I have long been a fan of yours, dating back 
to the many years in which my predecessor and mentor, Bill 
Frenzel, served on this panel. I know how much respect Mr. 
Frenzel had for you as well, and we appreciate your input here 
today.
    I was very impressed by your strong definitive statement 
about fast track authority. I, like you, and most Members of 
this Subcommittee, are concerned about the retreat, if you 
will, from free trade. In the Congress as a whole, the antifree 
trade forces seem to have dominated the debate in recent times, 
and I believe strongly that we need to reverse this trend.
    Let me ask you this, Ambassador. In your exchange with Mr. 
Houghton, I wasn't quite clear. You said that fast track 
authority alone will give the administration the tools they 
need to make sure the United States is able to participate in 
all of the regional agreements developing around the world, or 
do we need other steps as well to ensure that we are not left 
out of other advantageous agreements?
    Ms. Hills. We need fast track authority to enable us to sit 
down at a table and negotiate regional and global agreements. 
Otherwise, our trading partners will not negotiate with us. 
They will understand that even if they strike a deal with 
Ambassador Barshefsky and her team, they cannot give us what we 
ask because they have another negotiation to go through with 
Congress, and therefore, they simply will not negotiate with 
us. That has been the reason for and the history of why we have 
had fast track, and we have had it, without interruption since 
1974.
    It is only in this past 2 years that we have had this 
hiatus that has kept the United States on the sidelines.
    Mr. Ramstad. And I am not surprised that my question 
elicited that response.
    I think it is just tragic that we have had this hiatus, and 
we need to reverse this, I believe sooner rather than later, to 
avoid any more deleterious consequences.
    I am not sure I know the answer to educate, inform, and 
improve the free trade mood, if you will, of our colleagues. I 
know that we here can't do it alone; that we need people like 
you and others like Mr. Gibbons who served with such 
distinction in this body. We need people from industry. We need 
people from labor. We need pressure on the Members, as you, I 
am sure, understand, given your experiences here.
    It is very frustrating, and I guess, if nothing more, I am 
expressing one Member's frustration at the retreat from free 
trade, and the problem that the administration is having and 
those of us who want to get fast track approved.
    My point is, I think we need to work in a bipartisan 
pragmatic way, not just those of us here in Congress, but with 
you and others as well. Please help us. We need it.
    Thank you, Ambassador.
    Mr. Chairman.
    Chairman Crane. Mr. Levin.
    Mr. Levin. Thank you, Mr. Chairman.
    Welcome. I wanted very much to say hello and to hear you 
once again. It is good to see you back.
    Ms. Hills. Thank you.
    Mr. Levin. Maybe I will refrain from any specific 
questions, except to say that I think that your successor, not 
immediately, but your successor's testimony should help spark 
some important debate about the context against which we are 
considering fast track, and I think it has been bogged down in 
part because there is a failure to discuss, to debate, and 
resolve that context.
    I am not sure there has been any overwhelming loss or 
tragic loss. I do think, unless we talk through the general, we 
are going to continue to be bogged down on the specifics.
    You have a background in your present position that should 
help us engage in that discussion, and whether one agrees or 
not all the time, I look forward to your participation.
    Ms. Hills. Thank you, Mr. Levin.
    Chairman Crane. Well, again, we want to express 
appreciation to you, Carla, for coming, and we solicit your 
ongoing input and contributions because we need all the outside 
help and guidance we can get.
    Ms. Hills. Thank you, Mr. Chairman and Members of the 
Subcommittee.
    Chairman Crane. Thank you so much for coming today.
    Our next panel of witnesses will include Hon. Sam Gibbons, 
the former Chairman of the Ways and Means Committee and a 
former colleague of ours on the Trade Subcommittee; and Fred 
Bergsten, director of the Institute for International 
Economics.
    I look forward to hearing from both of you, and I would 
like to take a moment, though, to welcome Sam back. It is good 
to see you are still working on behalf of the advancement of 
opening foreign markets and carry that message that free and 
open trade helps our economy.
    I just feel a little awkward with you sitting there, Sam, 
and all of us sitting here. That is a little disconcerting, but 
will you proceed with your testimony, gentlemen.

  STATEMENT OF HON. SAM M. GIBBONS, CHAIRMAN, GIBBONS & CO., 
              INC.; AND FORMER MEMBER OF CONGRESS

    Mr. Gibbons. Well, I want to tell you, it feels a lot 
different being down here than up there.
    Chairman Crane. Is it more comfortable?
    Mr. Levin. Which is better?
    Mr. Gibbons. It takes the same strong sternum to get 
through these down here as it used to up there, and I 
appreciate it. I appreciate the invitation to come here, and I 
shall be brief and try to respond to any questions that you 
have.
    I am just really happy to share this table with Fred 
Bergsten, who I have known and admired for so long.
    Well, as you know, I spent 30 years laboring in this venue. 
It was a labor of love, and I still love it.
    As all of you know, good trade helps America. It is the 
foundation of peace, and if we are going to have a peaceful, 
prosperous world, we have got to trade together.
    I think it is important that all of us, who sit in a 
position like you do, every now and then back off and look at 
ourselves and say who are we and where are we going, and that 
is what the purpose of this hearing is today.
    The first thing that strikes us square in the face is that 
we are really less than 5 percent of the Earth's population. 
Ninety-five percent of all the markets are outside of the 
United States. All the consumers out there who are going to 
consume all the things that we produce are outside the United 
States.
    We are the wealthiest group of people on Earth. We have a 
set trade policy for good purposes for 50 years. We have been 
the leader. We consume more. We export more. We import more, 
and we have established in the world the rule of law, and we 
have done more for better labor rights and better environment 
than anybody else on Earth. There is a lot more to be done, but 
we have gotten started.
    We can congratulate ourselves, which I think we probably do 
too often by sitting back and patting ourselves on the back and 
saying, Hey, we have done it for 50 years, aren't we wonderful, 
but, you know, the job has only started. It is certainly 
nowhere near finished, and we need to get out of that self-
congratulatory position and get on with leading again.
    If when we come out of this long 2-year-or-longer sort of 
Rip Van Winkle type of approach, we are going to find that 
China is out there with its huge population, its rapidly 
growing economy, followed by India, almost the size of China, 
more middle-class consumers in India than there are in the 
United States, more college graduates in India than there are 
in the United States, and yet, we don't know where India is 
going or where it is going to be. They are really an uncertain 
ally in the future.
    Indonesia, the fourth largest country on Earth--and, you 
know, Indonesia did play some kind of role, as murky as it may 
have been, in our last election. God knows what they did, but 
they are the fourth largest country on Earth, rich in natural 
resources, and we don't have any idea where they are going or 
what they are going to do, and we need to get engaged with 
them, to say nothing of Europe with its now 380 million 
Europeans in the European Community, 380 million Europeans. 
That is contrasted with our 265 million Americans, growing all 
the time, not only with this European Union, but now it is 
EuroMed.
    That is to say nothing of Russia or Japan or Korea or South 
America. South America, almost equal in population to North 
America, is rapidly putting together its MERCOSUR and its 
Andean group and all those things, and they are making deals 
outside of the hemisphere with the Europeans, with the Asians, 
and we have a lot going on out there that we need to get up and 
start leading again or we are going to find ourselves 
responding to their trade policy and their ideals and their 
market challenges instead of us being out there grabbing those, 
often claiming them as our own.
    The problem is really our style of government. No place on 
Earth does there exist an institution like the U.S. Congress.
    Now, we love it, we honor it, but all the other countries 
out there that have anything like a democracy have 
parliamentary-styled democracies, and those parliamentary-
styled democracies do not get as engaged in the whole process 
of trade, as does the Congress.
    Now, I am not condemning the Congress. I am just 
identifying our problem. It is difficult for us to lead because 
nobody wants to deal with us as long as they have got to make a 
deal with our negotiator, which they must do. It is impossible 
for 535 of us up here on this Hill to negotiate, but they have 
to make a deal with our negotiator out there, and then they 
have to come back and have it torn apart here on the House 
floor or the Senate floor, so you can't make a deal.
    We have overcome that in all--actually, we overcame it 
about 30 years ago, but we really overcame it in the seventies 
with fast track, and unless we get down and grant fast track 
really quickly to the administration, we are going to find 
ourselves in a bad drifting situation.
    Fast track is a misnomer, as all of us know. There is 
nothing fast about it. I don't know where the hell the word 
came from. I was in the room when it was invented, but it 
wasn't logical then, and it is certainly not logical now, but 
fast track is the way you have to go. You have to give the 
administration the power to negotiate.
    I found out, and a part of it is my fault, and this is part 
of a self-confession now. We have tried to micromanage fast 
track too much. We spend too much time trying to figure out 
what the hell we are going to put in there as the negotiating 
objectives and very little time following the actual 
negotiations after we have sent those negotiators out.
    I won't tell you about all the meetings that I used to 
call, and were not too well attended, some in this room, some 
back there in the library, some over in 137, all over the Hill 
here trying to get people, Members of Congress, engaged in 
talking to our negotiators because that is where you are going 
to get your points across.
    We could write letters to the negotiators. We could form 
groups and blocks of people and go to the negotiators and say, 
Hey, you are not pushing this strong enough, but we spend all 
the time trying to figure out what we are going to get them to 
negotiate about, trying to micromanage how in the negotiations, 
trying to micromanage what the outcome of the negotiations is, 
and that is just a waste of time.
    What we ought to do is give them fast track, follow them 
very closely in the negotiating process, intervene it. These 
negotiations are really very public negotiations. If you go to 
them, you are going to find there are not only our negotiators 
there and the foreign countries' negotiators there, but there 
are a whole flock of American businessmen there. There are a 
whole flock of other businessmen there, and they are all 
working with those negotiators as they go along.
    We have a wonderful formal process here in the United 
States of working with these negotiators, but what we need to 
do is to get them out and get them negotiating, getting them 
out so that they can lead, so that we could be setting the 
world standard, not trying to follow other people.
    The problem is we ought not worry about wasting so much 
time about what is in the negotiating objectives. We ought to 
spend more time following negotiators after they get their 
license or their fast track so they could go out negotiating, 
and then that is the time we ought to work on them.
    Let us get started. We have granted to Presidents, from 
Kennedy on, negotiating authority. Kennedy really had the 
broadest negotiating authority, but he had very limited 
objectives. When he brought back his negotiation, we here in 
the Congress just sort of waved at it when it came through, and 
then we got a little more serious years later in the others. 
The fast track we have practiced has really been a good 
democratic operation, but it can't be done unless it is done on 
a bipartisan basis, and we must get started on it.
    I will be glad to answer any questions you have.
    [The prepared statement follows:]

Statement of Hon. Sam M. Gibbons, Chairman, Gibbons & Co., Inc.; and 
Former Member of Congress

    I welcome this invitation to appear before you. I appear 
before this Committee representing no one other than myself.
    I've spent a lifetime studying the trade issues before this 
Committee, including 30 years of practical hands on experience 
in the policy-making process.
    Good international trade benefits all Americans. Fair 
competition increases our national standard of living, but with 
that comes a requirement to work and live smarter.
    Fair and competitively traded goods and services build a 
more peaceful and prosperous world. Good international trade is 
the foundation of our peace and prosperity.
    Who are we Americans and where are we going? Americans are 
about 5% of the earth's population. Ninety-five percent (95%) 
of the world's consumers live beyond our borders. Americans are 
the wealthiest people on earth. We produce, consume, export and 
import more than any country in the world. We have been the 
world's leader for more than 50 years in setting trade policy, 
promoting the international rule of law, building market 
economies, pushing for better human rights, striving for a 
better environment and higher labor standards. We have made 
these historic accomplishments while making unprecedented 
contributions to world peace.
    We could sit back on our laurels--be very comfortable and 
console ourselves with self congratulations for a job well 
started.
    But, if we continue to be complacent as we drift towards 
more protectionism and nationalistic isolationism, we will find 
ourselves responding to global trade policies established by 
others. There is nothing inevitable about our success or our 
position in the world.
    Emerging from our sleepy drift we will find China with its 
rapidly expanding economy and huge population dominating the 
world with its economic and military power threatening our 
security. India with its huge population (about the size of 
China) will be an uncertain player in our peace and security. 
Indonesia, the fourth largest country on earth, rich in 
resources will be a new and untried power--to say nothing of 
the new Europe, Russia, Japan, Korea, or the enormous emerging 
markets in Latin America.
    We can not rest on our laurels. We can not afford to turn 
inward. We must lead or be condemned to follow. The world is 
not waiting for the United States. Huge trading blocks are 
emerging, filling the void in U.S. leadership. South America is 
organizing MERCOSUR, Europe its European Union and Euromed, the 
Asian Pacific Rim countries under ASEAN and so it goes around 
the world. We have only NAFTA, which is fragile, untested in 
global negotiations and some in the United States would like to 
dismantle it.
    Americans have rested long enough. We are running out of 
time and opportunity to lead again.
    One of our challenges is our style of government 
characterized by our very strong Congress, the strongest and 
most independent in the world. This unique characteristic 
prevents our negotiators from making a solid deal in a 
negotiating session. 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 because they have 
Parliamentary governments which do not amend agreements. Their 
Parliaments only accept or reject, so they require us to do the 
same before they will sit down to serious negotiations with us.
    Over the years, by trial and error we have learned to 
overcome this unusual characteristic of our government by 
developing a procedure that we erroneously call ``fast track.''
    If the United States is going to have the opportunity to 
develop trade policy for the rest of this century and beyond, 
Congress must provide broad unrestricted trade negotiating 
authority or else we will be in the position of reacting to the 
trade policies developed by the rest of the world.
    Our government must have ``fast track'' trade neogtiating 
authority or no one will go to the negotiating table with us. 
History is full of failed attempts.
    My years of experience tell me that the Congress wastes too 
much time just getting ready to start the negotiations. 
Congress tries to predict with excessive detail and precision 
what and how to negotiate. This pre-negotiation micro-
management is not important because after all nothing counts 
until, by law, the Congress approves the agreement.
    The process takes years, conditions change, what seems 
important now may be nothing by the time Congress finally must 
act and vice versa.
    So let's get started. If the negotiations are agreeable to 
Congress then it can be converted into the law of the land. If 
the negotiated agreement is not acceptable to Congress then 
nothing happens and no U.S. law is changed, nothing is lost.
    We have waited too long to get started. Let's not wake up 
someday and find our opportunities have vanished.
    For the last 38 years, every U.S. President has been given 
``fast track authority.'' We have always granted it on a 
bipartisan basis. Let's get started! It is in our best 
interest.
    I welcome your questions and observations.
      

                                

    Chairman Crane. Thank you.
    Mr. Bergsten.

    STATEMENT OF C. FRED BERGSTEN, DIRECTOR, INSTITUTE FOR 
                    INTERNATIONAL ECONOMICS

    Mr. Bergsten. Mr. Chairman, thank you. It also feels 
awkward for me to be sitting here next to the former Chairman 
after so many years of responding to him across the well.
    Mr. Gibbons. I apologize.
    Mr. Bergsten. No. I want to say what an honor it is, and he 
has reconfirmed today what a leader he is in this process. I 
have admired what he accomplished for so many years, and it is 
a real privilege to be next to you today.
    I just want to make three points to the Subcommittee today. 
The first is to suggest that passing fast track is one of the 
most constructive steps that the Congress can take this year to 
promote the objectives of the American economy, and I say that 
for a simple reason. The foremost problem in our economy is 
stagnant standards of living.
    We have full employment. We have created 50 million jobs in 
the last 27 years. But wages, and in fact incomes, have been 
stagnant, and standards of living have not improved. That to me 
is our major national economic problem.
    Trade is a very important part of the solution to that 
problem. Export jobs pay 10 to 15 percent more than average 
jobs. The productivity of export firms is 20 percent above the 
norm. Exporting firms expand their employment 20 percent faster 
than average firms, and small- and medium-sized firms account 
for 70 percent of the employment growth.
    This is particularly true for manufacturing employment, and 
I would like you to look, if you have my statement in front of 
you, at the chart at the end, because it tells a fairly 
dramatic story that I think is not widely appreciated.
    The chart shows manufacturing jobs in the economy. The 
middle line shows the sharp upward trend in manufacturing jobs 
in exporting plants.
    The bottom line shows the fall in manufacturing jobs in 
nonexporting plants.
    In fact, it may surprise you to know that more of our 
manufacturing jobs, i.e., high-paying jobs, are now in 
exporting plants than are in nonexporting plants, and the gap 
is rising sharply every year.
    The growth in jobs at exporting plants has outweighed the 
decline in jobs at nonexporting plants so much that the sharp 
reduction in total manufacturing jobs, which began about 20 
years ago, has now been arrested. If current projections hold 
true, by sometime early next century we will actually return to 
the high point for manufacturing jobs of the late seventies.
    This is one illustration of the tremendous payoff that the 
economy can get from the trade sector in terms of total jobs, 
but particularly in terms of good high-paying manufacturing 
jobs, and that is why I suggest that Congress do what it can to 
promote the trade sector of the economy. It will be an 
important part of the solution to the real problem that ails 
the American economy, which is the failure of wages, income, 
and standards of living, and to rise to the levels we would 
like to see.
    I don't suggest that trade is a magic elixir. To be sure, 
we have to undertake domestic steps to empower our people to 
take full advantage of the opportunities provided by increased 
trade. The most important of those steps are better education 
for all Americans and continuous training of our work force. I 
want to recognize Mr. Rangel's work in this area because I 
think he has articulated the link between the trade side and 
domestic side of the economy as clearly or more clearly than 
anybody--by stressing the need for new initiatives on 
education, worker training, and the like. Education and 
training are critical, but we would have to undertake those 
efforts without trade. However, in my view, trade enables our 
society to exploit the benefits of investments of that type to 
the maximum possible extent, and we want to see education and 
training in the linked environment that Mr. Rangel has talked 
about so pointedly and so effectively and, in fact, so 
eloquently.
    Second, even if we do everything right at home, the 
benefits that I'm talking about are available only if we 
continue to break down export barriers, and I think we have a 
huge opportunity to do so because we face an asymmetrical 
situation in the world economy.
    The United States has already eliminated virtually all 
impediments to foreign access to our markets. Other countries 
still complain a lot, but the truth is we have very few 
barriers.
    On the other hand, other countries still have extremely 
high barriers, and that is particularly true of the large, 
rapidly growing markets in Asia and Latin America that Sam 
Gibbons quite rightly emphasized.
    So, if we were able to move to reciprocal trade 
liberalization with those countries that have high barriers, it 
essentially would mean that they move along the trading 
spectrum in our direction--toward free trade.
    The best U.S. trade policy would be to achieve free trade 
with our most important trading partners. The only way we can 
achieve a level playingfield is to induce the other countries 
to emulate our past liberalization by going to free trade, and 
the time is right because our economy is strong and vibrant. 
Our firms are competitive.
    Our European and Japanese competitors are in poor economic 
situations. They have lost a lot of their self-confidence. We 
are prepared to take advantage of the situation far better than 
we were 5 years ago, 10 years ago, or at any time during my 
prolonged activity in this business.
    The last three administrations, those of Reagan, Bush, and 
Clinton, have effectively pursued United States interest by 
negotiating a series of trade liberalization arrangements, 
starting with Israel and Canada, moving to Mexico, and NAFTA, 
and then to global progress in the Uruguay round. But the 
greatest potential lies ahead.
    Building on President Bush's proposed enterprise for the 
America's initiative, President Clinton agreed at the December 
1994 Summit of the Americas in Miami to create a Free Trade 
Area of the Americas. A month before that in Indonesia, the 
APEC Summit participants agreed to achieve free and open trade 
and investment in the Asia-Pacific region.
    Building on another Bush initiative, the administration 
plans to pursue further global liberalization in agriculture 
services and several other key sectors. If successful, all this 
will achieve what I suggested--moving to free trade with 
countries that have high barriers as opposed to our very low 
barriers. Moving them to our category would give us tremendous 
asymmetrical benefits, but the administration could pursue 
those initiatives only if it has fast track authority from 
Congress, and without that, as the former Chairman said, 
nothing will move ahead.
    The exceptions prove the rule. Over the last 2 years, the 
administration achieved two major breakthroughs with huge 
benefits for the American economy, American workers, and the 
whole society: the information technology agreement and the 
telecommunications services agreement. But those agreements 
were achieved because they were among the few areas where fast 
track authority still existed or additional authority was not 
needed. On other important trade issues, the United States 
simply could not move ahead, because it didn't have fast track 
authority.
    Finally, I believe that it is urgent for you and the 
administration to work out new fast track authority, and the 
reason, to put it bluntly, is that other countries are eating 
our lunch while we stand on the sidelines.
    A couple of examples. MERCOSUR is already the third-largest 
trading bloc in the world. It is moving to consolidate trade 
agreements among the South American countries, while we are on 
the sideline unable to do anything.
    Even Chile, whose President spoke eloquently to you a 
couple of weeks ago, is unwilling to negotiate with the United 
States. It has negotiated a deal with Canada, a deal which, 
incidentally, violates some of our norms on antidumping and the 
freedom of capital movements--this happened because we weren't 
party to the negotiations. South America is consolidating as we 
sit on the sideline.
    There are other elements at play as well. The European 
Union is out dealing with non-EU countries while we don't act. 
So far, the European Union only has framework agreements, but 
they could be the precursor of something more significant.
    The latest framework agreement came to my attention 
yesterday. I didn't know about it in time to include it in my 
statement. When President Chirac of France was in Brazil last 
week, he proposed to the Brazilians, and they, of course, 
accepted, the first ever summit meeting bringing together the 
heads of state of all of the countries and all of the MERCOSUR 
countries.
    Now, what does that sound like, if not like the EU 
countries trying to get into our backyard, making deals that 
would build Europe-South America trade relations--at our 
expense? If we continue to dither, this scenario will repeat 
itself for the next 4 years, and in a very fast-moving, dynamic 
world economy, we are going to be left behind.
    We delay at our peril. The time is long past when the world 
would simply wait for the United States. The others will move 
on without us if we are not ready.
    So, at the end of the day, I am urging the administration 
to effectively carry forward its stated commitments to make 
fast track one of its highest priorities for 1997. I urge you 
to provide the new negotiating authority as soon as possible. 
It is imperative to move forward on the bipartisan basis that 
has, with so much benefit to the country, characterized our 
trade policy for the last 60 years.
    Thank you very much.
    [The prepared statement follows:]

Statement of C. Fred Bergsten,\1\ Director, Institute for International 
Economics

    The American economy can reap enormous benefits from new 
international trade initiatives that reduce foreign barriers to 
our exports. Congressional renewal of fast track negotiating 
authority is essential to permit the Administration to pursue 
such initiatives and is one of the most beneficial steps the 
Congress could take this year to help our economy. Provision of 
such authority is extremely urgent because our competitors 
around the world are taking advantage of the absence of 
American authority and will do so even more extensively if we 
stay out of the game. I will briefly elaborate each of these 
three statements on the view that they should provide the focus 
for American trade policy in 1997 and beyond--and especially 
for Congressional action in the immediate future.
---------------------------------------------------------------------------
    \1\ Also Chairman, Competitiveness Policy Council and Chairman, 
APEC Eminent Persons Group throughout its existence 1993-95. The views 
expressed in this statement are those of the author and do not 
necessarily reflect the views of individual members of the Institute's 
Board of Directors or Advisory Committee.
---------------------------------------------------------------------------

                     Trade and the American Economy

    The main problem facing the American economy is the very 
slow growth of average living standards over the past 
generation. Our economy has created 50 million jobs over the 
past 27 years and more than 10 million jobs over the last four 
years. But the median family income is virtually unchanged from 
the 1970s. The average real wage has been flat for almost 
twenty years. Our cardinal economic problem is to create better 
jobs with higher wages and benefits.
    Trade provides an important part of the solution to that 
problem. Export jobs pay 10-15 percent more than the average 
wage. Productivity in export firms is 20 percent above the 
norm. Exporting firms expand their employment about 20 percent 
faster than others and are 10 percent less likely to fail. 
Small and medium-sized firms account for 70 percent of these 
results.\2\
---------------------------------------------------------------------------
    \2\ These and other data are derived in J. David Richardson and 
Karin Rindal, Why Exports Matter: More!, Washington: Institute for 
International Economics and The Manufacturing Institute, 1996.
---------------------------------------------------------------------------
    The rapid export expansion of the past decade has come 
largely in high-wage manufacturing industries. Since 1992, a 
majority of our manufacturing workers have been employed in 
plants that export. The export surge has almost stopped the 
decline of unemployment in the manufacturing sector (see chart 
1). A continuation of recent trade trends could restore net 
growth in manufacturing jobs within the next few years. It 
could even restore their previous (1979) peak in the first 
decades of the next century.
    Increased globalization thus provides substantial benefits 
for American workers and the American economy. To be sure, we 
must undertake a series of domestic steps to empower our people 
to take full advantage of the opportunities provided by 
globalization.\3\ The most important are better education for 
all Americans and continuous training for our work force.\3\ 
But these efforts would be needed even if we had no trade, and 
globalization enables our society to exploit their benefits to 
the maximum possible extent. There is no reason to settle for 
more modest returns on our investment in education and training 
when global integration offers such handsome benefits.
---------------------------------------------------------------------------
    \3\ See Dani Rodrik, Has Globalization Gone Too Far?, Washington: 
Institute for International Economics, March 1997.
    \3\ See the several reports of the Competitiveness Policy Council 
to the President and Congress, especially Building a Competitive 
America (March 1992) and A Competitive Strategy for America (March 
1993).
---------------------------------------------------------------------------

              The Crucial Importance of Trade Negotiations

    Even if we do everything right at home, such benefits are 
available only if we continue to succeed in breaking down 
barriers to our exports abroad. The United States now has an 
enormous opportunity to do so because we face a hugely 
asymmetrical international situation. On the one hand, we have 
already eliminated virtually all impediments to foreign access 
to our own market.\4\ On the other hand, most other major 
economies--particularly the large and rapidly growing markets 
of Asia and Latin America--continue to impose substantial 
restrictions on our (and others') sales to them. ``Reciprocal'' 
liberalization in the future thus essentially means that other 
countries reduce their barriers to, or at least toward, our low 
level.
---------------------------------------------------------------------------
    \4\ American's remaining barriers carry a net economic cost of only 
about $10 billion in an economy of more than $7 trillion. See Gary C. 
Hufbauer and Kimberly Ann Elliott, Measuring the Costs of Protection in 
the United States, Washington: Institute for International Economics, 
January 1994.
---------------------------------------------------------------------------
    The best way for the United States to achieve truly fair 
trade is thus to negotiate free trade with our most important 
trading partners. The only way we can achieve a level playing 
field is to induce them to emulate our past liberalization. The 
time is right because the American economy is strong and 
vibrant while both Europe and Japan are suffering from 
prolonged stagnation and loss of self-confidence.
    The Reagan, Bush and Clinton Administrations have pursued 
American interests effectively and courageously by negotiating 
an ascending series of liberalization arrangements. The initial 
free trade treaties were with Israel and Canada in the middle 
1980s. Mexico was added via NAFTA in the early 1990s.\5\ Global 
progress was made simultaneously in the Uruguay Round.
---------------------------------------------------------------------------
    \5\ Some critics have argued that recent American trade 
liberalization initiatives have been a failure because of the sharp 
deterioration of our trade balance with Mexico. That deterioration was 
caused by the Mexican macroeconomic and financial crisis, however, 
which had little to do with NAFTA. In fact, NAFTA shielded the United 
States from an even greater impact from the Mexican crisis by deterring 
Mexico from responding (as in the past) by erecting new import controls 
and exempting the United States from those new controls which it did 
impose.
---------------------------------------------------------------------------
    The greatest potential lies ahead, however. Building on 
President Bush's proposed Enterprise for the Americas 
Initiative, President Clinton agreed at Miami in December 1994 
to create a Free Trade Area of the Americas. In Indonesia a 
month earlier, he agreed at the annual APEC summit to achieve 
``free and open trade and investment in the Asia Pacific 
region'' by 2010 (for the advanced countries that account for 
about 90 percent of APEC trade, by 2020 for the rest). Building 
on another Bush initiative, the Administration plans to pursue 
further global liberalization in agriculture, services and 
several other key sectors in the World Trade Organization.\6\
---------------------------------------------------------------------------
    \6\ I in fact believe that the United States should now seek to 
roll together the numerous regional free trade agreements, including 
the existing European Union and NAFTA, into a global free trade effort. 
See my ``Globalizing Free Trade,'' Foreign Affairs, May/June 1996 and 
my testimony of September 11, 1996 before this Subcommittee.
---------------------------------------------------------------------------
    The Administration can pursue these initiatives only with 
the provision of fast track negotiating authority by the 
Congress. Without fast track, the United States will be unable 
to win maximum concessions from other countries because they 
will fear that Congress will reopen negotiations and demand 
more. Even Chile, whose President Frei recently addressed the 
Congress eloquently on these issues, will not deal with the 
United States in the absence of such authority. APEC's initial 
effort to launch its liberalization effort got off to a slow 
start last year largely because the United States was unable to 
move and other countries were unwilling to do so in our 
absence.
    The exceptions prove the rule. The United States was able 
to lead two major successful trade negotiations over the past 
year: an Information Technology Agreement and a deal on global 
telecommunications services in the WTO. Each eliminates 
barriers on over $500 billion of trade in two of the world's 
most dynamic sectors. Both are hugely in the interest of the 
United States and were in fact strongly promoted by American 
companies. Both were possible only because the Administration 
retained residual negotiating authority from the Uruguay Round 
and was thus able to advance American interests in an effective 
manner.
    The achievement of free trade in the Western Hemisphere and 
the Asia Pacific, and perhaps subsequently in the World Trade 
Organization, would maximize the benefits for the American 
economy described above. The largest and most rapidly growing 
economies in the world would eliminate their barriers to our 
market access. This would of course include nontariff border 
barriers and relevant domestic measures, though tariffs 
themselves remain quite important in many of those countries. 
American exports would boom further and millions more high-
paying jobs would be created. The new negotiating authority 
should encompass these possibilities. There are few steps that 
the Congress could take this year that would be as helpful for 
what ails the American economy.

                         The Urgency of Action

    It is extremely urgent for the Congress and the 
Administration to work out new fast track authority. World 
trade and investment patterns are moving and shifting at 
breakneck speed. Other countries and groupings are rapidly 
filling the void left by the American inaction (with the two 
exceptions cited above) of the past two years. We run a serious 
risk of being left behind if we do not quickly re-engage. 
Examples abound:
     Mercosur, already the third largest trading bloc 
in the world, is consolidating virtually all of its neighbors 
into a South America free trade agreement and will continue to 
do so without concern for our interests as long as the absence 
of negotiating authority blocks us from engaging its members in 
serious negotiation to achieve a Free Trade Area of the 
Americas.
     The subregional arrangements in Asia, notably the 
ASEAN Free Trade Area, have accelerated their own 
liberalization timetable and will thus increasingly 
discriminate against us unless we are able to energize APEC to 
bring down barriers across the entire Asia Pacific region.
     Prolonged American absence from implementation of 
APEC's liberalization goals could revive interest in an Asian-
only arrangement along the lines of Malaysian Prime Minister 
Mahatir's proposed East Asia Economic Caucus (EAEC).
     Tired of waiting for the United States, Chile has 
struck bilateral free trade deals with Canada and Mexico that 
include provisions that raise questions for US interests, 
including a total phaseout of antidumping rules and 
legitimization of continued capital controls.
     The European Union is doing deals throughout the 
world, including with Mercosur and East Asia, which are only 
consultative at this point but could become much more 
substantive if the United States continues to dither.
    Hence we delay at our peril. The time has long passed when 
the world would simply wait for the United States to act. The 
Europeans, Asians and Latin Americans have all become major 
autonomous players in the world economy. They will move on 
without us if we are not ready.
    At the same time, American leadership is essential to push 
the global economy in the most constructive directions. We 
simply must get back in the game if we are to protect our own 
interests, and to exploit the opportunities to achieve the 
enormous future benefits described above.
    In view of all this, I urge the Administration to 
effectively carry forward the commitments made repeatedly by 
President Clinton to make fast track one of his highest 
priorities in 1997 and to recognize that it must compromise on 
the labor and environmental issues in order to do so. I urge 
the Congress to then provide the new negotiating authority as 
soon as possible. It is imperative to move forward on the 
bipartisan basis that has, with so much benefit to the country, 
characterized American trade policy for the past 60 years.
      

                                
[GRAPHIC] [TIFF OMITTED] T1072.001

      

                                

    Chairman Crane. Thank you, Fred.
    The focus on fast track extension, to me, is the most 
important consideration before our Subcommittee and by the 
administration and by Congress, too, or I mean should be, 
because of the importance of our expanding exports. But you 
mentioned, Sam, earlier that here is South America with 380 
million people, and yet, almost roughly 39 percent of our total 
exports went to South America, 1996. It is probably the biggest 
single market that we have, even bigger than Asia for the time 
being. That is not to say I am discounting the importance of 
reaching agreements with our Asian trading partners as quickly 
as we can, too. I would hope that somehow we might get some 
communication to the administration and get this question of 
fast track extension resolved, and ideally, as I think Charlene 
said, get it resolved before the President goes down to South 
America in May. We need your ongoing input and guidance on a 
bipartisan basis, and that was one of the things while serving 
under you on this Trade Subcommittee that was so enjoyable was 
we had the greatest degree of bipartisanship of any issue that 
came before our Congress.
    I want to thank you both for your testimony, and keep up 
the input. Any guidance you might give any of the folks in the 
administration, Sam, please do that, as well as to us here in 
Congress.
    Bob.
    Mr. Matsui. Thank you, Mr. Chairman. I don't have any 
questions. I would just like to, again, thank Chairman Gibbons 
for all the effort he has given and inspiration he has given to 
all of us over the years, particularly as Chairman of our 
Subcommittee there in 1993 and 1994. We just can't tell you how 
much we appreciate your service to the country and to all of 
us.
    Those of us who are still here always look to you for a 
role model on issues of trade and opening markets, and we want 
to thank you very much.
    I would just like to, again, comment on what you had 
testified to in terms of what our role should be. I think, 
obviously, we should be concerned about objectives and putting 
fast track together, but we should really be spending our time, 
as you suggest, on meeting with our negotiators during the 
course of their negotiations with these countries, and I think 
that observation is one that is well taken and one that we 
should really all focus on.
    So, again, I want to thank you, Mr. Chairman, and thank you 
as well, Fred, for your testimony. I continue to work with you 
all the time, and I appreciate it. Thank you both.
    Mr. Chairman.
    Mr. Gibbons. We are working together on a bipartisan basis 
out of the congressional framework here to work with the 
administration to try to help them put their ideas together and 
get them sold.
    You have got to understand that I voted for a rather 
unusual law that I am trying to obey, and that is I can't come 
down here and talk with you about the thing. I can talk to 
anybody else on Earth, but there are 535 people that I am 
forbidden by law to come down and talk to. That quarantine runs 
out in a few months. So, I am unusually quiet right now.
    I can come down at your invitation, though. If you can 
stand me, invite me.
    Mr. Matsui. Thank you.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. I got some kind of feeling, Sam, that I don't 
have to invite you in order to hear from you, but it is strange 
how you leave, I move up one, and now I am back one. Some 
things never change.
    Mr. Gibbons. Charlie, I have sat in every chair up there.
    Mr. Rangel. You and I, too.
    Mr. Gibbons. Way over here on the other side, to the left 
of Sander. I used to sit over there with President Bush, if you 
can believe it, that long ago.
    Mr. Rangel. Well, listen, Sam, I have no hesitancy in 
saying I will be calling upon you, and certainly with Fred, who 
made the observation about the possible moving ahead further 
than a large segment of our economy. I understand that a book 
has been written by your shop. I saw the name of Danny Roderick 
on this subject.
    I am living more closely to the panic than I express, but I 
know I have to find ways to say things that other people 
understand. It just seems to me that people need to review what 
America is sending them to compete with, as opposed to our 
competitors who come here and get the education and go back 
home and teach. I just don't know whether we can keep up.
    In any event, everyone talks about how this fast track just 
has to be done or all of our credibility will be shot, the 
President should have it, the Congress is too far involved, and 
we have to be bipartisan, and yet, all morning, nobody said 
what are we talking about. I haven't heard one person even 
mention it, and the administration is working on language. 
Language for what? What is the issue?
    Is it wrong to say we do have some minimum standard of 
conduct on behalf of people that this great Nation is doing 
business with? Does it mean we should go in and organize labor 
unions and organize strikes and tell them to pay what we pay? 
No, but somewhere along the line, it has to be something 
between leave them alone, after all, the companies are going to 
do the right thing, and getting involved in telling them what 
they can do with their property, their environment, and their 
workers.
    Now, how in the devil can we do the right thing, as 
bipartisan as we like to believe we are, where nobody is 
helping us to do the right thing? Not even the President of the 
United States. He is waiting to work this out.
    Some people are now locked into concrete, and I was just 
telling Bob Matsui that some people who were calm about this 
last year, now they believe that all of the destruction of life 
as we know it in Mexico is directly connected with NAFTA.
    Now, once they start spreading it, what do we know? There 
are some people that say mind your own business, let the free 
enterprise system work its will, and that is wrong. What do we 
do, Sam? If we call upon you as a consultant and a specialist, 
you know the President, you know us, you know Phil, what is the 
answer?
    Mr. Gibbons. I think it is more important to follow the 
negotiations after they are started than to try to tell them in 
advance what, by micromanaging, exactly what they should be.
    Mr. Rangel. And what that is going to lead to is that the 
President is going to get Republican support, the minimum 
amount of Democrats, and you will have to stretch to call it 
bipartisan.
    Mr. Gibbons. Since I am not as busy as I used to be, Mr. 
Rangel, I have gone back and read some of the things we did in 
the past and some of the things I have said in the past, and I 
have got a little mea culpa. I will tell you, we tried to 
micromanage it too much. We put too much detail in there.
    When I read some of it, I kind of laugh because some of the 
stuff just repeats year after year after year after year, and 
the problem is we could never strike a deal. It is not that we 
didn't try. We couldn't strike a deal in that area. Perhaps we 
could have struck a deal if the Members of Congress had said, 
Hey, that is not what we are talking about, we have got to get 
something done about labor rights, we have got to get something 
about the environment, but that comes from blocks in the 
Congress who could do a better job in doing that than trying to 
set all this out in the broad overall instructions that we 
can't seem to agree on.
    Mr. Rangel. You seem so relieved since you don't have an 
election to face.
    Mr. Gibbons. You don't know what a relief that is.
    Mr. Rangel. It just means everything.
    Mr. Gibbons. If all of you knew what a relief that is, 
there wouldn't be any of you up there because it is wonderful.
    Mr. Rangel. Well, common sense prevails. All of the 
politics now is out of your mind. You just want us to do the 
right thing, don't you, Sam?
    Mr. Gibbons. Absolutely, absolutely.
    Mr. Rangel. Well, we will keep working on that.
    Mr. Gibbons. All right, and I will work with you if you 
will invite me up to talk with you.
    Chairman Crane. Mr. Jefferson.
    Mr. Jefferson. Sam, it is good to see you. I don't have any 
questions. I had a moment to talk with you. I am very pleased 
to see you here, to be back on the Subcommittee, and I enjoyed 
my service with you.
    As always, you have expressed yourself forthrightly and 
with great conviction, and I appreciate your being back with 
us. I look forward to working with you on this issue and any 
others that come up.
    Mr. Gibbons. Thank you, Mr. Jefferson.
    I remember what you said in one of your questioning 
sessions and what Mr. Rangel has said about drugs and all those 
things. We need to include that in there, but one of the things 
that is happening in the United States is that while we are 
entering into globalization, we are destroying our safety nets 
around. We ought to be strengthening and straightening out our 
safety nets in education, in all of those kind of things, 
because as we move into this globalized economy, and we don't 
have any choice, really, we have got to move into it, we have 
got to realize that some people are not going to be able to 
make the change.
    That is one reason my family lives in Florida instead of in 
the hills of Virginia over here because, as farmers back 125 
years ago, we Gibbonses couldn't keep up. We went to Florida, 
and we were able to finally get ahead down there, but there are 
those people. There are real people that are out there. They 
need to be caught by our safety net, rehabilitated, retrained, 
sent forward. Instead of doing that, we are neglecting the 
safety nets. We are destroying the safety nets, and yes, we 
ought to be talking about drugs and about all those things in 
these negotiations.
    There was one statistic that someone threw out here. I 
think it was Mr. Hills. We are less than 5 percent of the 
world's population. We consume more than 50 percent of all the 
world's drugs, and yes, we need to do something about it. We 
need to work with those suppliers, but we have got to work on 
the demand side up here.
    We have got to come up with programs in this Congress----
    Mr. Jefferson. There is one question about that.
    Mr. Gibbons [continuing]. That do more about the demand 
side.
    Mr. Jefferson. The issue before us is on these trade 
questions.
    Mr. Gibbons. Yes.
    Mr. Jefferson. We get to talk about the supply side of it.
    I can't argue about your observation on the demand side, 
but we have been involved so intimately in the last few years 
with Mexico, and we have tried to open markets and deal with 
financial support when the time came to bail them out from 
tough problems, and we have tried, I think, to be good 
neighbors.
    We just want to have the same response from them on this 
drug question, and I don't think it means we hold up all the 
fast track issues, necessarily, but it certainly means that 
these things we discuss, as we contemplate these agreements 
with Mexico--because this is really different from the 
environment and the labor issues which are very important 
issues we must address. This is one that is devastating our 
community and putting pressure on this safety-net side that you 
are talking about.
    We really must do something about it, and I hope we don't 
try to pick between the demand and supply side issues because 
we have to work on the demand side, but right now, since we are 
talking about trade, and with our neighbors, they must be 
better neighbors on the supply side of this question, as far as 
I think.
    Mr. Gibbons. Well, I agree with you. I think a lot of the 
fine law-abiding Mexicans would agree with you.
    The problems they are having down there are really serious 
problems, with the undermining of their government and all the 
things that we see.
    There are a lot of fine people in Mexico. They hate drugs 
and want to do away with them and decry the corruption and 
distortion it is bringing to their society.
    We need to do more, but we have got to calm down the demand 
side of the equation. We are financing with American dollars 
this doggone war that is about to overrun us.
    Chairman Crane. Mr. Levin.
    Mr. Levin. Mr. Chairman, I will be very brief. I want to 
say hello to two wonderful people. Because you are such 
important parts of the debate, let me just say one thing.
    Fred, you said in your testimony, you talked about breaking 
down barriers, and as you know, I would say amen to that. 
Before that, you say the main problem facing the American 
economy is the very slow growth of average living standards 
over the past generation, and I think most Members of the House 
would agree with that.
    Then you say trade becomes an important part of the 
solution to that problem, and the debate in part here is how 
much trade is an important part of the solution and how much it 
has been a part of the problem.
    I think, Sam, that we are not micromanaging, and I don't 
think we should, the debate by trying to work out what is the 
scope of authority of the administration on that issue, and 
some expression from this institution as to how important we 
think it is.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you.
    Mr. Rangel. Mr. Chairman.
    Chairman Crane. Yes, Charlie.
    Mr. Rangel. Just let me say this to Fred. I hope that you 
and your institute might find some way for those who have this 
concern about the gap, perhaps after the book is published, to 
see how we can best present our argument in a noncombative way.
    Our major problem on this Subcommittee and in the Congress 
is not that we challenge each other's sincerity. It is just 
that we can't find the right words to get this thing across. I 
am encouraged by your remarks. I only ask you to provide me 
some help and to feel comfortable in contacting me whenever if 
you can think of some way Phil Crane and I could better use the 
same language, because we have not had a problem that has been 
partisan. We have just had problems in the language that we 
feel comfortable with. Both of you could be very helpful in 
that area because we are very disappointed we have not 
fulfilled our commitments to our trading partners with fast 
track, and I don't see anyone working to move it any faster. We 
had a dead-still for no good reason, as I see it. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crane. Well, again, we thank you, Sam and Fred, 
but before we break, any input you could provide to the 
administration, too, Fred, like I was mentioning to Sam--I 
mean, you have fed us. Now feed them so that we might try and 
expedite this process.
    With that, then, we will be in recess until 2 p.m. for our 
next panel of chief executive officers, and again, thank you 
both, Fred and Grover Cleveland--oh, excuse me. It is Sam 
Gibbons. I knew there was a resemblance there.
    Thank you both.
    Mr. Gibbons. Thank you.
    [Whereupon, at 1:57 p.m., the Subcommittee recessed, to 
reconvene at 2:07 p.m., the same day.]
    Chairman Crane. Gentlemen, if you will take your seats, 
please. We shall resume our hearing for today.
    It is now my privilege to introduce our next panel of 
witnesses, which consist of chief executive officers from four 
prominent American firms. The panel consists of Joe Gorman, 
chairman and chief executive officer of TRW, on behalf of the 
Business Roundtable; John Pepper, chairman and chief executive 
officer of Procter & Gamble, on behalf of the National Foreign 
Trade Council--and I will yield to Rob Portman to welcome you 
momentarily--Michael Jordan, chairman and chief executive 
officer of Westinghouse Electric Corp., on behalf of the 
Emergency Committee for American Trade, who I am pleased to see 
here as a Chicago Bulls fan; and finally, Robert Denham, 
chairman and chief executive officer of Salomon Bros.
    I look forward to hearing your thoughts about future trade 
initiatives which lay ahead for America and how they will 
affect U.S. companies.
    With that, I will yield to my distinguished colleague, 
Congressman Portman.
    Mr. Portman. Mr. Chairman, I thank you. I think Mr. Pepper 
is pretty well known to the three members of the panel who are 
with me today, but I would like to introduce him briefly.
    Chairman Crane. Better than Mike Jordan?
    Mr. Portman. Well, not as well as Michael Jordan. John 
Pepper has got a pretty good jump shot, in case anybody wants 
to know that about him. He is not as good on the rebounding.
    He is chairman and chief executive officer, as you know, of 
the Procter & Gamble Co., and the reason I wanted to introduce 
him was to point out that he has actually taken Procter & 
Gamble and moved it aggressively into the international area by 
expanding exports and international business.
    It is my understanding, Mr. Pepper, that Procter & Gamble 
has doubled its sales and profits outside the United States in 
just a few short years since you took the helm, and I think 
that is an enviable record for all of our businesses in this 
country, and that includes a lot of established markets, but 
also, some of our new emerging markets--China, Russia, India, 
Latin America, and so on.
    He has a remarkable record, then, of actually expanding 
economic growth through exports which a lot of us talk about, 
and he also has a remarkable record, Mr. Chairman, you should 
know, of attention to our youth, and he focuses primarily on 
education initiatives. He has done a great job in our State and 
around the country, but also on the increasing problem we see 
of drug abuse among our teenagers. Yesterday, he took an hour 
out of his very busy day to be with us to unveil a new proposal 
in Cincinnati, as an example, with regard to fighting drug 
abuse.
    So, on all those counts, I want to commend him and thank 
you for giving me the honor of introducing him this afternoon.
    Chairman Crane. Well, we are happy to have you all here, 
gentlemen. Traditionally, we ask that you try and confine your 
presentations to around 5 minutes, but any written statements 
will be made a part of the permanent record.
    With that, we will start in the order I introduced you.
    Mr. Gorman, Mr. Pepper, Mr. Jordan, and Mr. Denham.

   STATEMENT OF JOSEPH GORMAN, CHAIRMAN AND CHIEF EXECUTIVE 
      OFFICER, TRW, INC.; ON BEHALF OF BUSINESS ROUNDTABLE

    Mr. Gorman. Mr. Chairman and Members of the Subcommittee, I 
am Joseph Gorman, chairman and chief executive officer of TRW, 
Inc. We are a Cleveland-based manufacturing and service company 
providing products and services with a high technology or 
engineering content to the automotive, space and defense, and 
systems integration markets.
    We currently operate in 27 countries around the world and 
employ about 68,000 men and women, including 38,000 in the 
United States.
    I am appearing today on behalf of the Business Roundtable, 
an association of more than 200 chief executive officers of 
leading U.S. corporations, employing in the aggregate over 10 
million people.
    The Roundtable includes companies representing virtually 
every sector of the economy, including automotive, 
telecommunications, computers, semiconductors, transportation, 
consumer products, financial services, and many others.
    I appreciate the opportunity to speak with you today about 
U.S. trade policies and initiatives.
    My point today is quite simple. The United States must be 
the leader in global trade liberalization efforts in order to 
ensure that markets around the world are open to American 
companies and their workers.
    International trade and investment are more than ever 
critical for the well-being of the U.S. economy, its companies, 
and its workers. To keep a strong and growing economy, to 
expand opportunities for Americans, and to increase our 
standard of living, we have no choice. We must compete and win 
in the global economy, and this must be the foundation of the 
Nation's economic and trade policy.
    In business, if you stop investing in the future, you will 
surely fall behind: for the United States, trade and investment 
liberalization is equally important. If we are not leaders on 
liberalization, we surely will fall behind other countries that 
are pursuing aggressively their own liberalization agendas.
    Moreover, continued efforts are needed to open up markets 
in developing countries, markets that will present huge 
opportunities for this country in the years to come. Despite 
recent improvements in world trade rules, trade and investment 
barriers remain, and new ones are being erected all of the 
time. That is why it is critical we vigorously pursue trade and 
investment liberalization initiatives, such as those taking 
shape in the Asia-Pacific region and Latin America.
    The economic impact of new trade agreements can only be 
positive for the United States. Basically, we are already open 
to the world. Thus, we almost always gain more from trade and 
investment agreements than we give. On top of this, our 
competitive edge means that we are most likely to be able to 
seize the opportunities presented by new market openings.
    The United States must lead in opening up markets and 
expanding global commerce. This February, 70 countries reached 
a global agreement to open up telecommunications markets. The 
United States refused to accept an agreement last year because 
it was too weak. We fought hard for a better deal. It was only 
through our leadership that a truly good agreement was reached, 
one that will open up significant new opportunities for our 
companies and workers. But importantly, if we cease to lead, 
the world will not wait for us.
    The last several years have seen an increasing flurry of 
trade negotiations and trade arrangements around the world. Our 
trading partners have matured politically and economically and 
are moving toward narrow regional agreements to open markets 
for their own products and services. We should be concerned 
about these agreements that don't include us because they can 
have significant adverse effects on our exporters, our workers, 
and our economy.
    Of particular concern are overlapping and growing trade 
agreements in Latin America, our own backyard. For example, 
U.S. companies' exports to MERCOSUR countries can face 
significant tariffs while exports among MERCOSUR members are 
becoming duty free. As a result, United States-made products 
become less competitive in, say, Argentina, against products 
made in any other MERCOSUR country, such as Brazil.
    There is another danger if the United States abdicates 
leadership. While regional and bilateral arrangements may 
continue in the absence of U.S. leadership, overall 
liberalization globally may stagnate. This would not be to 
anyone's benefit, and certainly not to ours. We need the 
opportunities represented by markets in other countries to 
continue boosting our economy and raising our standard of 
living.
    We cannot hope to conclude meaningful agreements, however, 
if we cannot assure our trading partners that agreements 
reached with our trade negotiators will not have to be 
negotiated a second time with the U.S. Congress or the U.S. 
private sector.
    During the last 30 years, Presidents Nixon, Ford, Carter, 
Reagan, Bush, and Clinton all utilized the fast track process. 
Expanding trade has always been and should be a bipartisan 
issue. Both sides of the aisle are in favor of expanding 
economic growth and creating jobs.
    The Roundtable continues to believe that fast track should 
be extended for a period of time that realistically takes into 
consideration the increasingly complicated nature of 
international trade and investment negotiations.
    The Roundtable also believes that fast track should be 
reauthorized for use in both multilateral and bilateral 
negotiations. To limit it to one or the other or to specific 
countries is too restraining. It would unduly restrict the 
United States from taking advantage of unforeseen negotiating 
opportunities that may arise and would increase the likelihood 
of other countries reaching trade agreements without U.S. 
participation.
    The United States is the strongest country in the world 
economically, politically, and militarily. However, we cannot 
maintain these strengths if we do not continue to engage fully 
the world outside our borders.
    Ninety-five percent of the world's consumers live outside 
the United States. The world's fastest growing and most 
promising new markets are spread truly across the globe. There 
is no way we can have a promising future as a nation if we 
don't actively pursue these foreign customers and markets.
    Mr. Chairman, that concludes my remarks. I look forward to 
answering any questions that you may have.
    [The prepared statement follows:]

Statement of Joseph Gorman, Chairman and Chief Executive Officer, TRW, 
Inc.; on Behalf of Business Roundtable

                              Introduction

    Mr. Chairman and members of the subcommittee, I am Joseph 
Gorman, Chairman and Chief Executive Officer of TRW Inc. TRW is 
a Cleveland-based manufacturing and service company that 
provides products and services with a high technology or 
engineering content to the automotive, space and defense, and 
systems integration markets. We currently operate in 27 
countries around the world and employ about 68,000 men and 
women, including about 38,000 in the United States. I am 
appearing today on behalf of The Business Roundtable, an 
association of more than 200 chief executive officers of 
leading U.S. corporations, employing over 10 million people. 
The CEOs examine public policy issues that affect the economy 
and develop positions which seek to reflect sound economic and 
social principles. The Roundtable includes companies 
representing virtually every sector of the economy, including 
automotive, telecommunications, computers, semiconductors, 
transportation, consumer products, financial services, and many 
others. I appreciate this opportunity to speak with you today 
about U.S. trade policy objectives and initiatives.
    In the interest of providing the most useful input from The 
Roundtable, I'm going to focus on points (2) through (5) of 
your hearing announcement. While specific trade negotiating 
objectives and priorities are of course important issues, I 
think that I can more usefully address these other issues, 
given the nature of The Roundtable, whose members span many 
sectors of the U.S. economy.
    My point today is simple: the United States must maintain 
its leadership in global liberalization efforts so that it can 
ensure that markets around the world are open to American 
companies and their workers. International trade and investment 
are, more than ever, critical for the well-being of the U.S. 
economy, its companies, and its workers. To keep a strong and 
growing economy, to expand opportunities for Americans, and to 
increase our standard of living, we have no choice--we must 
compete and win in the global economy. This must be the 
foundation of the nation's economic and trade policy.

       To Win in the Global Economy, the United States Must Lead 
                         Liberalization Efforts

    Over the past few decades, successive Congresses and 
Administrations have made admirable progress in breaking down 
barriers to foreign markets. U.S. companies have done a lot to 
take advantage of these opportunities, to the benefit of their 
workers, their communities, and the country as a whole. 
However, the ever-changing global economy continually presents 
new opportunities and challenges. We must reach out for these 
opportunities and meet these challenges. In order to do so, the 
United States must continue to pursue trade liberalization, 
breaking down foreign barriers to our exports and investment.
    In my industry, as in all others, if you stop investing in 
the future, you run the serious risk of falling behind. Trade 
and investment liberalization is the same--an ongoing process 
in which the United States must invest. If we are not in the 
vanguard of liberalization, we risk falling behind other 
countries, which are pursuing their own liberalization agendas. 
Moreover, continued efforts are needed to open up markets in 
developing countries, markets that will present huge 
opportunities for this country in the years to come. Despite 
recent improvements in world trade rules, trade and investment 
barriers remain, and new ones may always be erected. That is 
why it is critical that we aggressively pursue trade and 
investment liberalization initiatives, such as those taking 
shape in the Asia-Pacific region and in Latin America.

International trade and investment agreements are still needed 
to open foreign markets for American companies and their 
workers

    We need to continue pushing the envelope on trade 
liberalization. The United States has been the leader in 
pushing for open markets because we know that with our market 
the most open in the world, we have the most to gain from 
removing foreign barriers to our goods and services. And the 
best way to push trade liberalization forward is to pursue 
aggressively trade agreements that tear down foreign barriers. 
We have led the world through creation of the GATT and seven 
subsequent rounds of tariff-cutting and other market-opening 
negotiations under the GATT framework, which culminated in the 
creation of the WTO. We put into effect the NAFTA, which has 
already demonstrated its benefits. This has all been good work, 
and has helped our companies and workers compete in the global 
economy. But more is needed.
    Many countries still maintain significant tariffs on U.S. 
exports. In an increasingly competitive global economy, these 
small taxes can make the difference between success and failure 
in foreign markets. Further tariff-cutting agreements are 
therefore necessary and we should pursue them on a 
multilateral, regional, bilateral, and sectoral basis.
    Moreover, as tariffs and traditional non-tariff barriers to 
our goods and services exports have fallen, new problems have 
emerged. For example, inadequate intellectual property 
protection, investment restrictions, customs and other 
administrative problems, and standards-related barriers have 
emerged as major problems for U.S. exporters. Our agricultural 
exports continue to face a range of non-tariff as well as 
tariff barriers. Recent agreements have gone part of the way to 
resolving some of these problems but again, more is needed 
multilaterally, regionally, bilaterally, and sectorally. With 
respect to agriculture, new multilateral talks are particularly 
needed.
    The economic impact of new trade agreements can only be 
positive for the United States. We already are pretty much open 
to the world. Thus, we almost always gain more from trade and 
investment agreements than we give. On top of this, our 
competitive edge means that we are most likely to be able to 
seize the opportunities presented by new market opening.

If the United States is not at the table, it can't play and it 
can't win

    If the United States does not lead in opening up markets 
and expanding global commerce in a way that will benefit our 
companies and workers, no one else will. For example, this 
February, 70 countries reached a global agreement to open up 
telecommunications markets. The United States refused to accept 
an agreement last year because it was too weak; we fought hard 
for a better deal. It was only through our leadership that a 
truly good agreement was reached, one that will open 
significant new opportunities for our companies and workers. 
The United States must ensure that it continues to hold its 
position of leadership--we need to be at the head of the table 
to make sure that agreements are fair and meet U.S. interests.
    The world is not waiting for us; the last several years 
have seen an increasing flurry of trade negotiations and trade 
arrangements around the world. In the past, nearly every major 
trade agreement required U.S. leadership. This is no longer the 
case. Our trading partners have matured politically and 
economically and are moving toward narrow regional agreements 
to open markets only for their own products and services. Both 
within and among the major trading regions--Asia, Europe, and 
Latin America--countries are working toward new trade 
arrangements that would exclude the United States and change 
the rules of the game to their advantage and our disadvantage. 
For example:
     Mercosur, comprised of Argentina, Brazil, Uruguay, 
and Paraguay, is implementing a common market.
     Mercosur and Mexico may reach a trade agreement 
this year.
     Mercosur now has association agreements with Chile 
and Bolivia, and may reach an agreement with Venezuela in the 
future.
     The Andean Community, consisting of Bolivia, 
Colombia, Ecuador, and Venezuela, are establishing a free trade 
area.
     Mercosur and the Andean Community are discussing a 
free trade arrangement.
     Chile now has separate free trade agreements with 
both Mexico and Canada.
     Latin American nations have a web of other 
bilateral arrangements that are the precursors of future free 
trade agreements.
     There has been discussion of a Mercosur-ASEAN free 
trade area.
     ASEAN members are implementing a free trade area.
     South Asian nations are pursuing a preferential 
trading arrangement.
     The European Union has been exploring trade 
agreements with both Latin American and Asian nations. The EU 
expects to conclude a reciprocal trade agreement with Chile and 
has initiated talks with Mexico to pursue a comprehensive trade 
agreement.
     Several countries, mainly in Central Europe, are 
negotiating entry into the EU.
     Central European nations are pursuing a free trade 
agreement.
    We should be concerned about these agreements that don't 
include us because they can have significant adverse effects on 
our exporters, our workers, and our economy. Of particular 
concern are overlapping and growing trade agreements in Latin 
America, our own backyard, that do not include the United 
States. For example, U.S. companies' exports to Mercosur 
countries can face significant tariffs, while exports among 
Mercosur members are becoming duty-free. Thus, U.S.-made 
products become less competitive in, say, Argentina against 
products made in another Mercosur country, such as Brazil. Of 
course, U.S. companies can produce their goods in Mercosur 
countries rather than in the United States if necessary to 
remain competitive in the region, but it hardly makes sense for 
U.S. trade policy to encourage this. Moreover, in order to meet 
the local content requirements of Mercosur and benefit from 
duty-free treatment, U.S. companies that produce in Mercosur 
members will have to source more of their parts and components 
from Mercosur countries, cutting down on purchases from U.S. 
suppliers. The end result: a loss for the U.S. economy and U.S. 
workers.
    In addition, other countries often do not reach the same 
high levels of liberalization, transparency, and fairness in 
their trade and investment agreements that the United States 
insists on in its own agreements. As more and more trade 
agreements are reached that exclude the United States, it 
becomes increasingly likely that in a future negotiation with 
another country or trade bloc, the United States will be unable 
to reach a good agreement because the negotiating partner will 
insist on the weaker standards in its other trade agreements. 
We could then be faced with two choices: accept a bad agreement 
or reach no agreement at all.
    There's a related danger if the United States abdicates 
leadership. While regional and bilateral arrangements may 
continue in the absence of U.S. leadership, overall 
liberalization in the global arena may stagnate. This would not 
be to anyone's benefit, and certainly not to ours. We need the 
opportunities of markets in other countries to continue 
boosting our economy and raising our standard of living. The 
United States therefore must ensure that global liberalization 
efforts continue through all possible avenues. In particular, 
we must maintain our leadership role at the WTO and ensure that 
it continues the good work of opening markets around the world.
    Thus, in order to ensure that our trading partners don't 
implement agreements and regimes detrimental to our interests 
and that future progress in expanding global trade is not 
compromised, we must remain engaged and maintain the leadership 
role we have exercised so successfully these many years. This 
is not a burden for the United States. It is an unparalleled 
opportunity to shape the world's economic relationships in our 
interests.
Fast-track procedures are a necessary tool for reaching new 
trade and investment agreements.

    It is clear that new trade and investment agreements are 
needed to promote continued growth for the United States, and 
to ensure that we are not left out in the cold as other 
countries reach their own agreements. We cannot hope to 
conclude meaningful agreements, however, if we cannot assure 
our trading partners that agreements reached with our trade 
negotiators will not have to be negotiated a second time with 
the U.S. Congress or the U.S. private sector.
    During the last thirty years, Presidents Nixon, Ford, 
Carter, Reagan, Bush, and Clinton all utilized the fast-track 
process established by the Congress to facilitate international 
trade and investment negotiations to break open foreign markets 
for U.S. products and services. Expanding trade has always 
been, and should still be, a bipartisan issue--both sides of 
the aisle are in favor of expanding economic growth and 
creating jobs.
    The reasons for fast-track today are just as compelling as 
they were in the past, if not more so. In the past, fast-track 
authority was enacted in the context of an existing or 
contemplated major trade negotiation. As I described earlier, 
things have changed--important trade negotiations no longer 
wait for U.S. leadership, and other countries are reaching 
their own agreements without us. In addition, agreements are 
being negotiated in a broad range of contexts--multilaterally, 
regionally, bilaterally, and sectorally (e.g., the recent 
telecommunications and information technology agreements). If 
fast-track procedures are not reauthorized, our trade 
negotiators will not be able to pursue effectively negotiations 
that are on the immediate horizon, such as those in Latin 
America and the Asia-Pacific region. Trade negotiators will 
also not be able to grab at targets of opportunity that may 
arise. If our trade negotiators are unable to continue tearing 
down foreign trade and investment barriers, it can only harm 
the nation's economic, political, and security interests.
    The Roundtable continues to believe that fast-track should 
be extended for a period that realistically takes into 
consideration the increasingly complicated nature of 
international trade and investment negotiations. The Roundtable 
also believes that fast-track should be reauthorized for use in 
both multilateral and bilateral negotiations. To limit it to 
one or the other or to specific countries is too restraining--
it would unduly restrict the United States from taking 
advantage of unforeseen negotiating opportunities that may 
arise, and would increase the likelihood of other countries 
reaching trade agreements without U.S. participation.
    The Business Roundtable hopes that the Administration and 
Congress will reach a compromise as soon as possible on the 
outstanding issues regarding fast track and implement new 
negotiating authority. With fast-track, our negotiators can 
proceed with the important work of breaking down barriers to 
American exports and boosting opportunities for our companies 
to compete and win in the global economy.

Success in the Global Economy is Critical for the American Economy, its 
                       Companies, and its Workers

    The United States must lead in promoting trade and 
investment liberalization around the world because the U.S. 
economy, as well as its businesses, have become 
internationalized. This is a fact of life that we can not, and 
should not, run from, but rather must embrace. Some may seek to 
hide from the global economy. But we can't run from the reality 
of globalization, and we can't afford to turn our backs on the 
opportunities it presents.
    The United States is the strongest country in the world 
economically, politically, and militarily. However, we cannot 
maintain our economic strength, nor our strength in other 
areas, if we do not continue to engage fully the world outside 
our borders. Ninety-five percent of the world's consumers live 
outside the United States. The world's fastest-growing and most 
promising new markets are spread across the globe. There's no 
way we can have a promising future as a nation if we don't 
actively pursue these foreign customers and markets.

The global economy is real, and the United States is part of it

    International trade is increasingly important for the world 
as a whole. From 1994 to 1995, world trade in goods increased 8 
percent by volume and 19 percent by value, rising to a bit over 
$5 trillion. In contrast, the increase in world goods output 
was only 3 percent. Equally impressive, world trade in services 
increased 13 percent by value to just over $1 trillion.
    And the world at large is more important to the U.S. 
economy than ever before. We remain the world's largest 
exporter--our total exports were $835.7 billion ($611.7 billion 
of goods and $224.9 billion of services) in 1996. Total trade--
imports plus exports--accounted for nearly $1.8 trillion in 
business activity, equal in magnitude to nearly 24 percent of 
the size of the U.S. economy as a whole.
    My company, like all members of The Business Roundtable, is 
constantly aware of how important the global economy is. TRW's 
automotive customers are global. Our companies, quite simply, 
cannot grow or even survive if we don't tap foreign markets. 
For my company, international sales totaled $3.9 billion in 
1996, or about 40 percent of our total sales.

Trade is good for our economy, good for business, good for 
workers, good for farmers, and good for consumers

    The nation has recognized the existence of the global 
economy and the opportunities it presents. American companies 
have worked hard to compete and win in that economy, and we 
have seen the positive results. U.S. exports continue to rise 
at an impressive pace--in 1996, exports were up 6.2 percent 
from the year before. And exports in some key product areas are 
growing even faster. For example, in 1996, exports of airplanes 
and airplane parts jumped 26.9 percent; exports of computers 
were up 11.6 percent; and exports of scientific instruments 
were up 10.7 percent.
    Exports are the engine driving economic growth and job 
creation in the United States. Export growth has accounted for 
about one-third of the nation's overall economic growth over 
the past ten years, and export growth continues to greatly 
outpace the growth of the economy as a whole. In 1996, exports 
of goods and services rose by 6.5 percent in real terms, 
compared to a 2.4 percent increase in real GDP.
    Trade is good for the economy and for our companies. But as 
importantly, it's good for American workers. There are now over 
11 million U.S. jobs that are created and supported by exports. 
Export-related jobs accounted for 1 out of every 8 net jobs 
created in the United States between 1992 and 1996. Exports 
account for about 1 in 10 civilian jobs in the nation, and 
about 1 in 5 manufacturing jobs.
    Export-related jobs are also higher-wage jobs. Export-
supported jobs in general pay, on average, 13 percent more than 
the average U.S. wage. The premium is even more striking if you 
look at the core of export-supported jobs--those directly 
supported by goods exports. These jobs pay, on average, 20 
percent more than the average U.S. wage. And a lot of our 
export growth is in high-wage, high-tech sectors. These are 
clearly the types of jobs we want to promote for this and 
future generations.
    Exports are also very important for the nation's farmers. 
U.S. agriculture exports hit a record $61.2 billion in 1996, up 
7 percent from 1995. One out of every three farm acres in 
America, and 50% of our wheat acres, 57% of our rice acres, and 
37% of our soybean acres, are dedicated to exports. Last year, 
U.S. agriculture had an estimated $27.4 billion trade surplus--
the largest ever.
    Trade benefits the company that sells goods or services 
abroad. But trade also has a tremendous beneficial ripple 
effect in communities and throughout the U.S. economy. Trade 
benefits suppliers, especially the numerous small and medium 
sized companies whose goods are either incorporated into 
exports or whose goods and services directly support the 
operations of U.S. exporters. Trade benefits numerous service 
providers, such as insurance companies and banks that finance 
an exporting company's activities. The benefits ripple 
throughout the local community, to the restaurants, stores, and 
other establishments near the facilities of exporters and their 
suppliers.
    Let's not forget that imports are also important to 
maintaining a vibrant, competitive economy and high standards 
of living. Imports give consumers a greater choice of goods and 
services, and provide them with goods and services not always 
available from U.S. sources. They create jobs in areas like 
retailing, distribution, ports, and transportation. Imports 
allow U.S. companies and workers to use the best technology and 
components from around the world increasing their productivity 
and competitiveness and therefore leading to higher wages and 
creation of more U.S. jobs. Moreover, imports encourage 
competition and innovation in general. Walling off producers 
from competition often results in bloated, uncompetitive 
enterprises. This does not benefit anyone--not the company, not 
its workers, not consumers, and not the nation.

International investment is also a crucial part of competing 
and winning in the global economy

    Not only is trade good for the United States--international 
investment is important, too. In order to seize the 
opportunities presented by the global economy, companies must 
be able to invest in other countries when this makes sense for 
their businesses. And this investment creates new markets and 
customers for U.S. companies and their workers and boosts the 
U.S. economy.
    The primary goal of foreign investment is the desire to 
serve the consumers in the country or region in which the 
investment occurs, not to find cheap labor or other inputs. In 
1994 (the latest year for which data is available), about 67 
percent of total sales by U.S. companies' majority-owned 
foreign affiliates were sold in the affiliate's country of 
location; another 23 percent were sold in other foreign 
countries. So, a total of 90 percent of U.S. companies' sales 
of foreign-made goods and services are sold outside the United 
States. This makes sense. Customers, be they users of 
intermediate goods in their own production operations or end 
users, demand prompt and reliable service from their suppliers. 
It is frequently difficult to meet those demands from thousands 
of miles away in the United States. Customers sometimes need or 
want to receive their goods from nearby manufacturing 
facilities. Proximity is even more important for services, of 
course. Consumers expect their banks, telephone companies, and 
professionals to be nearby.
    Investment abroad brings back significant benefits here at 
home. Workers in the United States often design, test, and 
market products made at overseas plants. And, because U.S. 
companies invest overseas to stay competitive and win new 
customers, their foreign investments help boost U.S. exports 
and maintain and create American jobs. Exports follow 
investment--in 1994 (the latest year for which data is 
available), exports of goods by U.S. companies to their foreign 
affiliates totaled $129 billion, 25 percent of all U.S. goods 
exports. And U.S. companies' trade with their foreign 
affiliates generated a $19.2 billion trade surplus.
    U.S. companies' overseas operations also generate income 
that comes back here to the United States, where it can be 
reinvested in U.S. operations to the benefit of the local 
economy and U.S. workers. In 1995, this flow of income back 
into the United States was over $100 billion. Moreover, 
overseas investments are often needed to keep U.S. companies 
competitive. Foreign investment allows companies to enjoy 
greater economies of scale and scope, as well as access to 
important foreign technologies.
    Foreign investment by U.S. companies is concentrated in 
developed countries. If foreign investment were motivated by a 
search for low cost inputs, developing countries would be the 
predominant location for foreign investment. But developing 
countries account for only about one-fifth of U.S. companies' 
total overseas investments. Companies' foreign investment 
decisions are complex; many factors, including the size of the 
country's and the region's market; the quality and reliability 
of transportation, telecommunications, energy, and other 
infrastructures; protection of intellectual property; the 
regulatory and legal climate; skill level of workers; presence 
of needed materials and inputs; political risks; stability of 
the currency and economy, go into the mix. Production costs, 
including labor costs, are but one of many factors.
    Unfortunately, sometimes U.S. companies are forced to 
invest in foreign countries in order to jump over high barriers 
to imports. In these situations, the only way to compete in 
that market often is by producing your goods in that country. 
This is yet another reason for breaking down foreign trade 
barriers: to ensure that our companies are not forced to invest 
abroad, and can make foreign sales through exports from the 
United States when that is a competitive way to do business. My 
company is a prime example of how breaking down foreign trade 
barriers can increase sales from the United States by 
eliminating some of the need to invest abroad. Since 1990, as 
foreign barriers have progressively come down, TRW's export 
sales as a percentage of our international sales have grown 
from about 10 percent to 20 percent.

Because the United States is the world's most competitive 
nation, we have the most to gain from the global economy and 
from trade and investment liberalization

    To borrow from Mark Twain, reports of the death of U.S. 
competitiveness have been greatly exaggerated. Back in the 
1980s and early 1990s, conventional wisdom held that the United 
States had been overtaken by Japan and Germany and might never 
regain its place in the sun.
    Well, look what happened: today, the United States is back 
on top. Our economy has been growing faster than those in 
Europe and Japan. We have led the G-7 nations in growth of 
industrial output for the past five years and in growth of 
manufactured exports from 1985 to 1995. While we need to make 
more progress, we have the lowest budget deficit as percentage 
of GDP of any G-7 economy. We have created more net jobs in the 
past few years than all other G-7 nations combined, and our 
unemployment rate is below that of every other major industrial 
economy besides Japan (which keeps official unemployment low 
through artificial means that harm its economy). While we still 
have a trade deficit, it has declined by 40 percent as a 
percentage of GDP, from about 2.7 percent in 1985 to 1.6 
percent in 1996.
    We have the world's largest economy, the most productive 
workers, the best technology, and the most innovative people. 
That's why we are considered to be the most competitive country 
in the world, as confirmed last year by the World 
Competitiveness Yearbook from the International Institute for 
Management Development. Remember how pundits were writing off 
the U.S. computer and semiconductor industries in the 1980s? 
Well, now we're highly competitive in a range of important 
industries, such as: semiconductors, computers, computer 
software, aerospace equipment, applied materials, 
biotechnology, construction equipment, telecommunications and 
other information-based equipment and services, financial 
services, information services, and entertainment. These are 
the technologies of today--and of tomorrow. We must not be 
afraid to leap wholeheartedly into the opportunities presented 
by the international marketplace.
    We have done so well as a nation because we have willingly 
sought out the opportunities presented by the global economy. 
We have the resources and the capability to be winners. All we 
need to do is ensure that our companies and our workers, and 
the products and services they produce, are given the 
opportunities to compete and win in the global economy.
    We need to do more, of course, to ensure the continued 
competitiveness of the nation, its companies, and its workers. 
In a world of increasing technological innovation, companies 
must be able to rely on a steady flow of educated, trained, and 
skilled scientists, technicians, and workers. To meet this 
need, The Business Roundtable supports appropriate and 
effective worker retraining programs and initiatives to improve 
the U.S. education system.
    The global economy and technological change demand a new 
national workforce development strategy. The existing federal 
and state programs are fragmented and uncoordinated. Current 
programs need to be reassessed with a new focus on quality and 
international competitiveness. The Business Roundtable supports 
reform of federal job training programs--last Congress we 
supported H.R. 1617, the Comprehensive and Reformed Education 
Employment and Rehabilitation Systems (CAREERS) Act, which 
would have consolidated up to 100 education, job training and 
assistance programs. This legislation emphasized 
competitiveness as a fundamental goal for U.S. workforce 
development programs. We would support similar legislation in 
the 105th Congress.
    In 1989, The Roundtable CEOs agreed that improving the 
performance of the K-12 education system is a critical priority 
and The Roundtable made a 10-year commitment to a state-by-
state transformation of our schools. Our focus is at the state-
level because states have primary responsibility for education 
in our country.
    Thanks to efforts by The Business Roundtable and others in 
the past few years, 43 states now have business-led reform 
coalitions that are keeping the pressure on local school 
systems to change. For example, in Ohio where TRW has its 
headquarters, the Ohio Business Roundtable is working closely 
with Governor Voinovich on a set of reforms that are beginning 
to result in higher test scores. Clearly, we have a long way to 
go before our K-12 education system is considered the best in 
the world, but we believe we are headed in the right direction.
    The government must also ensure that national policies and 
laws do not unduly hamper U.S. companies' global 
competitiveness. For example, the U.S. tax system needs to deal 
better with the global nature of today's businesses. Current 
rules for taxing foreign-source income are inexhaustibly 
complex and expensive to comply with. The U.S. rules depart 
from international norms and increase tax burdens for U.S. 
companies by restricting the use of foreign tax credit, 
deferral, and treaty benefits.
    With growing world economic integration, the 
anticompetitive effects of U.S. international tax policy will 
be magnified. The U.S. system for taxing foreign source income 
should be reviewed with an eye to making it more compatible 
with the modern economic environment. If this issue is not 
addressed, U.S. companies competing in global markets will be 
seriously handicapped, to the detriment of their workers and 
the nation as a whole.
    With improved education and training and wise governmental 
policies the United States will remain highly competitive. In 
an open global economy, America will come out on top.

Developing countries in particular hold huge promise

    Right now, the majority of our trade is with developed 
countries--Canada, countries in Europe, and Japan. However, the 
real big opportunities are in large developing countries. These 
are the countries that can grow, and are growing, the quickest. 
For example, between 1985 and 1995, the U.S. economy grew 26.4 
percent, Europe's, 26.5 percent, and Japan's, 33.7 percent. 
Developing countries in Asia grew by a whopping 109.3 percent 
in the same period.
    While world imports grew 96.8 percent between 1985 and 
1995, developing economies' imports jumped 180.4 percent, and 
imports of developing countries in Asia were up 226.1 percent. 
And these developing countries are in particular need of the 
types of goods and services that we are great at producing, in 
such areas as, telecommunications, construction, information 
technology, biotechnology, environmental protection and 
cleanup, and finance.
    Moreover, development builds demand for consumer goods and 
services, again an area of U.S. predominance. By the year 2010, 
China, India and Indonesia combined will have 700 million 
people with annual income equal to that of Spain today. The 
opportunities for the United States are, frankly, mind-
boggling.
    We are already seeing significant benefits from trade with 
these markets. Between 1992 and 1996, U.S. goods exports to 
Pacific Rim countries (excluding Japan and China), jumped 57 
percent; goods exports to Latin America surged by 49 percent. 
This is much faster than growth of our exports to many of our 
major developed country trade partners--in the same four years, 
U.S. goods exports to Europe grew only 18 percent. Growth of 
developing country economies and U.S. exports to those 
countries are predicted to continue rising dramatically. If 
current trends continue, by 2010 Latin America will surpass 
Japan and Western Europe combined as a market for U.S. exports.
    There's another important point to make here. Economic 
liberalization in other countries benefits not only the United 
States, but the liberalizing country itself, as well as global 
stability in general. Developing countries around the world 
have recognized the benefits of liberalization and have, to 
varying degrees, abandoned protectionist strategies in favor of 
openness. The result has been an economic boom in many 
developing countries. This in turn promotes creation of middle 
classes, which, along with openness to the rest of the world, 
promotes democracy and economic and political stability. Thus, 
economic liberalization advances important U.S. non-economic 
goals. And, in pure self-interest, we should note that these 
effects in turn boost the market for U.S. exports.

Critics of international trade and investment are off the mark

    With the opportunities of the global economy come fears. 
Some have argued that trade costs U.S. jobs because of imports. 
It is true that some jobs are displaced by imports. However, 
trade is only one factor that impacts the job market; 
technological change is far more significant. But we must look 
at the result of the changes taking place in the national and 
world economy--the gradual shift of jobs from low-productivity, 
low-competitiveness, low-wage jobs to high-productivity, high-
competitiveness, high-wage jobs. We are moving inexorably 
towards a knowledge-based economy with jobs shifting away from 
unskilled industrial employment to skilled workers in a 
service-related and information-based economy. These job shifts 
are to be expected and welcomed as we approach the 21st 
century; they will lead to a better future for today's and 
tomorrow's workers.
    There are always advocates of imposing trade barriers to 
``protect'' jobs. Unless we are willing to reconsider the 
failed theories of isolated and planned economies, we know that 
jobs are created by the reality of the marketplace. You cannot 
permanently freeze jobs into the economy if the realities of 
technology and competition mandate otherwise. Moreover, we 
cannot effectively promote export growth and open markets 
abroad while closing our own markets.
    Even recognizing the realities of the market, we cannot and 
should not ignore the real effects of job loss for individuals. 
I simply do not believe that trying to freeze our economy is in 
the interest of this or future generations of workers. Our work 
force is one of the most diversified and highly educated in the 
world, and as a very large and flexible economy, we have the 
ability to absorb workers into productive and well-paying jobs. 
Protectionism is not the way to help our workers, our citizens, 
nor our economy. What we need to do is keep our economy dynamic 
and open, and promote good, solid, effective training and 
education to help workers adapt to change. As I've already 
mentioned, The Business Roundtable remains committed to working 
with Congress and the Administration to develop and implement 
good education and training programs.
    Some have pointed to the U.S. trade deficit as evidence 
that trade is bad for the United States. Actually, we have a 
trade deficit because we consume more than we produce. The rest 
of the world provides us with what we demand, so we run a 
deficit. Also, in the last few years, our economy has been 
growing steadily while our trading partners are stuck in 
recessions or slow growth periods, so we temporarily import 
more and export less. The federal budget deficit doesn't help, 
either. It's another manifestation of our propensity to consume 
excessively.
    We also recognize that the trade deficit has fallen 
significantly in the last decade when compared to the size of 
our economy. Moreover, a large portion of our trade deficit 
consists of petroleum imports, which is not a job-displacing 
commodity--our deficit in petroleum products was 35.2 percent 
of the total trade deficit in 1996. Another huge chunk--18 
percent--was in our auto and auto parts deficit with Japan, 
which is due to special, unique bilateral problems. I would 
also note that, compared to the size of its economy, the United 
States imports far less than every other developed country 
except Japan.
    When discussing the trade deficit, we should be addressing 
the low savings rate in the United States and the high federal 
budget deficit, not imports. If we can lick these problems, we 
will have gone a long way to improving the U.S. economy, and 
the trade deficit will fall in line. Tearing down foreign 
barriers to our exports can only help. Resorting to 
isolationism and protectionism to ``solve'' the trade deficit 
problem will not help the economy.
    There are also those who argue that international 
investment is bad. I think that the facts I have already 
presented prove that this is not true. It's important to 
recognize that the decision to invest is a very complex one, 
involving many factors, not just low production costs. The 
United States is endowed with numerous advantages which make it 
a very attractive place for U.S. companies and foreign 
companies to invest, including a highly productive and well-
educated work force, state of the art communications networks 
and computer systems, technologically advanced production 
facilities, a well-developed transportation infrastructure, and 
stable and sophisticated legal and financial systems. If low 
wages were the main determinant of investment decisions and 
manufacturing strength, Haiti and Bangladesh would be economic 
leaders, not the U.S., Germany, and Japan.
    There are also those who bemoan the fact that the United 
States is no longer the clear world leader in all aspects of 
global commerce, as we were after the Second World War. There's 
a reason for this--we recognized that a prosperous and growing 
world economy was central to achieving our nation's economic, 
foreign policy, and national security objectives. That is why 
our national policy for the past 50 years has been to promote 
world growth and prosperity. The Marshall Plan was one element 
of this long-standing U.S. policy. Promoting trade and 
investment liberalization on a continuing basis is another.
    World growth is a win-win proposition--bigger markets 
abroad mean more sales for our companies and workers. If our 
companies and workers are competitive--and they are--our nation 
can be a clear winner in a vibrant world economy. We must 
continue to be fully engaged and we must work with other 
countries to promote openness and growth, which will benefit 
all players in the global economy, including our own citizens.

                               Conclusion

    The United States can only maintain its economic strength 
if it competes and wins in the ever-expanding global economy. 
Trade and investment agreements are needed to tear down foreign 
barriers and ensure that our companies can make full use of 
their competitive advantage. If the United States does not 
maintain its leadership position in world liberalization 
efforts, it will be on the sidelines as other countries reach 
agreements that leave our companies and workers out in the 
cold. The Business Roundtable hopes that the private sector, 
Congress, and the Administration can all work together in this 
area and ensure a bright future for our country.
      

                                

    Chairman Crane. Thank you, Mr. Gorman.
    Mr. Pepper.

 STATEMENT OF JOHN E. PEPPER, CHAIRMAN OF THE BOARD AND CHIEF 
EXECUTIVE OFFICER, PROCTER & GAMBLE CO.; ON BEHALF OF NATIONAL 
                     FOREIGN TRADE COUNCIL

    Mr. Pepper. Mr. Chairman, distinguished Members of the 
Subcommittee, I am John Pepper, chairman of the board and chief 
executive of the Procter & Gamble Co. I am testifying today on 
behalf of NFIC, the National Foreign Trade Council.
    I would like to focus my remarks on just three points. The 
first is, and Joe Gorman made it, the world is not waiting for 
the United States to take advantage of the benefits from trade 
agreements. That is what makes this matter so urgent.
    The United States has an impressive record of achievement 
leading the rest of the world in the direction of a trading 
system that is rules based, transparent, and open. That, as we 
all know, has been at the foundation of a great economic 
stimulus under which world trade has consistently outpaced 
world economic growth.
    Frankly, I, along with my colleagues at the NFTC, are 
seriously concerned that we are now falling behind many other 
major countries without fast track authority.
    It has now been 3 years since Chile was invited to joint 
NAFTA. Other trade-negotiating efforts initiated in late 1994 
are losing momentum, such as the creation of a Free Trade Area 
of the Americas and the move toward eventual free trade among 
APEC countries.
    While we have been sitting on the sidelines, considering 
lots of things, but not getting them done, our trading partners 
are aggressively reaching agreements among themselves.
    Allow me to elaborate. Chile's uniform 11 percent tariff is 
being phased out for both Mexico and Canada, but not for the 
United States. Among the MERCOSUR countries, tariffs as high or 
higher than 40 percent have been totally eliminated, but not 
for us.
    Consequently, and not surprisingly, interregional trade 
among MERCOSUR partners is exploding. It has grown over 40 
percent in just the past 2 years between those countries. 
Meanwhile, the best trade growth the United States can report 
with any one of the MERCOSUR countries is 20 percent over the 
same period, less than half of what is being achieved within 
that group.
    Beyond that, the European Union is moving to establish new 
trade relationships with Mexico. Japan is in the process of 
forming greater relationships with Latin American, and I 
haven't mentioned the Andean Pact. Latin America is the second 
fastest growing region in the world. It is our neighbor, and if 
we don't move forward, in my judgment, to achieve the FTAA, we 
may be about the only major country without preferential trade 
status.
    Point two, the U.S. economy is dependent on expanding trade 
and investment globally. While we are the world's largest, most 
competitive economy, 95 percent of the world's population lives 
outside the United States. This means that the vast majority of 
growth potential for our economy, for jobs in our country, 
comes not from the United States, but from the rest of the 
world.
    Our experience at Procter & Gamble is a good example. We 
are a $35 billion company today. More than half of our total 
business comes from outside the United States, but 73 percent 
of our growth in the last decade has come from international 
markets.
    Had we not been able to expand our business globally over 
that period, we would be a much smaller and much weaker company 
today. We would be less competitive. We would employ fewer 
American workers, and those jobs that we did provide would be a 
lot less secure.
    Instead, we have 44 U.S. manufacturing plants. We have over 
40,000 employees. Many of those plants have significant export 
business and key nonmanufacturing functions located in this 
country, such as research and development and engineering are 
servicing our business all around the world.
    Our Jackson, Tennessee, plant is an excellent illustration 
of this. We built Jackson in 1971 to produce Pringles Potato 
Chips and Duncan Hines baking mixes. Around 1990 to 1991, we 
began to develop an export business for Pringles. Today, 
worldwide exports of Pringles are over $200 million. We employ 
over 1,300 people at Jackson, Tennessee, and we are launching a 
$185 million expansion to the facility, made possible primarily 
because of greater exports. This will create 200 additional new 
jobs there and a multitude more in small businesses serving our 
material supplies for the plant.
    I would like to comment on NAFTA as one example of an 
agreement negotiated under fast track authority. NAFTA has and 
continues to be successful. The Department of Labor indicates 
that 311,000 jobs have been created under NAFTA. Exports, 
despite the peso devaluation, are setting new records--$57 
billion last year--an increase of 23 percent in dollar terms 
over the previous year.
    Additionally, I think it is significant to point out that 
the United States share of Mexico's imports has grown from 69 
percent before NAFTA to 76 percent today. This is in contrast 
to the decline in the United States share of imports into 
Brazil from 25 to 23, and in Argentina from 24 to 21. I would 
submit this is due to less favorable free trade and the 
existence of MERCOSUR there.
    What is more, NAFTA has kept Mexico on the path toward open 
economic reform and trade liberalization with the United States 
during what has obviously been its worst recession in modern 
history.
    Procter & Gamble's United States exports to Canada and 
Mexico have nearly tripled since NAFTA was implemented. Other 
NFTC members believe, as we do, that NAFTA is a win-win for all 
three countries and should be expanded. To do this, however, we 
must get fast track.
    That leads me to my third and final point. Without fast 
track authority to negotiate new agreements, the United States 
will jeopardize domestic job growth, and it will be 
disadvantaged to other countries and regions of the world.
    Fast track authority must be a top priority for our 
government. Spending time, as I often do, in Latin America, I 
fear that this does not have the urgent attention it needs.
    Fast track should be broad in its coverage and long term. 
The issue of linking labor and environment to fast track is 
highly controversial. These nontrade objectives are worthy of 
pursuit in and of themselves, I am sure, but they should not 
impede the progress of trade expansion, which is so important 
to our economy.
    Trade expansion by itself brings about economic development 
for our trading partners, which supports the improvement of 
environmental and labor conditions.
    At P&G, we seek to attain, attract, and retain the best 
people anywhere we do business. What is more, we design and 
engineer our manufacturing equipment to a single high global 
standard, whether that is in Mehoopany, Pennsylvania, or in 
Guangzhou, China.
    In conclusion, let me say that if we are to secure a 
prosperous future for our children, we must work together. It 
is critical that Congress and President Clinton join together 
to get new bipartisan fast track authority. We have no time to 
lose. The world is moving. I think it will move faster, not 
slower. We must act now.
    That concludes my testimony.
    [The prepared statement follows:]

Statement of John E. Pepper, Chairman of the Board and Chief Executive 
Officer, Procter & Gamble Co.; on Behalf of National Foreign Trade 
Council

    Mr. Chairman and distinguished members of the Subcommittee, 
I am John E. Pepper, Chairman of the Board and Chief Executive 
of The Procter & Gamble Company. I am appearing today on behalf 
of the National Foreign Trade Council, a broad-based 
organization of over 500 U.S. companies having substantial 
international operations or interests. I also serve on NFTC's 
board.
    I appreciate the opportunity to testify today on U.S. trade 
policy. I would like to focus my remarks on fast track trade 
negotiating authority and make three points: 1) the world isn't 
waiting for the U.S. to take advantage of the benefits from 
trade agreements; 2) the U.S. economy is dependent on expanding 
trade and investment globally; and 3) without fast track 
authority to negotiate new trade agreements, the U.S. will 
jeopardize domestic job growth and be disadvantaged to other 
countries and regions throughout the world.

1. The World Isn't Waiting for the U.S. To Take Advantage of 
the Benefits from Trade Agreements

    The United States has an impressive record of achievement 
in leading the rest of the world in the direction of a trading 
system that is rules-based, transparent and open. Through 
multilateral, regional and bilateral efforts, we have 
negotiated clear rules of the game for international trade, and 
have progressively reduced tariff and non-tariff trade 
barriers. The result has been an enormous economic stimulus 
under which world trade has consistently outpaced world 
economic growth. It also has led to a trading system that is 
largely built around U.S. concepts of market-based economic 
growth and a sense of fair play.
    NAFTA and the WTO, two examples of agreements negotiated 
under fast track authority, are resounding successes and we 
should be proud of them. Expansion of these agreements is 
critically important as is the pursuit of other initiatives 
that promote basic U.S. trade interests. This means moving 
forward on Chile's accession to NAFTA, expanding free trade 
throughout the Western Hemisphere, encouraging the APEC 
process, and strengthening the WTO through accession of major 
emerging economies, such as China, Russia and Vietnam, on 
viable commercial terms.
    NFTC members are seriously concerned that we are falling 
behind. It is now approaching three years since Chile was 
invited to join NAFTA. Other trade negotiating efforts 
initiated in late 1994 are losing momentum, such as the 
creation of a Free Trade Area of the Americas (FTAA) and the 
move toward eventual free trade among APEC countries. Our 
negotiating ability and credibility is limited without fast-
track authority.
    Meanwhile, our trading partners are aggressively reaching 
agreements among themselves, while the United States is forced 
to sit on the sidelines. Chile and Canada have negotiated their 
own free trade pact, the European Union is moving to establish 
special trade relationships with Mexico and elsewhere in Latin 
America. The Andean Pact is getting stronger. Japan, as well, 
is wisely seeking to enhance its trade position in the region. 
Chile, moreover, has a free trade agreement with MERCOSUR, 
which is led by Brazil. While there is nothing wrong with these 
agreements in and of themselves, we must recognize the benefits 
created by them exclude the U.S.
    These developments are putting American firms and workers 
at a competitive disadvantage. For example, Chile's uniform 11% 
tariff is being phased out for both Mexico and Canada, but not 
for us. Among the MERCOSUR countries, tariffs as high or higher 
than 40% have been eliminated. Consequently, intraregional 
trade among MERCOSUR partners is exploding, growing over 40% in 
the past two years. Meanwhile, the best trade growth the U.S. 
can report with any MERCOSUR country is 20% over the same 
period. Latin America is the second fastest growing region in 
the world and if we don't move forward on achieving the FTAA, 
we may be the only country without preferential trade status.

2. The U.S. Economy is Dependent on Expanding Trade and 
Investment Globally

    The U.S. is the worldÆ's largest, most competitive and 
innovative economy. However, it's important to remember that 
95% of the world's population lives outside the United States. 
This means that the vast majority of growth potential for 
American industry--growth that provides American jobs--comes 
not from the U.S., but from the rest of the world.
    Our experience at Procter & Gamble is a good example. We 
are a $35 billion company. More than half of our total business 
comes from outside the U.S.--and 73% of our growth in the past 
decade has come from international markets. Had we not been 
able to expand our business globally over that period, we'd be 
a much smaller company today. In fact, we would be a far less 
competitive company today. We'd employ fewer American workers 
and those jobs we did provide here would be far less secure.
    Instead, we have 44 U.S. manufacturing plants and more than 
40,000 U.S. employees. Many of our U.S. plants have substantial 
export business, and key non-manufacturing functions here in 
the U.S., such as Research & Development, Engineering, and 
Logistics support our international operations.
    Our Jackson, Tennessee facility is an excellent 
illustration of this point. The Jackson Plant was built in 1971 
to produce Pringles and Duncan Hines baking mixes for domestic 
sales. It wasn't until around 1990/91 that we began to develop 
an export business for Pringles. Today, exports of Pringles to 
Canada, Europe, Latin America and Asia are over $200 million in 
sales, and represent a third of the plant's production volume. 
We now employ 1300 people at Jackson and we're launching a $185 
million expansion to the facility. This expansion will result 
in 200 additional new jobs to our work force there. The future 
for P&G is in expanding our international business 
opportunities. Obviously, Jackson has and will continue to be a 
major beneficiary of this trend.
    I'd like to comment on NAFTA in light of the 
Administration's pending review and questions about its 
success. The record is clear--NAFTA has brought major benefits 
to the United States and is very much in the mutual interest of 
the NAFTA partners--the United States, Canada, and Mexico. 
NAFTA is doing exactly what it was intended to do--breaking 
down Mexico's very high trade barriers to us and leveling the 
playing field. It has expanded U.S. jobs, trade and market 
share.
    The facts speak for themselves. Today, 2.3 million high-
wage U.S. jobs depend on trade with Canada and Mexico--311,000 
of these jobs have been created under NAFTA. Exports to Mexico 
are setting new records, despite the peso crisis. In 1996, we 
exported $57 billion to Mexico--an increase of 23% over the 
previous year and 37% over 1993, the year before NAFTA went 
into effect. Likewise, exports to Canada in 1996 were 33% above 
1993 exports. U.S. market share in Mexico has grown from 69% 
before NAFTA to 76% today. At the same time, our non-NAFTA 
European and Japanese trading partners have seen their market 
shares decline.
    NAFTA, moreover, has kept Mexico on the path towards open 
economic reform and trade liberalization with the United States 
during its worst recession in recent history. This is in sharp 
contrast to what happened during the financial crisis of 1982 
when Mexico imposed 100% duties and other trade restrictions on 
American products. It took seven years for our exports to 
recover then. This time it took only eighteen months.
    NAFTA has created business opportunities for Procter & 
Gamble. Procter & Gamble's exports of finished products from 
the U.S. to Canada and Mexico have nearly tripled since NAFTA 
was implemented. We believe we have only scratched the surface 
of market opportunities available as a result of NAFTA.
    Other NFTC member companies have also benefited from NAFTA 
and remain fully committed to this agreement. It's a win-win 
for all three countries and should be expanded.
    The NFTC also applauds the recent conclusion of the WTO 
Information Technology Agreement which was concluded under a 
residual grant of fast-track negotiating authority. It is a 
demonstration of our ongoing ability to lead in the trade arena 
when our negotiators have the necessary tools. While Procter & 
Gamble had no specific stake in the outcome of this agreement, 
we know that the expansion of rules-based regimes will 
ultimately help our business.
    While these trade agreements benefit American firms and 
workers, it's imperative that all of us do a better job of 
explaining how trade makes us strong. We can't afford not to. 
Trade now accounts for 30 percent of U.S. GDP. Exports have 
been responsible for one-third of U.S. economic growth over the 
past decade. These exports support 11 million American jobs. 
Export related jobs pay better, and are more stable and 
productive. Clearly, trade fuels our economy.

3. Fast Track Authority Must Be Renewed Now.

    Without fast track negotiating authority, our ability to 
access foreign markets is seriously compromised and places us 
at a competitive disadvantage. Renewal of fast track must be a 
top priority for our government. It should be broad in its 
coverage and long term.
    The issue of linking labor and environment to fast track is 
highly controversial. These non-trade objectives are worthy of 
pursuit in and of themselves, but should not impede the 
progress of trade expansion. Trade expansion by itself brings 
about economic development for our trading partners, which 
supports improved environment and labor conditions.
    At Procter & Gamble, we seek to attract and retain the best 
people wherever we do business. Additionally, we design and 
engineer our manufacturing equipment to a single high global 
standard whether it's being installed in Mehoopany, 
Pennsylvania or Guangzhou, China.
    In conclusion, let me say that important events on the 
horizon beg for strong U.S. trade leadership, credibility and 
strategic vision. If we are to secure a prosperous future for 
our children, we must work together. It is critical that 
Congress and President Clinton join together to enact new fast-
track trade negotiating authority that builds on our impressive 
and positive trade legacy. We have no time to lose. The rest of 
the world is moving. The time to act is now. Thank you.
      

                                
[GRAPHIC] [TIFF OMITTED] T1072.057

      

                                

    Chairman Crane. Thank you, Mr. Pepper.
    Mr. Jordan.

 STATEMENT OF MICHAEL H. JORDAN, CHAIRMAN AND CHIEF EXECUTIVE 
 OFFICER, WESTINGHOUSE ELECTRIC CORP.; ON BEHALF OF EMERGENCY 
                  COMMITTEE FOR AMERICAN TRADE

    Mr. Jordan. Mr. Chairman, I want to thank you for this 
opportunity to testify before the Trade Subcommittee of the 
Ways and Means Committee of the House of Representatives. While 
I fully support my colleagues' call for trade liberalization 
initiatives and their instruments such as fast track, in the 
interest of brevity, I shall confine my remarks to two 
particular topics, unilateral U.S. trade sanctions and the 
financing of U.S. exports.
    Before I continue, let me point out my awareness that the 
Ways and Means Committee is not the Committee of formal 
jurisdiction insofar as either sanctions or export finance are 
concerned, but this Subcommittee and its Senate counterpart are 
primarily responsible for setting trade policy within the 
Congress. That brings me directly to my two central points. 
First, the growing recourse to unilateral trade sanctions has 
brought us to the point where they are having a serious 
deleterious impact on overall U.S. trade policy, and second, 
the lack of legislative commitment to export financing 
seriously undermines our international competitiveness.
    The National Association of Manufacturers in its recent 
survey, which I am submitting for the record, points out that 
between 1993 and 1996, the United States has enacted 61 U.S. 
laws and executive actions authorizing unilateral trade 
sanctions, a new one every 3\1/2\ weeks.
    The Congress of the United States owes it to the national 
exporting community and its work force to ask what substantive 
effect these sanctions can have in a global economy where a 
buyer refused service in one country can almost always find a 
willing seller in another.
    Let me offer a specific example from the experiences of the 
Westinghouse Corp. Our energy systems business unit, which is 
based in Monroeville, Pennsylvania, is widely regarded as one 
of the leaders, if not the leader, in the global nuclear power 
industry. Unfortunately, notwithstanding the quality of our 
products, demand for new nuclear powerplants in the United 
States is nonexistent, but this need not have posed a serious 
problem for our Monroeville work force because, like many 
companies which have had to confront major shifts in the 
American marketplace, our energy systems unit could have 
responded by displaying the type of flexibility which is said 
to be its hallmark, shifting from a domestic focus to one 
concentrated on the high-growth international markets where 
demand for nuclear power is high, most notably in China.
    Unfortunately, legislation was passed in 1989 which 
effectively prevents United States civilian nuclear equipment 
manufacturers from selling their products in China. Now, 
without arguing the moral or ideological reasons for its 
passage, we must recognize that no other nation joined us in 
that prohibition. Consequently, the impact on China has been 
nil and the impact on Monroeville severe. China, denied the 
ability to purchase the superior United States product which it 
still wants, by the way, has since 1989 purchased or contracted 
for approximately $8 billion in nuclear plants from France, $3 
billion from Canada, and $4 billion from the Russian 
Federation. Meanwhile, our Energy Systems Unit in Monroeville 
has been obliged, through layoffs and early retirement, to 
dispense with the services of 3,500 members, or one-third of 
its work force.
    I would like to stress that these layoffs affect nuclear 
and mechanical engineers, marketing and sales professionals, as 
well as heavy manufacturing jobs throughout the country. In 
fact, we are quickly facing a dwindling supply of nuclear 
experts that will impact our ability to service existing 
reactors in the United States, and we think this is a national 
issue.
    Mr. Chairman, I have no doubt that had those men and women 
been allowed to compete in the Chinese market along side their 
European, Japanese, and Canadian counterparts, they would all 
be working today, and we would have the leading share. This 
legislation, effectively, deprived them of very well-paying 
jobs and exported most of those to France, Canada, and Russia.
    I think the terrible irony from a business perspective is 
that many of the members who initiate and support ongoing trade 
restrictions will be making speeches from the floor this year 
decrying the escalating trade imbalance between China and the 
United States. If we want to turn our backs on the potential of 
$4 billion per annum sales in nuclear equipment, in addition to 
the billions lost in secondary services, we must accept a 
massive and growing trade deficit with China. This deficit is 
expected to reach unprecedented levels as long as we have a 
trade policy which is driven more by a desire to make gestures 
of little value than it is to underwrite the economic security 
of the men and women in this Nation. Simply, it is hard enough 
to achieve market-opening opportunities in tomorrow's largest 
economy without self-imposed closure through trade policy.
    Now, so far as concerns export financing, I must say I am 
amazed to hear some Members of Congress decry it as so-called 
corporate welfare and demand its termination. Are they unaware 
that the Japanese economy is in the doldrums, that the French 
and German unemployment rates are touching 12.5 percent, and 
that there is no more dangerous competitor than a desperate 
one? Does anyone doubt that the governments of these nations 
will try to stop their unemployment by providing the most 
aggressive financing support for their exports into large 
emerging overseas markets?
    Yet, we hear Members of Congress call for us to abandon 
institutions such as the U.S. Export-Import Bank, the Overseas 
Private Investment Corp., and the Trade Development Agency, as 
if to demonstrate some sort of moral probity to our trade 
rivals, all of whom, by the way, are increasing the power of 
their export finance institutions at levels that far exceed our 
own. Anyone who wishes to question that assertion should 
consider that in 1995, the Export-Import Bank financed $13.2 
billion in exports. By contrast, its German equivalent financed 
$23 billion, the French financed $53 billion, and the Japanese 
financed a massive $144 billion in exports.
    Mr. Chairman, during this country's confrontation with the 
Soviet Union, I was never one to support unilateral disarmament 
on the presupposition that Moscow would do likewise. By the 
same token, we cannot support those who would have us abandon 
some of our most significant weapons in an increasingly cut-
throat international financing and trading environment. If we 
do, the consequences for U.S. exporters will be such that the 
phrase ``trade policy'' will have to it a remarkably irrelevant 
ring. Now, I am painfully aware of the effects of these recent 
trade policy decisions. My corporation has had to significantly 
downsize as a result of these policies, and more will follow 
with the elimination of our export finance agencies. I can 
assure you that Westinghouse will not be alone.
    So, in closing, let me stress that I do not seek to lay 
responsibility for this Nation's trade sanction or export 
financing woes at the door of this Subcommittee. To the 
contrary, under both Republican and Democratic leadership, this 
Subcommittee has been strongly supportive of U.S. trading 
interests. But without a proper understanding of the impact of 
unilateral sanctions and the importance of export finance 
toward U.S. exporters and their employees, you can be assured 
there will be more chief executive officers like myself telling 
you similar tales of frustration and failure. The current trend 
has created a system that business simply does not comprehend. 
However, a comprehensive, commercially driven trade strategy is 
urgently needed in today's cut-throat international trading 
system. I come here today to request such a strategy and to 
look to you as those who have the capability and the 
understanding to fashion and implement such a strategy.
    With the Chairman's permission, I would like to, in 
addition to the NAM's sanction review I mentioned before, 
submit for the record recommendations from the President's 
Export Council on the implementation of unilateral sanctions, a 
case study on the effectiveness of United States sanctions on 
civilian nuclear trade with China, and a copy of ECAT's 
supplemental views on United States trade policy objectives.
    Mr. Chairman, I thank you for this opportunity to speak 
with this group on such an important issue.
    [The prepared statement follows:]

Statement of Michael H. Jordan, Chairman and Chief Executive Officer, 
Westinghouse Electric Corp.; on Behalf of Emergency Committee for 
American Trade

    MR. CHAIRMAN, I WANT TO THANK YOU FOR THIS OPPORTUNITY TO 
TESTIFY BEFORE THE TRADE SUBCOMMITTEE OF THE WAYS AND MEANS 
COMMITTEE OF THE HOUSE OF REPRESENTATIVES. I AM ALSO HONORED TO 
REPRESENT THE EMERGENCY COMMITTEE FOR AMERICAN TRADE IN TODAY'S 
HEARING. WHILE I FULLY SUPPORT MY COLLEAGUES' CALL FOR TRADE 
LIBERALIZATION INITIATIVES AND THEIR INSTRUMENTS SUCH AS FAST 
TRACK, IN THE INTEREST OF BREVITY, I SHALL CONFINE MY REMARKS 
TO TWO PARTICULAR TOPICS--UNILATERAL U.S. TRADE SANCTIONS AND 
THE FINANCING OF U.S. EXPORTS.
    BEFORE I CONTINUE, LET ME POINT UP MY AWARENESS THAT THE 
WAYS AND MEANS COMMITTEE IS NOT THE COMMITTEE OF FORMAL 
JURISDICTION IN SO FAR AS EITHER SANCTIONS OR EXPORT FINANCE 
ARE CONCERNED. THIS SUBCOMMITTEE AND ITS SENATE COUNTERPART ARE 
PRIMARILY RESPONSIBLE FOR THE SETTING OF TRADE POLICY WITHIN 
THE CONGRESS. BUT THIS BRINGS ME DIRECTLY TO MY CENTRAL TWO 
POINTS. FIRST, THE GROWING RECOURSE TO UNILATERAL TRADE 
SANCTIONS HAS BROUGHT US TO THE POINT WHERE THEY ARE HAVING A 
SERIOUS DELETERIOUS IMPACT ON OVERALL U.S. TRADE POLICY. 
SECOND, THE LACK OF LEGISLATIVE COMMITMENT TO EXPORT FINANCING 
SERIOUSLY UNDERMINES OUR INTERNATIONAL COMPETITIVENESS.
    THE NATIONAL ASSOCIATION OF MANUFACTURERS, IN ITS RECENT 
SURVEY WHICH I AM SUBMITTING FOR THE RECORD, POINTS OUT THAT 
BETWEEN 1993 AND 1996 THE UNITED STATES HAS ENACTED 61 U.S. 
LAWS AND EXECUTIVE ACTIONS AUTHORIZING UNILATERAL TRADE 
SANCTIONS (A NEW SANCTION EVERY 3 1/2 WEEKS). THE CONGRESS OF 
THE UNITED STATES OWES IT TO THE NATIONAL EXPORTING COMMUNITY 
AND ITS WORK FORCE TO ASK WHAT SUBSTANTIVE EFFECT THESE 
SANCTIONS CAN HAVE IN A GLOBAL ECONOMY WHERE A BUYER REFUSED 
SERVICE IN ONE COUNTRY CAN ALMOST ALWAYS FIND A WILLING SELLER 
IN ANOTHER.
    LET ME OFFER A SPECIFIC EXAMPLE FROM THE EXPERIENCES OF THE 
WESTINGHOUSE CORPORATION. OUR ENERGY SYSTEMS BUSINESS UNIT, 
BASED IN MONROEVILLE, PENNSYLVANIA, IS WIDELY REGARDED AS ONE 
OF THE LEADERS, IF NOT THE LEADER, IN THE GLOBAL NUCLEAR POWER 
INDUSTRY. UNFORTUNATELY, NOTWITHSTANDING THE QUALITY OF THE 
PRODUCT, DEMAND FOR NEW NUCLEAR PLANTS IN THE U.S. IS NON-
EXISTENT. THIS NEED NOT HAVE POSED A SERIOUS PROBLEM FOR OUR 
MONROEVILLE WORK FORCE. LIKE MANY COMPANIES WHICH HAVE HAD TO 
CONFRONT MAJOR SHIFTS IN THE AMERICAN MARKETPLACE, OUR NUCLEAR 
ENERGY SYSTEMS UNIT COULD HAVE RESPONDED BY DISPLAYING THE TYPE 
OF FLEXIBILITY WHICH IS SAID TO BE ITS HALLMARK, SHIFTING FROM 
A DOMESTIC FOCUS TO ONE WHICH CONCENTRATED ON HIGH GROWTH AREAS 
OVERSEAS WHERE DEMAND FOR NUCLEAR POWER IS HIGH, MOST NOTABLY 
CHINA.
    UNFORTUNATELY, LEGISLATION WAS PASSED IN 1989 WHICH 
EFFECTIVELY PREVENTS U.S. NUCLEAR EQUIPMENT MANUFACTURERS FROM 
SELLING THEIR PRODUCT IN CHINA. WITHOUT ARGUING THE MORAL OR 
IDEOLOGICAL REASONS FOR ITS PASSAGE, WE MUST RECOGNIZE THAT NO 
OTHER NATION JOINED US IN THIS PROHIBITION. CONSEQUENTLY, THE 
IMPACT ON CHINA HAS BEEN NIL AND THE IMPACT ON OUR EMPLOYMENT 
SEVERE. CHINA, DENIED THE ABILITY TO PURCHASE THE SUPERIOR U.S. 
PRODUCT WHICH IT WANTED, HAS SINCE 1989 PURCHASED OR CONTRACTED 
FOR APPROXIMATELY $8 BILLION OF NUCLEAR PLANTS FROM FRANCE, $3 
BILLION FROM CANADA AND $4 BILLION FROM THE RUSSIAN FEDERATION. 
MEANWHILE, ENERGY SYSTEMS IN MONROEVILLE HAS BEEN OBLIGED, 
THROUGH LAY-OFFS AND EARLY RETIREMENT, TO DISPENSE WITH THE 
SERVICES OF 3,500 MEMBERS OR ONE-THIRD OF ITS WORK FORCE. 
MOREOVER, I WOULD LIKE TO STRESS THAT THESE LAYOFFS AFFECTED 
NUCLEAR AND MECHANICAL ENGINEERS, MARKETING AND SALES 
PROFESSIONALS AS WELL AS HEAVY MANUFACTURING JOBS. IN FACT, WE 
ARE QUICKLY FACING A DWINDLING SUPPLY OF NUCLEAR EXPERTS THAT 
VERY LIKELY WILL AFFECT THIS NATION'S ABILITY TO SERVICE OUR 
OVER 100 DOMESTIC REACTORS. THIS IS A NATIONAL SECURITY ISSUE.
    MR.CHAIRMAN, I HAVE NO DOUBT THAT HAD THOSE MEN AND WOMEN 
BEEN ALLOWED TO COMPETE IN THE CHINESE MARKET ALONGSIDE THEIR 
EUROPEAN, JAPANESE AND CANADIAN COUNTERPARTS, THEY WOULD ALL BE 
WORKING TODAY. THIS LEGISLATION EFFECTIVELY DEPRIVED THEM OF 
THEIR WELL-PAYING JOBS BY EXPORTING THOSE JOBS TO FRANCE, 
CANADA AND RUSSIA.
    MOREOVER, THE TERRIBLE IRONY, FROM A BUSINESS PERSPECTIVE, 
IS THAT THOSE SAME MEMBERS WHO INITIATE AND SUPPORT THESE 
ONGOING TRADE RESTRICTIONS WILL BE MAKING SPEECHES FROM THE 
FLOOR THIS YEAR DECRYING THE ESCALATING SINO-U.S. TRADE 
DEFICIT. IF WE WANT TO TURN OUR BACKS ON THE POTENTIAL $4 
BILLION PER ANNUM SALES IN NUCLEAR PLANTS, IN ADDITION TO THE 
BILLIONS LOST IN SECONDARY SERVICES, WE MUST ACCEPT A MASSIVE 
AND GROWING TRADE DEFICIT WITH CHINA. THIS TRADE DEFICIT IS 
EXPECTED TO REACH UNPRECEDENTED LEVELS AS LONG AS WE HAVE A 
TRADE POLICY WHICH IS DRIVEN MORE BY A DESIRE TO MAKE GESTURES 
OF LITTLE VALUE THAN IT IS TO UNDERWRITE THE ECONOMIC SECURITY 
OF THE MEN AND WOMEN OF THIS NATION. SIMPLY, IT IS HARD ENOUGH 
TO ACHIEVE MARKET OPENING OPPORTUNITIES IN TOMORROW'S LARGEST 
ECONOMY WITHOUT SELF-IMPOSED CLOSURE THROUGH TRADE POLICY.
    AS FAR AS EXPORT FINANCING IS CONCERNED, I MUST SAY THAT I 
AM AMAZED TO HEAR SOME MEMBERS OF CONGRESS DECRY IT AS SO-
CALLED ``CORPORATE WELFARE'' AND DEMAND ITS TERMINATION. ARE 
THEY UNAWARE THAT THE JAPANESE ECONOMY IS IN THE DOLDRUMS, THAT 
THE FRENCH AND GERMAN UNEMPLOYMENT RATES ARE TOUCHING 12.5% AND 
THAT THERE IS NO MORE DANGEROUS COMPETITOR THAN A DESPERATE 
ONE? DOES ANYONE DOUBT THAT THE GOVERNMENTS OF THESE NATIONS 
WILL TRY TO STOP THEIR UNEMPLOYMENT ROT BY PROVIDING THE MOST 
AGGRESSIVE FINANCING SUPPORT FOR THEIR EXPORTS INTO LARGE 
EMERGING OVERSEAS MARKETS?
    AND YET WE HEAR MEMBERS OF CONGRESS CALL FOR US TO ABANDON 
INSTITUTIONS SUCH AS THE EXPORT-IMPORT BANK, THE OVERSEAS 
PRIVATE INVESTMENT CORPORATION AND THE TRADE DEVELOPMENT AGENCY 
AS IF TO DEMONSTRATE SOME SORT OF MORAL PROBITY TO OUR TRADE 
RIVALS, ALL OF WHOM ARE INCREASING THE POWER OF THEIR EXPORT 
FINANCE INSTITUTIONS AT LEVELS FAR EXCEEDING OUR OWN.
    MR.CHAIRMAN, DURING THIS COUNTRY'S CONFRONTATION WITH THE 
SOVIET UNION, I WAS NEVER ONE OF THOSE TO SUPPORT UNILATERAL 
DISARMAMENT ON THE PRESUPPOSITION THAT MOSCOW WOULD DO 
LIKEWISE. BY THE SAME TOKEN, WE CANNOT SUPPORT THOSE WHO WOULD 
HAVE US ABANDON SOME OF OUR MOST SIGNIFICANT WEAPONS IN AN 
INCREASINGLY CUT-THROAT INTERNATIONAL TRADING ENVIRONMENT. IF 
WE DO, THE CONSEQUENCES FOR MAJOR U.S. EXPORTERS WILL BE SUCH 
THAT THE PHRASE ``TRADE POLICY'' WILL HAVE TO IT A REMARKABLY 
IRRELEVANT RING. I AM PAINFULLY AWARE OF THE EFFECTS OF THESE 
RECENT TRADE POLICY DECISIONS. MY CORPORATION HAS HAD TO 
SIGNIFICANTLY DOWNSIZE AS A DIRECT RESULT OF THESE POLICIES. 
MORE WILL FOLLOW WITH THE ELIMINATION OF OUR EXPORT FINANCE 
AGENCIES. I CAN ASSURE YOU, WESTINGHOUSE WILL NOT BE ALONE.
    IN CLOSING, LET ME STRESS THAT I DO NOT SEEK TO LAY 
RESPONSIBILITY FOR THIS NATION'S TRADE SANCTION AND EXPORT 
FINANCING WOES AT THE DOOR OF THIS COMMITTEE. TO THE CONTRARY, 
UNDER BOTH REPUBLICAN AND DEMOCRATIC LEADERSHIP, THIS COMMITTEE 
HAS BEEN STRONGLY SUPPORTIVE OF U.S. TRADING INTERESTS. BUT, 
WITHOUT A PROPER UNDERSTANDING OF THE IMPACT OF UNILATERAL 
SANCTIONS AND THE IMPORTANCE OF EXPORT FINANCE TOWARD U.S. 
EXPORTERS AND THEIR EMPLOYEES, YOU CAN BE ASSURED THAT THERE 
WILL BE MORE CEO'S LIKE MYSELF TELLING YOU SIMILAR TALES OF 
FRUSTRATION AND FAILURE. THE CURRENT TREND HAS CREATED A SYSTEM 
THAT BUSINESS DOES NOT COMPREHEND. A COMPREHENSIVE, 
COMMERCIALLY DRIVEN TRADE STRATEGY IS URGENTLY NEEDED IN 
TODAY'S CUT-THROAT INTERNATIONAL TRADING SYSTEM. I COME HERE 
TODAY TO REQUEST SUCH A STRATEGY AND LOOK TO YOU AS THOSE WHO 
HAVE THE CAPABILITY AND UNDERSTANDING TO FASHION AND IMPLEMENT 
THAT STRATEGY.
    MR. CHAIRMAN, THANK YOU FOR THE OPPORTUNITY TO SPEAK BEFORE 
THIS VITALLY IMPORTANT BODY.
    [Additional material is being retained in the Committee 
files.]
      

                                

    Chairman Crane. Thank you, Mr. Jordan.
    Mr. Denham.

  STATEMENT OF ROBERT E. DENHAM, CHAIRMAN AND CHIEF EXECUTIVE 
                  OFFICER, SALOMON BROS., INC.

    Mr. Denham. Mr. Chairman and Members of the Subcommittee, I 
very much appreciate the opportunity to discuss U.S. 
international trade policy objectives and future trade 
initiatives.
    International trade liberalization benefits U.S. workers, 
U.S. businesses, and creates markets for U.S. exports. As the 
chairman of Salomon, Inc., international economic 
liberalization and trade are integral to our strategic 
planning.
    We currently do over 50 percent of our financial service 
business aboard. Our continued growth, expansion plans, and 
ability to compete throughout the world will require new free 
trade commitments and a thorough implementation of prior 
agreements.
    It is important that our financial service competitors, 
others in international business, and the host governments of 
the countries in which we do business all play by the same 
rules.
    As the other panelists have discussed today, the United 
States has the world's most liberal and open economy. This has 
made the United States the leading economy of the world. More 
than 11 million U.S. jobs now depend on exports, 1.5 million 
more than only 4 years ago.
    Wages and jobs supported by goods in financial services 
exports are 13 to 16 percent higher than in non-trade-related 
jobs. Over the last 4 years, roughly one-fourth of our economic 
growth has come from exports. Services exports alone are up 26 
percent in the last 4 years.
    We are now at a crossroads. Our fundamental interest is in 
moving others toward markets that are as open as ours. In this 
increasingly competitive global environment, the question is no 
longer should the United States continue to seek new trade 
liberalizing initiatives. The questions are now when, with 
whom, and how should we pursue the next course of trade 
liberalizing negotiations.
    Specifically, U.S. leadership must play a key role in 
influencing regional trade pacts that are currently under 
negotiation, so as to ensure these arrangements are favorable 
to U.S. businesses and workers. We cannot afford to be left 
out.
    Recognizing the benefits of freer trade, many of our 
trading partners, especially those in our own hemisphere, have 
now started to band together forming regional trading 
arrangements, such as the common market of the South, or 
MERCOSUR, and the Andean community. This gives us a historic 
opportunity. If we join in the negotiations, we can benefit 
from the market opening that will result. Otherwise, 
negotiations will proceed without us and preferential 
arrangements available to countries that do participate will 
mean that U.S. firms will be disadvantaged. This would do 
tremendous damage to our economic future. It is no fanciful 
concern.
    The European Union right now seeks an agreement with 
MERCOSUR, the South American trade alliance that is anchored by 
Brazil and Argentina. MERCOSUR has completed an association 
agreement with Chile that provides free trade between the 
participating nations. MERCOSUR has also undertaken highly 
visible commercial initiatives toward Asia, the ASEAN nations, 
as well as Korea and Japan.
    Negotiations will begin soon between MERCOSUR and Colombia, 
Venezuela, and Mexico, countries which are eager to remove 
trade barriers faced by their competitive domestic companies.
    Even our own NAFTA partners, Canada and Mexico, have made 
side trade liberalization deals with Chile, a nation that has 
an economic outlook and profile that should qualify it to be 
the first nation to accede to NAFTA.
    Unfortunately, the United States stands to lose trade and 
investment opportunities as a result of these arrangements. If 
we do not join in, we will be at an insurmountable disadvantage 
in these markets. The United States is already seeing the 
impact of these arrangements as importers who can realize 
significant tariff savings, source their supplies from 
countries that benefit from these free trade arrangements.
    The Free Trade Area of the Americas seeks to put our firms 
on an equal playingfield within the hemisphere, but currently, 
partnerships are being formed without us. Unfortunately, even 
with NAFTA and GATT, most of the critical markets for the 
future still maintain market access barriers that can prohibit 
exports from entering.
    We have a stake in marketing opening around the world, in 
Asia, in Latin American, in the former Eastern European bloc, 
and in Africa where trade restrictions have contributed to the 
complete failure of economies. But we have special interest in 
seeing trade barriers come down in this hemisphere, where 
American firms tend to have strong market positions.
    Without a clear international trade vision, whether we want 
to or not, the United States will sit on the sidelines as 
growing regional trading pacts create increasing 
interdependence of their participating economies by lowering 
tariffs and breaking down market access barriers.
    Congress must show our partners that the United States is 
ready to move forward. This is why fast track authority is so 
essential. Without a signal from Congress, others will not take 
U.S. interest in market-opening agreements seriously.
    To conclude, trade liberalizing measures directly affect 
business, jobs, and consumers each day. The opportunities and 
protections created by the pacts, such as NAFTA and the Uruguay 
round, enable firms such as Salomon Bros. to be more globally 
competitive in committing capital and delivering financial 
services.
    I would again like to thank the Subcommittee for holding a 
hearing on this important subject, as it affects all of us as 
businesspeople, as workers, and as citizens with a stake in the 
future of our domestic economy.
    Unfortunately, we cannot count on the generosity of other 
nations to afford us access to their markets, even if they will 
gain also from freer trade. We must seek further 
liberalization. This can only come in the form of future 
negotiations by the administration with the authority granted 
by Congress.
    Thank you. I look forward to working with you in the future 
on international trade and financial services issues and 
policy.
    [The prepared statement follows:]

Statement of Robert E. Denham, Chairman and Chief Executive Officer, 
Salomon Bros., Inc.

    Thank you, Mr. Chairman and Members of the Committee. It is 
a pleasure to appear before you today. I am honored and very 
much appreciate the opportunity to discuss U.S. international 
trade policy objectives and future trade initiatives. 
International trade liberalization benefits U.S. workers, U.S. 
businesses and creates markets for U.S. exports. I would like 
to discuss today the benefits of international trade to the 
U.S. economy and U.S. jobs in general and the benefits of 
international trade in the financial services industry, in 
particular. I would also like to emphasize the importance of 
the United States in maintaining its political and economic 
role as the leader of international trade liberalization.
    Salomon Brothers ranks among the world's foremost global 
financial firms, and is one of the largest securities dealers 
in the world. Salomon Inc., the parent company for Salomon 
Brothers and Phibro. Salomon Brothers has one of the largest 
capital bases in the industry. The firm makes markets in 
securities and provides a broad range of underwriting, 
research, financial advisory and investment management services 
to governments, corporations, and institutional investors. 
Phibro is one of the world's leading commodity trading 
organizations. We are truly a global company with over 8,500 
employees located in 34 offices on five continents.
    As the Chairman of Salomon Inc., international economic 
liberalization and trade are integral to our strategic planning 
as we and our clients seek new and emerging markets for growth. 
We currently do over 50 percent of our financial services 
business abroad. Our continued growth, expansion plans and 
ability to compete throughout the world will require new free 
trade commitments and the thorough implementation of prior 
agreements to achieve a level playing field in the global 
marketplace. It is important that our financial service 
competitors, others in international business, and the host 
governments of the countries in which we do business all play 
by the same rules.
    Salomon Brothers' position in the financial system gives us 
a comprehensive view of trends in the U.S. economy and in the 
global economy. I have personally examined some trends and the 
forces driving these trends. I have observed how our capital 
goods producers depend upon investment flows to sustain demand 
for construction equipment, power generators and other products 
that are made by American workers. These investments are 
instrumental in building an infrastructure using financial, 
communications and technology services; all basic needs for 
economic growth in emerging markets and key U.S. export leading 
sectors.
    As the other distinguished panelists have discussed today, 
the United States has the world's most liberal and open 
economy. This has made the United States the leading economy of 
the world. The export and movement of capital, goods and 
services support millions of jobs in the United States. More 
than eleven million U.S. jobs now depend on exports--1.5 
million more than just four years ago. Wages in jobs supported 
by goods and financial services exports are 13 to 16% higher 
than in non trade-related jobs. Over the last four years, 
roughly one quarter of our economic growth has come from 
exports. Service exports alone are up 26% in the last four 
years.
    We are now at a crossroads. Our fundamental interest is in 
moving others toward markets that are as open as ours. In this 
increasingly competitive global environment, the question is no 
longer should the U.S. continue to seek new trade liberalizing 
initiatives. The questions are now when, with whom, and how 
should we pursue the next course of trade liberalizing 
negotiations. Specifically, U.S. leadership must play a key 
role in influencing regional trade pacts that are currently 
under negotiation. This is important to ensure that these 
arrangements are favorable to U.S. businesses and workers. We 
cannot afford to be left out.
    As this Committee is well aware, in 1993 and 1994, the 
United States was the leader in furthering global economic 
liberalization with the final passage of the North American 
Free Trade Agreement (NAFTA) and the success of the Uruguay 
Round of GATT. These major trade initiatives created a set of 
rules and obligations for the member countries to follow that 
have led to increases in our exports throughout the world. 
These exports have directly resulted in more and higher paying 
jobs for U.S. workers.
    Recognizing the benefits of freer trade, many of our 
trading partners, especially those in our own hemisphere, have 
now started to band together to form regional trading 
arrangements such as the Common Market of the South (Mercosur) 
and the Andean Community. This gives us an historic 
opportunity. If we join in negotiations, we can then benefit 
from the market opening that will result. Otherwise, the 
negotiations will proceed without us and preferential 
arrangements available to countries that do participate will 
mean that U.S. firms are disadvantaged. This would do 
tremendous damage to our economic future. It is no fanciful 
concern.
    The United States continues to strengthen its trading 
relationship with our trading partners around the world. These 
partnerships include specific initiatives in the Western 
Hemisphere with the Free Trade Area of the Americas (FTAA) and 
in Asia with the Asia Pacific Economic Cooperation (APEC) 
forum. Without clear international trade policy goals and a 
clear road map, we will at best be a follower of the 
considerable progress being made by other nations through new 
regional trade initiatives.
    The European Union right now seeks membership in MERCOSUR, 
the South American trade alliance anchored by Brazil and 
Argentina. MERCOSUR has completed an association agreement with 
Chile that provides free trade between the participating 
nations. MERCOSUR has also undertaken highly visible commercial 
initiatives towards Asia--the ASEAN nations as well as Korea 
and Japan. Negotiations will begin soon between MERCOSUR and 
Colombia, Venezuela and Mexico--countries which are eager to 
remove trade barriers faced by their competitive domestic 
companies. Even our own NAFTA partners, Canada and Mexico, have 
made side trade liberalization deals with Chile--a nation with 
an economic outlook and profile that should qualify it to be 
the first nation to accede to NAFTA.
    Unfortunately, the United States stands to lose trade and 
investment opportunities as a result of these arrangements. If 
we do not join in, we will be at an insurmountable disadvantage 
in these markets. The U.S. is already seeing the impact of 
these arrangements as importers who can realize significant 
tariff savings source their supplies from countries that 
benefit from these free trade agreements. The FTAA seeks to put 
our firms on an equal playing field within the hemisphere, but 
currently, important partnerships are being formed without us.
    The vision for APEC includes a long time frame for 
achieving new market-opening initiatives in the region. This 
region is a challenge because of the countries' disparate 
sizes, prosperity and disposition toward trade liberalization, 
but the size and rapid growth rate of the region make it 
extremely important to our economic future. It is thus 
particularly important that the United States remain the leader 
in setting the trade liberalization rules for this important 
region.
    In 1996, President Clinton appointed me to the APEC 
Business Advisory Council (ABAC). ABAC is comprised of senior 
business leaders from the APEC economies reporting to the Asia-
Pacific Economic Cooperation forum. The APEC economic ministers 
asked for the creation of the ABAC in 1995 to advise and make 
recommendations to the APEC economic leaders. Last year, ABAC 
made recommendations to the APEC leaders in Manila. This year 
recommendations will similarly be made at the APEC summit in 
Vancouver, British Columbia. The ABAC recommendations focused 
on investment measures needed to liberalize cross-border 
investment flows and to accelerate the implementation of member 
economies' commitments under the General Agreement on Trade in 
Services (GATS) and the Agreement on Trade-Related Investment 
Measures (TRIMs).
    My experiences in Asia as a member of ABAC along with the 
expansion of Salomon Brothers into the emerging marketplaces of 
Asia and Latin America have demonstrated to me the importance 
of pursuing market-opening initiatives on behalf of United 
States workers and U.S. goods.
    The General Agreement on Trade in Services (GATS) and the 
Agreement on Trade-Related Investment Measures (TRIMs) in the 
Uruguay Round have alleviated many of the major trading and 
business impediments of the past. Because of these pacts and 
the fact that the United States has the lowest tariffs and 
market-access barriers in the world, foreign direct investment 
now accounts for nearly six percent of total private direct 
investment in the United States, at slightly over $60 billion 
in 1995.
    Foreign direct investment in the United States and abroad 
is one of the greatest sources of cross border international 
trade today. It has become imperative to encourage foreign 
direct investment if we are to pursue market-opening 
initiatives on behalf of United States workers and to further 
continued increases in U.S. exports. Foreign direct investment 
in our economy is an essential element for strengthening growth 
and improving living standards in the United States.
    The United States was the world's largest recipient of 
foreign direct investment in 1995 at slightly over $60 billion, 
which is nearly one-fifth of the world total foreign direct 
investment of $315 billion. Foreign direct investment is 
important for U.S. jobs--nearly 4.9 million jobs were provided 
by non-bank affiliates of foreign companies in the United 
States during 1994, the latest year for which data is 
available. Foreign direct investment in the United State was 
more than 60 percent greater than the world's second largest 
recipient of foreign direct investment, China ($37 billion).
    Unfortunately, even with NAFTA and GATT, most of the 
critical markets for the future still maintain market-access 
barriers that can prohibit exports from entering. We have a 
stake in market opening around the world--in Asia, in Latin 
America, in the former Eastern European bloc, and in Africa, 
where trade restrictions have contributed to the complete 
failure of economies. But we have special interests in seeing 
trade barriers come down in this hemisphere, where American 
firms tend to have strong market positions.
    Without a clear international trade vision, whether we want 
to or not, the United States will sit on the sidelines as 
growing regional trading pacts create increasing 
interdependence of their participating economies by lowering 
tariffs and breaking down market-access barriers. Congress must 
show our partners that the United States is ready to move 
forward. This is why fast track authority is so essential. 
Without a signal from Congress, others will not take U.S. 
interest in market opening agreements seriously.
    To conclude, trade liberalizing measures directly affect 
business, jobs, and consumers each day. The opportunities and 
protections created by the pacts such as NAFTA and the Uruguay 
Round enable firms such as Salomon Brothers to be more globally 
competitive in committing capital and delivering financial 
services.
    I would again like to thank the Committee for holding a 
hearing on this important subject, as it affects all of us as 
business people, as workers, and as citizens with a stake in 
the future of our domestic economy. Unfortunately, we cannot 
count on the generosity of other nations to afford us access to 
their markets even if they will gain from freer trade. We must 
seek further liberalization and this can only come in the form 
of future negotiations by the Administration with authority 
granted by Congress.
    Thank you and I look forward to working with you in the 
future on international trade and financial services issues and 
policy.
      

                                

    Chairman Crane. Thank you, Mr. Denham.
    Mr. Pepper, we got this piece about making Pringles in the 
various locations. Do you export Pringles outside of the 
country?
    Mr. Pepper. Yes, we do. About one-third of our current 
production goes outside the country, and as I indicated, we are 
expanding our Jackson, Tennessee, facility with a $185 million 
investment. We will be hiring 200 more people. We only produce 
Pringles in two places in the world right now, most of it in 
Jackson, Tennessee, and some of it in Mechelen, Belgium. We are 
essentially doubling capacity in Jackson, the great bulk of 
that to be shipped all around the world.
    Chairman Crane. But you indicate on this brochure the 
various towns and companies that participate in the production 
of Pringles, including one in my home State of Illinois. It is 
located in Herrin, a small town down State, and there, the 
enrollment in the Herrin plant is 130. Some of these, one in 
Kansas City is 25. Others are in the hundreds, exclusive of the 
potato growers, but they are also parts of--some of them--large 
corporations hiring as many as 19,000 people, while one, 
International Paper, 70,000.
    Let me ask you a question. If the Trade Subcommittee--and I 
ask this of all of you, but, Mr. Pepper, I would like to hear 
from you first--if we visited Kansas City, Missouri, and toured 
the Omega Plastics plant with the 25 enrollment in Kansas City 
in production of Pringles and asked trade questions, would the 
employees know their role in production of Pringles for export 
in the world markets?
    Mr. Pepper. I have not been there, but I am certain they 
would. They are seeing the growth of this business. They know 
that a large part of it is coming from outside the country.
    The reason I particularly wanted to show this to you is 
because it is often said these trade pacts are good just for 
big business. People can look at a can like Pringles and think, 
Procter & Gamble produces this without seeing all the 
suppliers, a thousand farmers, and all the truckers who support 
us in our business.
    The cap you mentioned is being produced at Omega Plastics. 
We are producing a half a billion of those little caps each 
year by the 25 people at Omega Plastics and the 200 people at 
Plastic Enterprises in Missouri. I think a lot of people don't 
realize all the other businesses, the smaller businesses that 
are benefiting and depend upon the expansion of trade in just 
one product like this.
    Chairman Crane. Well, I asked the question, and I will ask 
all of you to respond, too, only because one of the concerns I 
have experienced back home, and I am sure my colleagues, many 
of them, have, too, is when you start to talk about trade at a 
town meeting, you put the people to sleep. Yet, Illinois, my 
home State, is the fifth largest export State in the Nation, 
and we are the fourth largest exporter to Mexico, and our 
exports went up 35 percent last year, to Mexico alone. Yet, the 
worrisome thing is whether the employees in these businesses--
and most of them are small businesses--understand the 
importance of trade to their jobs. These companies are not 
giants. Most of them, by far, are businesses that have 500 or 
fewer employees, and something I have been trying to get across 
to chief executive officers for some time is to make sure your 
employees know the essentiality of expanding market access 
beyond our borders. This is vital to our economy.
    I am curious whether you have an unrelenting program of 
communication going with employees around the country.
    Mr. Gorman. I might respond to that. About 50 percent of 
our total costs are purchased goods costs. In all of our 
automotive products, we export steering gears, rack and pinion 
power steering gears out of Tennessee to Wolfsburg, Germany, to 
be put on Volkswagens. We have virtually 100 percent of their 
rack and pinion steering gear business worldwide, and 50 
percent of that steering gear comes from smaller suppliers to 
TRW, including the basic raw steel, but many of the parts, 
formed parts, as well.
    We work very hard at educating our employees regarding the 
customer that they are servicing, and indeed, when we sent out 
paychecks to our employees, it says brought to you by TRW's 
customers, and we tell our employees if the product is going to 
Tokyo to be put on a Toyota or if it is going to Germany to be 
put on a Volkswagen. There is a great deal of export in all of 
our products.
    Chairman Crane. Mr. Jordan, do you have any comments?
    Mr. Jordan. Yes. While we have done quite a bit of that, 
certainly, in our company and some of our supplier companies, I 
think it is an area that probably could be mined much more 
intensively. I say that in terms of some of the debates that 
have arisen on U.S. trade sanctions, whereby people think there 
is no cost to our economy or to workers from voting for these.
    I think we need to strengthen within the business community 
and among employees regarding the costs of lost business from 
trade sanctions. We lost one-third of our work force in the 
nuclear business, but that will cascade to probably five times 
that, 15,000 or 20,000 jobs lost throughout the country.
    One of the issues we need to press very strongly is 
increasing export awareness in the work force and not just with 
the supplier company management. That is an area in which we 
should put stronger efforts, and is one of the initiatives that 
we have discussed within the business community.
    Chairman Crane. Mr. Denham.
    Mr. Denham. Mr. Chairman, I think you are raising a very 
important issue. I do believe that as the world's economies 
become more globally connected, it gets increasingly obvious to 
workers just how connected their jobs are to liberalization.
    In our business, it is not just the investment bankers in 
New York who are flying around the world and perceive their 
connection to the global economy, but we have about 400 people 
working in Tampa that handle the clearing and settlement, the 
processing of transactions that we do around the world.
    We operate that facility 24 hours a day because they are 
working with all time zones around the world. They are working 
real time with transactions around the world.
    They are traveling to Mexico, to Brazil, to other countries 
to deal with settlement and processing problems that get 
created.
    I know that our clients, when I meet with them to talk 
about capital raising, a few years ago, they were interested 
mostly in distribution capability in the United States, how 
well can we distribute securities in the United States. Today, 
of course, they are interested in that, but they want to know 
about our Asian distribution. They want to know about our 
European distribution.
    The concern that you have is a good one, but it is being 
addressed, I think, as these connections become increasingly 
obvious.
    Chairman Crane. As you are aware, Mr. Denham, there were 
some politicians in the last cycle who endeavored--well, the 
cycle before, too--to establish a linkage between NAFTA and the 
peso devaluation in Mexico. Had there not been a NAFTA 
Agreement preceding that peso devaluation, what in your 
estimation would have been the consequence?
    Mr. Denham. I believe we were very fortunate when the 
Mexican economic problems arose that we could deal with them in 
the context of a NAFTA. Because of NAFTA, the United States 
stake in the Mexican issue was more obvious. I think that 
encouraged more rapid action by the United States, so that we 
dealt with the problem before it became much more critical.
    It also is clear that the Mexican economy has been able to 
adjust much more rapidly to their changed economic 
circumstances because of NAFTA. The Mexican economy has been 
much more flexible. So the recovery time has been much, much 
more rapid than it would otherwise have been.
    There are some things in the world you can change, and 
there are some things you can't change. One thing you can't 
change is that border with Mexico. They are going to be our 
neighbors for a long time, and an ability to cause more 
flexible economic adjustment when that economy gets into 
trouble is extremely valuable to our economic interest and our 
political interest in the United States.
    Chairman Crane. I don't know whether you were at Salomon 
Bros. back with the peso devaluation in 1982, but that took us, 
my recollection is, almost 5 years before we recovered. Here, 
to be sure, we suffered a setback in 1995, but by 1996, our 
exports were surging again. It is not that we don't have a 
negative trade balance with Mexico, but if all of a sudden all 
the people only have 50 cents on the dollar left in their 
pockets, their consumption rates are going to be scaled back 
somewhat.
    Well, I appreciate everything you have contributed, and I 
would like to yield now to our distinguished colleague, Mr. 
Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Before I ask the gentlemen questions, I know this morning 
you very properly acknowledged Sam Gibbons, the Chairman of the 
Committee and Chairman of the Trade Subcommittee for about 14 
years, and the gentlemen here that are testifying, I just might 
mention that Mr. Gibbons is over to my left over here. He has 
been one of the ardent supporters of free trade over the years 
and probably one of the leaders in the Congress over the past 
decade and a half.
    [Applause.]
    Mr. Matsui. Today was the first day, I believe, since you 
have retired that you have testified before our Subcommittee. 
Is that right?
    Mr. Gibbons. Yes, it is, and I will come back any time you 
want.
    Mr. Matsui. Let me thank the four of you for your 
testimony.
    I might just follow up on what Chairman Crane has said, Mr. 
Denham. I think that, frankly, if we did not stabilize the 
peso, that is the President along with the Treasury Secretary, 
Mr. Rubin, and the United States stabilize the peso, we could 
have seen a free-fall of the peso, and that could have affected 
investments elsewhere throughout the world, particularly in 
emerging countries such as the Eastern European countries at 
the time. I think that was a very critical decisions that, 
obviously, the President and the Treasury Secretary did make 
back in 1995, I guess, January 1995.
    You are absolutely correct. If it were not for the NAFTA, I 
don't believe we would have been able to get in there and work 
with the Mexicans as we were able to.
    I am just going to make a few observations, besides 
thanking you. I think Chairman Crane said it. He said most 
constituents begin to fall asleep when they hear discussion on 
trade issues, and I find that to be the case as well, but I 
also find it to be even more of a case when we talk about fast 
track because it is a procedural issue, one that doesn't really 
have any tangible results. So, for that reason, I particularly 
appreciate the fact that the four of you are here talking about 
fast track, and it is my hope that from this hearing we will be 
able to inform more of the public and also many of the 
companies, the chief executive officers, and the employees of 
the companies how important fast track is.
    Again, it is not tangible in the sense that the most-
favored-nation status for China is or the issue of the NAFTA, 
Canadian Free Trade Agreement, because you can see tangible 
results should they become law, but when you talk about fast 
track, it seems years and years away before anything might 
happen.
    I had breakfast one morning with the chief executive 
officer of a major company in California. He had not talked 
about fast track. We talked about a few other trade issues, and 
I suggested to him that fast track should be high on our 
agenda. He said, Well, I am assuming fast track would pass, and 
I said, Well, I am not too sure, I think we have some work to 
do. He paused for a moment, and he said, I can't imagine what 
would happen if we didn't have fast track, it would be 
horrendous, and I think all of us feel that way. We always 
assume we are going to get it, but we haven't had it for the 
last 2 years.
    I suppose if we can't put it together this year, if we 
don't get the right political support for it, we could have a 
problem this year as well. Then I am afraid in 1998, 1999, and 
the year 2000, being either congressional races or Presidential 
races, it might not be possible at all. I really hope we can 
really focus on fast track over the next 4 or 5 months because, 
in order to get a majority of votes, both the House and the 
Senate, and send it to the President, it is going to take a 
great deal of effort on all of our parts.
    That leads me to the second observation, and that is, I 
hope and I know the business community intends to be--and I 
know that my colleagues on both sides of the aisle tend to be--
flexible on the issue of labor and the environment, and I know 
that raises major problems and concerns on both sides, whether 
they are environmentalists or organized labor or the business 
side on the other hand. But if we really want to get fast track 
this year, I think everybody will have to be reasonably 
flexible in order to achieve the kind of results we want, 
because the goal is to get this process so the President will 
have a negotiating tool.
    Some of the side issues, such as labor and the environment, 
are important, but on the other hand, it pales compared to the 
issue of having that ability to negotiate with many of our 
trading partners.
    Last, I would like to just make the final observation that 
whatever we do will have to be bipartisan. I think we have been 
so critical in the area of trade policy in the United States 
because we have been bipartisan, we have been so successful, I 
should say, because it always has been bipartisan, and if we 
have one party passing the legislation with the other party and 
the loyal opposition, a consensus will be lacking, and every 
time the President attempts to negotiate a new agreement under 
the fast track, you will hear the party that didn't vote for 
fast track complain. Obviously, we don't want that kind of 
result.
    I think a lack of a national consensus would result in, 
perhaps, an erosion in the U.S. support for free and open 
trade, as time goes on.
    It is my hope that we can be flexible and also have a 
bipartisan consensus, and it really will take leadership in the 
private sector to achieve, that among others as well, but 
particularly in the private sector because, undoubtedly, we 
look to you for the real leadership on the whole issue of 
international trade.
    I want to thank you for your testimony and thank you for 
your leadership in this area, one which will not show tangible 
results overnight to all of you, but in the long term will 
probably be one of the most important issues we will take up in 
this Congress.
    Thank you.
    Chairman Crane. Thank you.
    Mr. Houghton.
    Mr. Houghton. Thank you, Mr. Chairman. Thank you, 
gentlemen.
    I don't think I have anything profound to say. I would 
probably echo many of the things which Chairman Crane and Mr. 
Matsui have mentioned, but the fact is, there are only four of 
us here, and maybe we represent in total a little less than 3 
million people. There are a lot of people out there who are 
getting different vibes.
    Now, we can tell all the horror stories. We can say what we 
ought to do, what we should do, and so forth. The question is, 
What do we do, because it seems to me it is almost a little bit 
like the story with technology.
    I remember the company which I used to be associated with. 
Technology was a threat to employment. It took away jobs, and 
it was a very great learning process. The same thing is in 
terms of export business. You understand that the wage rates 
are higher. You understand that exports are important, but you 
think it is a basic threat to the employment in this country. 
That somehow must be changed.
    I think there are three areas here. First of all is the 
administration, and I think we ought to really understand that 
somehow we have got to do this thing together, and I would 
appreciate your reactions here.
    The administration is being led, I really think, by 
Ambassador Barshefsky doing a terrific job. I don't see the 
real commitment to the administration to this thing, really 
laying down some political lines, and I think you can help 
there.
    The other thing is in terms of labor. When you talk to 
labor leaders, many times they understand this, but they are so 
committed and they have been so out on the line that it is very 
difficult for them to contract, but long term, this is going to 
benefit their position if they can find some way of getting off 
that springboard.
    Then the third area, I think, is our own cohorts. There are 
people who really believe in the Ross Perot or Pat Buchanan 
approach to this thing. It is better to pull back and look 
inward rather than looking outward and looking at a world which 
is going to exist in 10 years rather than the one that existed 
in 1987.
    It seems to me that it is what we do about it. It is not 
the issue. We know what the issue is. All of us agree with 
this. How do we work together on this thing? The 
administration, the labor unions, and also our own associates. 
You have plans in different areas that have different 
representatives. What can you do? What can we do to help you? 
This must be a joint effort because somehow, some way, we are 
not cracking this thing the way we should.
    I would doubt--and I don't know whether my colleagues would 
agree--that NAFTA would pass today. It is that serious. Yet, we 
know that the single most important thing with all our 
international trade relationships is to pass fast track. 
Everything else pales in comparison, and how do we get that 
done? Maybe you would have some reactions.
    Mr. Gorman. May I comment from a Business Roundtable point 
of view. Again, representing over 200 companies that make up 
the membership of the Business Roundtable, we have recognized 
this year that one of our most important tasks, indeed, has to 
do with educating and making the general public, as well as our 
key constituents, aware of the importance of free and open 
trade, and not only in connection with our exports and in 
connection with NAFTA-type agreements, but also in terms of 
opening markets that still, in many ways, are closed around the 
globe, opening those markets to our companies and to the 
workers involved in those companies. So what we have done is 
put together, under my committee at the Business Roundtable, a 
task force that is working hard to educate, on the one hand, 
all the key constituent groups of our companies, that is to 
say, our employees, our customers, our suppliers, our local 
communities in which we operate and the like.
    Indeed, we have recruited George Fisher of Kodak, the 
chairman of Kodak, to lead that effort, and we have had over 
100 companies sign up to do that, learning how to send out 
publications, how to hold seminars, how to send out mailings in 
support of the kind of trade efforts that we support.
    We have also asked Phil Condit of Boeing, and he has 
graciously agreed, to lead the task force that educates the 
general public, trade associations, Members of Congress, of 
course, as well as administration officials, and in addition to 
the general public.
    We have got a massive effort underway with 107 or so 
companies signed up, and we are adding companies every week to 
that. I think you can count on our help there.
    We paid a visit to the Hill not long ago. We had 28 
separate visits on that 1 day, again, trying to get the trade 
message out. We work hard for all of you and with all of you on 
bringing this about.
    Mr. Pepper. I would like to make a couple of comments on 
this point. I think as we talk free and open trade, there is a 
real danger of this being here they come again, an old record. 
As you say, people go to sleep.
    To me, there are two real differences in what we are 
talking about today versus the past. Free and open trade has 
always been right, and it has been an opportunity. What is 
realized today is that other people have caught onto trade, and 
not doing it has become a bona fide threat. I really mean that, 
and particularly in Latin America.
    If we aren't part of these free trade agreements, we are 
going to lose big. It will be much worse, in my judgement, over 
the next 5 years than in the previous three. Why do I say that? 
Massive foreign investments are being made in Brazil and 
Argentina. There will be huge production bases there, and if 
the trade barriers are not as favorable for the United States 
as within that unit, this difference I just cited of 40 percent 
growth there, 20 percent for us, is going to become even 
larger.
    The tenor of the conversation is wrong. People can say it 
is the same message as before, but it isn't. The first 
difference is there is a threat here. We must do it because 
other countries are, and that wasn't the case before, certainly 
not in Latin America.
    The second difference is we are having a harder time 
showing this is good. I don't think people are looking at the 
facts behind NAFTA in Canada and Mexico accurately. In our 
business, we live and die by market share. We have built a 
share of exports into Mexico.
    Mr. Houghton. John, could I interrupt just 1 minute? We all 
agree with you. We all agree. We are all on the same time. The 
question is how do we get it done, and it seems to me there are 
two phrases, ``export jobs'' and ``fast track.''
    There is a terrific competitive problem with MERCOSUR, and 
if we don't get fast track, there is a chance we could be 
frozen out of that South American market.
    Now, that is sort of an intellectual argument for somebody 
who is working in the steel mill or a glass plant or something 
like that, but if we could link more jobs, better paying jobs, 
export jobs with this one issue in fast track and drive it home 
to a lot of our constituents, those are the things that we have 
got to do, and right now, because if we miss this window, we 
may not have it again.
    Mr. Pepper. I agree with you, but as you said, the 
administration doesn't seem to have it as a high priority. 
There are only four Members in this room right now.
    I spent 2 days preparing for this hearing, and we are 
activating an education program to our employees. We need to 
get to suppliers better, as the Chairman indicated, but I would 
agree that you and your associates also have a role to play in 
this. If this is as high a priority as we are talking, this is 
guts ball.
    Mr. Houghton. And we agree.
    Chairman Crane. Mr. Portman.
    Mr. Portman. I am going to pile on here, preaching to the 
choir, but let me just focus on two aspects of it because, as 
you all were giving your testimony, of course, this is what 
came to mind, what the Chairman mentioned. Bob Matsui, I heard 
your comments. I had to step out for a moment, but I couldn't 
agree with you more than fast track is critical and we need to 
get the business community to work in a closer partnership with 
those of us who are free trade oriented.
    I think John Pepper may be on to something, and that is 
this notion of appealing to American competitiveness and the 
spirit of competitiveness; that it is not just us opening 
foreign markets and expanding trade, as we did argue so, I 
think persuasively finally with regard to Mexico, but it is 
this notion that if we don't get in there, someone else is.
    Having been down in Chile with the Chairman and a Trade 
Subcommittee group and being in some of the MERCOSUR countries, 
Argentina in particular, it is clear to me that between the EU 
and the Japanese, we are getting pushed out.
    One specific suggestion I would make is that companies like 
Procter and other companies represented here today--I don't 
know if General Electric could have stories like this in the 
MERCOSUR countries, but could come up with specific stories of 
actually losing market share.
    I know this has to do with investment, as well as exports, 
but I assume the liberalization of investment law is causing 
you problems down there. You say you live and die by the market 
share. You all do, even all of the Salomon Bros. clients and 
others who are being forced out of markets or at least their 
market share is being reduced because of more liberal 
arrangements with other countries, the Europeans, the Japanese, 
and others.
    I think we need to appeal to that a little bit and get 
those competitive juices flowing, and then the second one I 
think we need to continue to hammer on is open markets. This is 
not about losing jobs to foreign countries. This is about 
changing the imbalance.
    We had a great argument with that with Mexico because we 
had the 3 or 4 to 1 imbalance, but their tariff barriers are 
much higher than ours. Our country is relatively open already. 
We allow people to trade freely here with a few exceptions, 
some of those we are trying to knock down still, but it is 
really about just leveling that playingfield, but let me ask a 
specific question, if I could, to the group with regard to the 
WTO and the new Uruguay round arrangements with regard to 
dispute settlement.
    I am, to be frank, very hopeful about the new dispute 
settlement procedure. I know we are going to have a banana 
decision maybe momentarily, Mr. Chairman. I don't know. Maybe 
today, maybe tomorrow. I don't know how it is going to come 
out, but I feel as though it will probably be in our interest, 
to the United States interest, not just to the banana 
producers, but I think it is going to be a liberalizing effect 
because it is binding, and in the past, you used to be able to 
block these decisions, but on the other hand, some have 
argued--and at my town meetings, Mr. Chairman, they don't fall 
asleep. They usually take me on, on trade and tell me that we 
are exporting jobs and it is so terrible, but I have heard the 
argument that this new dispute settlement technique methodology 
and procedure, because it is so expedited, has caused some U.S. 
companies some disadvantage, and also, of course, the fact that 
it is binding might come back to haunt us as U.S. exporters.
    Do any of the panelists have thoughts on the new WTO 
dispute settlement mechanism?
    Mr. Jordan. Let me just make one comment. We have been 
introduced to some of the dispute settlement mechanisms in 
NAFTA which are quicker than previous dispute settlement 
mechanisms. It is clear that the strengthening of the WTO as an 
institutional body is very important and that we have to learn 
to live with the negatives, as well as the positives.
    The Buchanan, sort of Perot argument, fails to recognize 
that the reason this country has the most vibrant economy in 
the world is simply because we were exposed to greater 
competitive forces than was any other place, including Japan 
and the European Community. We have grown employment--grown 
high-tech employment and high-pay employment--because we have 
succeeded in becoming more competitive.
    I think we in this country have to learn that we lose some 
of these disputes when they go to settlement. We as a country 
have survived and prospered since the seventies because we have 
become much more competitive. Having the most open economy, it 
has actually done the best of any economy in the world. I think 
that is a message that is often lost in the debate with 
Fortress America groups, but it is one that is very, very 
important. The statistics all show that our work force has 
become more educated and our economy more productive.
    Mr. Portman. Do you link that back to the WTO dispute 
settlement?
    Mr. Jordan. I think that is a positive.
    Mr. Portman. You think that is a positive because it will 
result in competition, plus protection?
    Mr. Jordan. It will result in a faster resolution of issues 
and help ensure that we are competitive in any market. We can 
compete in any market in the world. Yes, sometimes there is 
something in our system that inhibits foreign competitors, 
however, I think we are going to win in dispute settlements 
much more often than not.
    Mr. Portman. Mr. Gorman, do you have thoughts on that?
    Mr. Gorman. I would comment briefly. I do believe that a 
strengthened WTO is very important in terms of making certain 
we have a comprehensive, transparent, predictable, open, common 
trading practice around the globe.
    I think it will help us, including the dispute resolutions 
in Asia, where we have particular bilateral issues, and it does 
not preclude our continuing to work some of our most 
frustrating problems in a bilateral fashion.
    I think, on balance, while there are tradeoffs, there is no 
question it is a favorable development.
    Mr. Portman. Mr. Denham.
    Mr. Denham. I think you won't find many businessmen who are 
troubled by a speedy dispute resolution system. As fast as 
business changes today, unless disputes are resolved quickly, 
the resolution is likely to be fairly irrelevant when it comes. 
I think most businesspeople very much favor seeing disputes 
resolved through a mechanism that is very speedy, and as people 
have said, sometimes we will win, sometimes we will lose. 
Sometimes we will deserve to lose, and sometimes we will 
deserve to win, and the real question about WTO dispute 
resolution mechanisms will be do they provide a fair process so 
that we win those that we deserve to win and only lose those 
that we deserve to lose.
    Mr. Portman. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crane. Well, gentlemen, I want to express again my 
appreciation for your willingness to give up your time so 
generously. I am sorry we did not have a bigger turnout for 
your presentations because you all have perceptions and 
understandings that vastly transcend what those of us who serve 
on this Subcommittee have, but we will appreciate getting input 
from you on a continuing basis, and any way in which we can 
more constructively try and get the message out, please don't 
hesitate to let us know that, too. We appreciate what you have 
done. With that, I thank you for your time and effort.
    Our next panel of witnesses include Bruce Cowen, president 
of TRC Companies, on behalf of the U.S. Chamber of Commerce; 
Daniel Seligman, senior fellow of the Sierra Club's responsible 
trade campaign; Alan Holmer, president of the Pharmaceutical 
Research and Manufacturers of America; and Lori Wallach, 
director of Global Trade Watch, Public Citizen.
    Again, let me ask you please to try and confine your oral 
presentations to no more than 5 minutes, but any written 
printed documents you may have will be made a part of the 
permanent record.
    With that, we will proceed in the order I introduced you: 
Bruce Cowen, Daniel Seligman, Alan Holmer, and Lori Wallach.

STATEMENT OF BRUCE D. COWEN, PRESIDENT, TRC COMPANIES, INC.; ON 
               BEHALF OF U.S. CHAMBER OF COMMERCE

    Mr. Cowen. Mr. Chairman, I am Bruce Cowen, president of TRC 
Companies, Inc., a U.S.-based international environmental 
engineering consulting company, headquartered in Windsor, 
Connecticut. I am pleased to testify before you today on behalf 
of the U.S. Chamber on whose board of directors I sit.
    TRC is a publicly owned company traded on the New York 
Stock Exchange, with 20 offices throughout the United States 
and offices in Chile and Poland. TRC currently employs 
approximately 650 employees, and we operate as a small business 
and consider ourselves a small business.
    For over 30 years, we have been serving our clients by 
providing engineered solutions to complex environmental 
problems, including air quality, hazardous and solid waste 
management, remediation, and water and waste water treatment.
    TRC currently has active projects outside the United States 
in Argentina, Chile, Colombia, Guatemala, Mexico, Peru, Poland, 
and South Korea, among others. We are a relatively small U.S. 
firm, active in global markets.
    We are creating and implementing solutions to environmental 
problems in the developing world, and we are employing U.S. 
workers in the process. There is no question that a more 
liberal trade environment with a more level playingfield will 
permit us to do more, but from the broader U.S. business 
perspective, the U.S. economy is heavily and increasingly 
dependent on international trade for business and jobs.
    U.S. trade has grown much faster than the U.S. gross 
domestic product over the last few decades. Therefore, we must 
elevate our attention to trade issues to a level commensurate 
with trades importance.
    Congress and the executive branch should work together to 
accomplish several U.S. trade policy objectives this year. They 
include, number one, reauthorization of trade agreement 
negotiations. Speedy renewal of fast track trade-negotiating 
authority without linkage to social agenda objectives is 
critical to preservation of U.S. leadership in world economic 
affairs. Once granted, fast track authority should be used to 
negotiate mutually beneficial agreements in the Western 
Hemisphere and elsewhere. The price for fast track must also 
include regular good-faith consultation with Congress and the 
private sector.
    Number two, continuation of normal China-United States 
commercial relations. Ending China's MFN status will not 
advance United States interest, but it will assure less United 
States influence in that huge and rapidly growing market, as 
well as new commercial advantages for our competitors who are 
not contemplating similar action.
    Number three, elimination of unilateral U.S. economic 
sanctions. Such sanctions almost invariably produce the same 
adverse results, further isolation of U.S. foreign policy, 
reinforced rather than weakened hostile regimes, and reduced 
economic opportunity for U.S. firms and their workers who lose 
markets to foreign competitors whose governments do not impose 
such restrictions.
    Number four, leadership in World Trade Organization 
accession issues. China and Russia have begun to embrace market 
principles relatively recently and with very different results. 
Given their potential for growth, both economies should 
demonstrate their commitment to the world trading system with 
market-orientated policies and acceptance of WTO discipline.
    Number five, reauthorization of trade development programs. 
In an ideal world, the government would play a very limited 
role in global commerce. However, the realities of the global 
mixed economy require the U.S. Government to support its 
private sector against foreign government-backed competition to 
maintain as level a playingfield as we can.
    I want to thank you, Mr. Chairman and Members of the 
Subcommittee. I will be happy to take questions from the 
Subcommittee.
    [The prepared statement follows:]

Statement of Bruce D. Cowen, President, TRC Companies, Inc.; on Behalf 
of U.S. Chamber of Commerce

    Mr. Chairman, I am Bruce Cowen, a member of the U.S. 
Chamber's Board of Directors and its International Policy 
Committee. I am also President of TRC Companies, Inc. in 
Windsor, Connecticut. TRC is a 650-employee international 
environmental engineering and consulting company operating here 
in the U.S. as well as in Latin America, Central Europe and 
elsewhere. TRC has over 30 years of in-depth, environmental 
problem-solving experience and is recognized for its expertise 
in a wide range of air quality and waste management problems, 
as well as regulatory compliance, pollution prevention and 
control and strategic environmental planning. It is on the 
Chamber's behalf that I am testifying today.
    As you suggest in your hearing advisory, a maturing U.S. 
economy and an increasingly dynamic and competitive global 
economy demand U.S. engagement and leadership as never before. 
The U.S. economy is heavily and increasingly dependent on 
international trade for business and jobs. Trade's share of 
U.S. GDP grew from 13% in 1970 to 30% by 1995. Between 1985 and 
1994, U.S. exports rose 112% while U.S. GDP only increased 25%. 
According to a 1996 study by the Institute for International 
Economics, during that same period, exports generated one-third 
of America's economic growth and about 5 million new jobs. U.S. 
firms which export have greater productivity and wages that are 
20% and 15% higher, respectively, and are 9% less likely to go 
out of business in an average year. And these companies also 
experience almost 20% faster employment growth than those who 
never exported or ceased exporting.
    As other economies grow more rapidly than our own, our own 
influence in global markets will diminish, even as we grow in 
absolute terms. For this reason, the U.S. national interest 
requires a renewed emphasis on efforts to attain a level 
playing field for U.S. business in global markets. In pursuing 
this level playing field, the U.S. must:
     negotiate and enforce trade agreements that 
require the reduction or elimination of unfair foreign trade 
barriers and distortions;
     use access to the U.S. market as leverage to 
obtain access to foreign markets;
     enforce U.S. trade laws to remedy the adverse 
effects of foreign dumping, subsidization and other unfair 
trade practices;
     provide appropriate export development services 
and advocacy to counter foreign government-supported 
competitors; and
     limit the imposition of export and other trade 
controls to those absolutely necessary to achieve legitimate 
U.S. national security objectives.
    None of these goals are new. All of them have been codified 
or otherwise established in one form or another over many 
years. However, in some cases, statutory authority to continue 
their pursuit has lapsed, while in other cases, new challenges 
require new tactics and strategies. In either case, to 
accomplish these ends, the U.S. must seek in earnest several 
key objectives over the next few years and commence action on 
them this year. They include:
     Reauthorization of trade agreement negotiations. 
Fast-track trade negotiating authority expired in 1993, which 
means negotiating initiatives launched after that time will not 
receive the benefit of fast-track consideration unless Congress 
expressly renews such authority. Speedy renewal of fast-track 
trade negotiating authority without linkage to social agenda 
objectives is critical to preservation of U.S. leadership in 
world economic affairs. Once granted, fast-track authority 
should be used to negotiate new trade and investment agreements 
in the western hemisphere and other areas. In particular, 
creation of a ``Free Trade Area of the Americas'' (FTAA) by 
2005 remains an invaluable opportunity for the United States to 
consolidate its trade leadership in an economically vibrant 
hemisphere of over 725 million consumers. Yet, while we sit on 
the sidelines, other western hemisphere nations continue to 
negotiate market-opening agreements within the region, such as 
Chile's free trade agreement with the Mercosur countries. Both 
the Mercosur region and Mexico are also negotiating with the 
European Union and Asian nations. Absent U.S. engagement and 
leadership in negotiating market-opening agreements in the 
western hemisphere, American companies are at real risk of 
being denied access to commercial advantages that are being 
granted to non-U.S. companies.
    The price for fast-track must include regular, good-faith 
consultation with Congress and the private sector. Fast-track 
does not mean abdication of Congressional prerogatives, as it 
entails waiving Congressional rules and can be revoked at any 
time, with or without Presidential objection, by either the 
House or Senate.
     Continuation of ``normal'' China-U.S. commercial 
relations. China's ``most-favored-nation'' (MFN) status has 
been subject to annual review by Congress every year since 
1989. Later this spring, Congress will again consider whether 
or not to maintain China's MFN status. It is critical that 
Congress ensure its continuation, preferably through permanent 
renewal. So-called MFN status (which is a misnomer in that 
virtually all nations enjoy it) constitutes the basic fabric of 
China-U.S. trade relations. Simply put, MFN status ensures that 
all nations will treat commerce with any other single nation 
the same way it treats all other nations. There is in fact 
nothing ``most-favored'' or preferential about it. Failure to 
continue China's MFN status will assure less U.S. influence in 
that huge and rapidly growing market, as well as new commercial 
advantages for our competitors, without advancing U.S. 
interests. Termination of China's MFN status would also amount 
to a singularly devastating attack on the basic underlying 
economic relationship between the two nations, causing massive 
tariff increases on goods from China, and would virtually 
guarantee a similar response from China. Moreover, none of 
China's Asian or European trading partners is contemplating 
similar action. The result, therefore, will be not to obtain 
changes in China to our liking, but rather to curtail U.S. 
access to the Chinese market and positive U.S. influence over 
China's economic and political evolution, while our Asian and 
European competitors reap the windfall benefits of a newly 
advantageous position vis-a-vis U.S. firms in that market.
     Moderation and eventual elimination of unilateral 
U.S. economic sanctions. In the increasingly competitive, 
economically multipolar world of the 1990s and beyond, U.S. 
efforts to economically isolate objectionable regimes cannot 
work unless those efforts also enjoy the active support of 
other major trading nations. For decades, U.S. policymakers 
have sought to use trade and economic leverage as a tool to 
achieve a host of foreign policy objectives often bearing 
little or no relationship to U.S. commercial objectives. 
However, for some time, the U.S. has lacked the ability to 
control world economic affairs and work its will on its 
unwilling trading partners. Not only are our trading partners 
not acquiescing to these sanctions, they are formally 
protesting their use directly and in multilateral fora, and 
crafting ``mirror'' measures targeted at U.S. interests. As a 
consequence, unilateral economic sanctions almost invariably 
produce the same adverse results: further isolation of U.S. 
foreign policy, reinforced rather than weakened hostile regimes 
and diminution of economic opportunity for U.S. firms and their 
workers who stand to lose markets to foreign competitors who 
are not so encumbered. The U.S. Chamber's Board of Directors 
has long recognized this and in November 1996 reaffirmed its 
opposition to unilateral economic sanctions against any country 
for any reason other than to counter direct threats to the 
physical security or territorial integrity of the United 
States.
     Leadership in World Trade Organization (WTO) 
accession issues. China and Russia, the two great Cold War-era 
``alternatives'' to capitalism, have begun to embrace market 
principles relatively recently, and with very different 
results. China clearly poses the greater challenge at present. 
However, both nations pose major competitive challenges to U.S. 
commercial interests worldwide, in terms of foreign competition 
within their markets and their own current and future 
competitiveness in world markets. Given both nations' 
potential, both economies should demonstrate their commitment 
to the world trading system through implementation of market-
oriented policies and acceptance of WTO discipline. The U.S. 
Chamber fully supports both countries' accession to the WTO but 
only under protocols consistent with commercial principles and 
their status as major trading powers. Both countries must also 
agree to adhere to the market principles assumed of all GATT/
WTO signatories. This includes, but is not limited to, 
commitments to improved market access, nondiscrimination, 
effective intellectual property protection, amelioration of 
often arbitrary tariff and customs burdens, and forsaking of 
performance requirements (local content, technology transfer, 
export requirements) on foreign investors.
     Reauthorization of trade development programs. In 
an ideal world, government would play a very limited role in 
global commerce. However, the realities of the global mixed 
economy require the U.S. government to support its private 
sector against foreign government-backed competition to achieve 
a level playing field. The charters of the Export-Import Bank 
(Eximbank) and the Overseas Private Investment Corporation 
(OPIC) expire this summer and need to be renewed. As Congress 
considers charter renewal, it should keep in mind that these 
institutions should provide competitive financial services, 
e.g., financing and insurance that are not otherwise available 
but are required to help U.S. companies remain competitive and 
penetrate foreign markets. To maintain a broadly competitive 
position, the United States must preserve or expand the 
contribution of those federal agencies that help U.S. exporters 
compete and prosper. In addition, as part of the U.S. 
government's strategic plan to selectively match the 
subsidization assistance offered by our major competitors, the 
U.S. government should also be prepared to fund project-related 
feasibility studies and planning activities, such as 
administered by the Trade Development Agency.
    Mr. Chairman, this concludes my testimony. I will be happy 
to try to answer your questions. Thank you.
      

                                

    Chairman Crane. Thank you, Mr. Cowen.
    Mr. Seligman.

  STATEMENT OF CARL POPE, EXECUTIVE DIRECTOR, SIERRA CLUB; AS 
   PRESENTED BY DANIEL SELIGMAN, SENIOR FELLOW,  SIERRA  CLUB

    Mr. Seligman. Thank you, Mr. Chairman. My name is Dan 
Seligman. I am a senior fellow in charge of the Sierra Club's 
Responsible Trade Program. I am here today representing the 
Sierra Club's executive director, Carl Pope, who was unable to 
be here today. And, I am here representing the 600,000 members 
of the Sierra Club nationwide.
    I think I can speak confidently for virtually the entire 
environment community in the United States when I say that we 
have been deeply disappointed with the delivery of commitments 
made by the Clinton administration and even by Congress on 
trade and environment issues over the last 3 to 4 years.
    In essence, from our standpoint, the trade agenda is 
imposing a theoretical model designed by economists on a very 
complex set of biological and physical systems, the global 
environment, and the social systems that are underguarded by 
that global environment. So doing, trade is provoking a set of 
changes that are unpredicted, unintended, but often quite 
damaging, not only to communities and the environment here in 
the United States, but to communities and the environment 
abroad as well.
    We see three major impacts from what we call the free-for-
all free trade agenda.
    First, we see pressure to reduce environmental protections, 
as countries and communities compete for advantage in the 
global economy by weakening or ignoring environmental 
protections.
    Second, we see pressure from international trade 
bureaucracies to weaken environmental standards in the name of 
reducing barriers to trade and investment.
    Finally, we see erosion of democratic and community values 
as power to decide environmental and public health issues shift 
from National Governments to unaccountable international trade 
bureaucracies and to the private sector, especially the 
transnational corporations that seem to benefit so much from 
the current free trade regime.
    I won't go into each of these issues in great detail. The 
body of my testimony elaborates in some specificity each of the 
points I outlined. I would focus, however, on two points that 
relate to the NAFTA.
    First, in entering a trade agreement with our northern and 
southern neighbors, the Clinton administration sought to create 
mechanisms to avoid the downward pressure on standards that 
comes from increasing competition in the global market.
    A NAFTA environmental side agreement was created for the 
express purpose of bringing complaints when countries weaken 
their environmental laws in the name of free trade or to 
attract investment. That commission has been virtually useless 
in applying pressure to each of the NAFTA countries as they 
have gone about weakening fundamental environmental laws over 
the last 3 years.
    The second issue I would like to point to is the United 
States-Mexico border because it symbolizes so much about what 
the environment and trade are all about. This Congress made a 
firm commitment when they voted and adopted NAFTA that $2 
billion would flow from the North American Development Bank to 
clean up the environmental mess on our southern border. So far, 
that fund has generated about $10 million in cleanup money. 
That is about 1 percent of the funding promised. Yet, at the 
same time, partly because of the peso devaluation, the 
maquiladora sector has boomed. Employment has boomed on the 
United States-Mexico border, the maquiladora zone.
    The situation on the border reflects conditions that are 
fairly endemic throughout the developing world. Specifically 
big companies, major transnationals, take advantage of the lax 
standards in these countries to avoid shouldering basic 
responsibilities to provide environmental infrastructure, a 
decent wage, or decent working conditions to the people whom 
they employ.
    We have heard a little bit of discussion about fast track 
this afternoon. I would direct your attention to a letter that 
was sent from the National Wildlife Federation and the Sierra 
Club to Vice President Gore explaining the environmental 
community's position on fast track.
    Because of the disappointment we have experienced, groups 
on both sides of the NAFTA divide have come together and 
demanded that tough, specific environmental negotiating 
objectives be built into any fast track authority.
    Second, an issue not so much addressed here, is the 
multilateral agreement on investment. For reasons I outline in 
my testimony, we think that this agreement, if anything, has 
much worse implications for the global environment than the 
NAFTA does or the World Trade Organization.
    The idea of willy-nilly freeing large corporations to 
invest in environmentally sensitive sectors like mining, 
timber, what have you, in countries without the environmental 
standards to ensure that that investment is done responsibly, 
this simply doesn't make good sense. We see important 
international environmental values at stake in this kind of 
agreement, and again, my testimony would provide some examples 
of our concerns in that area.
    So, in conclusion, I would ask that Members of the 
Subcommittee actually look hard at what free trade policy has 
implied for the United States, for our environment, for our 
trading partners and their environment. I would also ask 
Subcommittee Members to think very hard about how to redo the 
way we conduct trade policy so that we are not looking at the 
kind of harmful consequences that I think are beginning to 
stare us in the face.
    I would conclude by saying that a responsible trade agenda 
is not one that bores the American public. I was in Kansas 
City, 10 days ago, with a colleague of mine from Public 
Citizen, Lori Wallach's organization. We spoke at a rally of 
citizens of that town, very concerned about NAFTA expansion, 
and what is implied for their jobs and for the environment. I 
will share with you a letter of inquiry that they have sent to 
their congressional delegations asking why, seriously, we 
cannot conduct trade policy in a more responsible way.
    Thank you very much.
    [The letter of inquiry and prepared statement follow:]
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Statement of Carl Pope, Executive Director, Sierra Club; \1\ as 
Presented by Daniel Seligman, Senior Fellow, Sierra Club

    On behalf of the Sierra Club's 600,000 members, I wish to 
thank Chairman Crane and members of the committee for offering 
me the opportunity to testify today on a critical topic--the 
future of America's international trade policy.
---------------------------------------------------------------------------
    \1\ The Sierra Club no longer accepts grants or awards from the 
federal government. Prior to adoption of the Lobbying Act requiring 
disclosure of such grants or awards for organizations lobbying the 
federal government, the Sierra Club received a small amount of contract 
money as well as reimbursement for service trips from the federal 
government.
---------------------------------------------------------------------------
    Current free trade policy gives corporations new rights to 
trade and invest globally but fails to define responsibilities 
to communities, to working families, or to the environment. By 
granting broad new economic rights without commensurate 
environmental or social responsibilities, US trade policy is 
eroding a host of community, social, and environmental values 
both here at home and around the world.
    As this subcommittee reviews the future of US trade policy, 
I hope you will reconsider the current ``free-for-all'' 
approach to international trade. Instead, the United States 
should shift toward what Sierra Club calls a ``responsible 
trade'' policy which anticipates and avoids the unintended 
harmful side affects of corporate globalization.
    Threats to the environment from ``free-for-all'' free trade 
include:
    1) pressure to reduce environmental protections as 
countries and communities compete for advantage in the global 
economy by weakening or ignoring environmental protections;
    2) pressure from international trade bureaucracies to 
weaken environmental standards in the name of reducing barriers 
to trade and investment; and
    3) erosion of democratic and community values as power to 
decide environmental and public health issues shifts from 
accountable national governments to unaccountable international 
trade bureaucracies and to the private sector, especially to 
transnational corporations.
    I will touch on each of these issues during my testimony.
    But first, let me underline that the environment is not a 
side issue or irrelevant to trade policy. Literally everything 
produced in the global market originates in the environment as 
natural resources and returns eventually to the environment as 
waste or pollution. With the accelerating scale and speed of 
global economic change, we see growing evidence that unplanned 
and unintended environmental destruction is overwhelming the 
economic benefits that current trade policy is meant to 
achieve.
    To understand why this is so, we must understand what the 
environment really is. The environment is not just the pretty 
photos we took on our last trip to Yellowstone or the Grand 
Canyon. The environment is the infinitely complex web of life 
which supports and sustains not only the national and 
international economy but also the local communities that we 
need to provide a decent, healthy place to raise our families. 
A basic principle of conservative philosophy holds that human 
meddling with complex systems which we did not create can 
provoke more unintentional harm than intentional good. Many 
people learned that lesson by watching governments attempt to 
engineer large-scale social change. But the same holds true 
when powerful international organizations, such as the World 
Trade Organization, and powerful private institutions, such as 
transnational corporations, attempt to reshape the global 
economy to suit the abstract theories of free trade economists.
    A responsible trade policy would anticipate and avoid 
unintended harm to the environment from economic globalization. 
Doing so is not protectionist; it is simply prudent.
    The environmental impacts of trade are of special concern 
because trade is now the principle engine of global economic 
growth. And impacts of the global economy are arguably now the 
leading source of damage to the global environment. Major trade 
agreements having important environmental impacts include the 
North American Free Trade Agreement (NAFTA) and the World Trade 
Organization/General Agreement on Tariffs and Trade (GATT/WTO). 
We can anticipate that new agreements now under negotiation, 
especially the Multilateral Agreement on Investment (MAI), 
scheduled for completion in May 1997, could have even more 
significant impacts.
    But our concern about economic globalization is not 
confined to trade agreements. Trade policy reinforces the 
growing tendency of corporations to ``go global'' in search of 
markets, resources, and cheap labor. Just 100 large companies 
control half of US exports. The top fifteen exporters--
including GM, GE, Boeing, and IBM--control one-quarter of all 
US exports. The largest companies command resources greater 
than good-sized countries. Globalization, as we shall see, 
plays to the strengths of the biggest corporations--increasing 
their profits, and adding to their political influence. The 
result, I fear, is diminished control for the average citizen 
and diminished autonomy for democratic institutions such as the 
United States Congress.
    Together, trade policy and transnational corporations are 
fusing the global economy into a single market for the first 
time in human history. While environmental harm from economic 
globalization cannot be easily measured in dollars and cents, 
the evidence suggests that the benefits of the current free 
trade policy could be overshadowed by losses to the 
environment. A responsible trade policy would not ignore the 
warning signs. Just consider these examples:

                      I. Racing Toward the Bottom

A. Relaxing Environment Protection

    When corporations gain rights to trade and invest wherever they 
wish, those rights are not matched with strong, well-enforced 
responsibilities to working families, communities, or the environment. 
Countries compete against each other for economic advantage by waiving 
the enforcement or adoption of strong environmental laws or by offering 
breaks on taxes needed to pay for clean water and clean air.
    Recognizing this risk, the NAFTA deal included institutions 
designed ostensibly to prevent a competitive ``race to the bottom.'' An 
environmental side agreement was written to ensure that each of the 
NAFTA countries (the United States, Canada, and Mexico) maintain and 
enforce high environmental standards. NAFTA Article 1114 allows for 
government-to-government consultations if countries compete for 
investment by weakening their environmental laws. As United States 
Trade Representative Mickey Kantor promised in September 1993, ``[The 
side agreement] ensur[es] that laws and standards continue to provide 
high levels of environmental protection and that those laws are 
enforced.''
    Unfortunately, these environmental agreements lacked teeth and have 
completely failed to deliver on their intended purpose. Instead, NAFTA 
trade and investment rules have made it easier for US companies to 
blackmail communities and workers by threatening to move jobs abroad. 
The result has been downward pressure on environmental standards across 
North America. Did NAFTA ``cause'' the weakening of environmental laws 
described here? Obviously, not by itself. But it added to pressure 
already building from other trade agreements and from economic 
globalization.
     In the United States, timber giant Boise Cascade closed 
mills in Joseph, Oregon (1994) and Council, Idaho (1995) and moved 
operations to the impoverished state of Guerrero, Mexico, taking 
advantage of new investment protections under NAFTA. Before moving, the 
company exploited job insecurity in the United States to wrest more 
timber from U.S. national forests. A company spokesman told The Idaho 
Statesman, ``How many more mills will be closed depends on what 
Congress does.... The number of timber sales will determine our 
decision to move south.'' The 104th Congress was all too eager to heed 
such pressure. It passed a law that mandated a vast increase in logging 
in our national forests, but suspended all environmental laws and the 
citizen's right to seek redress in court.
     The ``War on the Environment'' spilled over into Canada 
and Mexico. Contrary to arguments often heard during the NAFTA debate 
that environmental protection rises as countries grow richer, Canada 
has actively weakened its environmental laws by turning over 
environmental responsibilities to the provinces. Investors can more 
easily play subnational units of government against one another, so the 
Canadian provinces have weakened important environmental protections. 
For instance, the Province of Alberta adopted legislation in May 1996 
prohibiting citizens from suing environmental officials to enforce the 
law. Ironically, Alberta was the first of only two Canadian provinces 
to bother singing the NAFTA environmental side agreement. When Canadian 
environmentalists declared their intention last summer to complain to 
the NAFTA environmental commission about the new gag law, Alberta's 
environment minister, Mr. Ty Lund, simply threatened to withdraw 
Alberta from the side agreement. Apparently, Alberta is willing to 
abide by its NAFTA's environmental commitments only as long as they are 
not enforced. Instead, Alberta authorities advertise the province's lax 
regulatory climate as the ``Alberta Advantage.'' In so hospitable a 
business climate, it is little wonder that Pittsburgh's Consolidation 
Coal, Shell Oil, and other international mineral companies have flocked 
to Alberta.
     Mexico also has backed away from commitments to adopt and 
enforce strong laws made during the NAFTA debate. In October 1995, 
Mexico announced it would no longer require environmental impact 
assessments (EIAs) for investments in such highly polluting sectors as 
petrochemicals, refining, fertilizers, and steel. Mexican officials 
said they were eliminating the requirement for EIAs to ``increase 
investment''--an apparent violation of a NAFTA provision that prohibits 
weakening laws to attract investment. Of course neither Canada nor the 
United States will take Mexico to task because each is guilty of the 
same violation.

B. Erosion of Corporate Responsibility

    Those who supported creation of the NAFTA environmental commission 
argued frequently that a tough agreement was not necessary because US 
corporations take their good practices with them when they invest 
abroad. Many felt that the unregulated market would increase 
environmental protection all by itself. After three years of NAFTA, 
experience shows, however, that once companies gain international 
mobility, they can play jurisdictions off against one another to gain 
breaks on their environmental responsibilities. Surprisingly the 
pattern is true even when US companies invest in advanced developed 
countries like Canada.
    1. The Cheviot Mine--For instance, Alberta, Canada has attracted 
nearly $250 million in investment from Pittsburgh-based Consolidation 
Coal (CONSOL), a 50 percent partner in the Canadian firm Cardinal River 
Coals, by waiving important environmental protections,. Cardinal River 
plans to dig twenty-six coal pits in a 14 mile corridor near Cheviot 
Mountain, just one mile from Jasper National Park. The Cheviot Mine 
would destroy prime habitat necessary for survival of grizzly bears, 
wolves, moose, elk, cougars, and wolverines inside Jasper, according to 
the Canadian Park Service. Since Canadian habitat now serves as a 
reservoir to restock wildlife populations depleted across the border in 
the United States, the Cheviot mine could prevent the recovery of bear 
and wolf populations as far south as Yellowstone. Unfortunately, a 
proposed Canadian Endangered Species Act is far weaker than the US ESA, 
and would not protect the wildlife habitat now threatened by the 
Cheviot Mine.
    In addition, to save Cardinal River the costs of hauling waste 
rock, Alberta environment officials might not require the company to 
refill 14 of the 26 opens pits. Reclamation of excavated coal pits is 
normally required in the United States. Instead, Cardinal River will 
dump rock wastes into pristine alpine valleys and streams, destroying 
trout habitat in apparent violation of Canada's Federal Fisheries Act, 
which prohibits degradation of fish bearing streams. Cardinal River 
promises to turn the unfilled pits into artificial lakes and stock them 
with trout. But Mike Bracko, a retired plant manager at Cardinal 
River's Luscar Mine and the leader of local opposition to the Cheviot 
mine, doesn't believe that artificially stocked coal pits can ever 
replace the alpine streams that he fished as a boy. As Bracko recently 
told The Edmonton Journal, ``I haven't personally seen a man-made lake 
that can compare with a natural one. I don't believe Cardinal River is 
above the Creator.''
    Unfortunately, thanks to the legislation adopted last May in 
Alberta, Mr. Bracko would be denied legal recourse if the Alberta 
environment ministry approves Cardinal Rivers' permit application in 
violation of provincial environmental law. In the globalized North 
American economy, wishes of ordinary citizens must take a back seat to 
the power of giant transnational corporations like Consolidation Coal.
    2. The US-Mexico Border--The site of 2,500 mostly foreign-owned 
maquiladora assembly plants, the US-Mexico border became a symbol 
during the NAFTA debate of the disparity in environmental protection 
between the United States and Mexico and a key test of the ability of 
free trade to protect the environment. Today the border is worse off 
than ever. The number of maquiladoras has gown by 15-20 percent since 
NAFTA took effect while the maquiladora workforce has surged by nearly 
50 percent. Yet no additional resources have been made available for 
environmental protection. A recent article in Texas Business calls the 
border ``one of the most polluted regions on the globe.... By most 
accounts, the border environment is getting worse, with millions of 
gallons of raw sewage a day pouring into the [Rio Grande] waterway and 
tons of garbage stacking up on the Mexican side of the border. Hundreds 
of thousands of people on both sides of the border live in colonias, 
which lack adequate water and wastewater treatment and solid waste 
disposal.''
    To tackle these problems, the NAFTA deal created a new funding 
institution, the North American Development Bank (NADBank) to provide 
$2 billion of loan guarantees for environmental infrastructure, mostly 
water supply, sewers, and municipal waste facilities. Rather than 
simply tax the maquiladora owners to make them shoulder their 
responsibilities to the families who work in their plants, the NADBank 
set up a shaky funding scheme that relies on government guarantees to 
attract private investment for clean up projects. However, Mexico's 
December 1994 peso crisis shook investors confidence in NADBank, so 
they are reluctant to finance projects. Mexican border towns hard hit 
by the peso's collapse also won't borrow from NADBank because its rates 
are actually higher than already unaffordable market rates. As a result 
only about $10 million has actually flowed to the border from the 
NADBank, less than one percent of the promised funding.
    Carlos Melcer, an economist who helped design the NADBank, summed 
it up this way: ``People are very unhappy and people are very 
disappointed.'' Actually the border's working families are more than 
disappointed. The suffer from hepatitis at more than three times the 
rate of their US neighbors, as well as from such preventable diseases 
as typhoid, amoebic dysentery, and parasitic infections.
    Some argue that the NADBank's failures were caused by the peso's 
collapse, and had nothing to do with NAFTA. In fact, political pressure 
from the United States on Mexico to run a trade deficit with the United 
States in the run-up to the NAFTA vote laid the basis for the peso's 
overvaluation and eventual collapse. Given its obligations to make 
payments in dollars on its massive foreign debt, Mexico must run a 
trade surplus with the United States as a matter of course. While more 
timely intervention by Mexico's Treasury to reduce the peso's value 
might have avoided a crisis, the underlying pressure on the peso was, 
in fact, closely related to the politics of NAFTA passage in the United 
States.

                II. Attacks on environmental protections

    The new trade rules enshrined in trade agreements and 
institutions like the NAFTA and the WTO/GATT attempt to attack 
increase trade flows by eliminating so-called ``non-tariff 
barriers'' to trade (NTBs). Under current trade rules, NTBs can 
be any law or practice that has the effect of interfering with 
trade. Challenges to our environmental standards as trade 
barriers are heard by tribunals of trade experts operating 
behind closed doors. The public has no right to participate. If 
laws are judged trade-illegal, they must either be changed--or 
the guilty party could face trade restrictions. Of perhaps even 
greater concern than the formal trade dispute resolution 
process, trade lawyers and lobbyists have taken a cue from the 
new trade rules to seek preemptive changes by congress and by 
regulators to US environmental, safety, and health standards 
before those standards become an issue in international 
disputes. The effect has been to give hand industry insiders 
new levers to complicate, slow, and potentially derail the 
difficult task of protecting public health and the environment. 
Here are just two examples.

A. Clean Air Threatened

    In its very first ruling in early 1996, the World Trade 
Organization ruled that a key part of the US Clean Air Act must 
be changed to square with international trade rules. EPA is now 
rewriting the challenged Clean Air Act rules for reformulated 
gasoline (RFG) to comply with the WTO decision, raising the 
possibility of reducing the effectiveness of the RFG program 
and increasing ground-level ozone pollution in some of our most 
polluted cities. Ironically, the EPA has now proposed 
toughening ozone and soot standards to eliminate respiratory 
problems in 250,000 children each year. The WTO could help undo 
tougher public health protections that EPA backed by 3,000 
health studies thinks are necessary.
    The RFG rule attempts to improve gasoline cleanliness by 15 
percent over 1990 standards. In creating the rule, EPA faced a 
difficult question about international enforcement. US refiners 
are required to document the quality of gasoline they produce 
year by year. Their data tend to be highly reliable because/ 
companies know EPA can take them to court for infractions. In 
contrast, foreign refiners are outside US jurisdiction, so 
their data on gasoline quality cannot be easily verified or 
enforced. As a result, the RFG rule allowed individual US 
refiners to reduce pollutants from the baseline of their own 
1990 production. Importers, in contrast, had to reduce gasoline 
pollutants from the baseline for the same pollutants in all 
gasoline sold in the United States in 1990. As a result, 
foreign refiners producing gasoline that is dirtier than 
average had to clean up their gasoline relatively more than a 
similar US refiner. However, those foreign refiners whose 
gasoline was cleaner actually had less cleaning up to do than 
the typical US refiner.
    Venezuela, a producer of dirtier gasoline, successfully 
challenged the RFG rule in the WTO, charging trade 
discrimination. In re-writing the RFG rule to eliminate the 
disparate treatment of dirty-gas producers, US air quality may 
suffer. Already EPA has demonstrated it can be persuaded to do 
so. In early 1994, the EPA drafted new RFG rules under pressure 
from State Department officials seeking to head off a trade 
challenge. The draft rules would actually have reduced the 
effectiveness of the RFG program in major cities like Boston 
and New York by 10 to 25 percent, in order to accommodate 
imports of dirtier gasoline.
    The EPA's decision to comply with the WTO RFG ruling 
implies that the federal government is willing to square all 
domestic environmental, health, and safety standards with WTO 
rules. No doubt, scores of Washington, DC lawyers will use the 
leverage they gain from international trade rules to slow down, 
change, or stop public health standards which their clients 
consider burdensome. Attorney Carole Stern recently made the 
point abundantly clear in The Washington Times. After the RFG 
ruling, US regulators, she stated, ``may need to coordinate 
with the U.S. trade representative or Commerce or other 
departments in review of these regulations to make sure they're 
not inadvertently giving an opportunity for economic challenge 
[in the WTO], because if the result of that is that it makes 
the regulation unenforceable, it will have a negative effect.''
    In plain English, new international trade rules and 
institutions throw a wet blanket over the ability of federal 
and state government to protect the environment and public 
health. We should not increase constraints on democratic 
government from additional international trade and investment 
rules until we fully understand the implications of those rules 
now in place.

B. The Consumers Right-to-Know Jeopardized

    Largely thanks to the WTO, independent, third-party 
ecolabeling programs, whether private or governmental, have 
come under attack in a variety of domestic and international 
fora. The attacks have gained new intensity during the last 
year. If effective, these attacks would sharply curtail the 
right of consumers to know about the environmental impacts of 
products and services they buy. In addition, citizens 
organizations could lose an important, voluntary, market-based 
mechanism to encourage environmentally and socially preferable 
practices in a wide variety of industries. The stakes for the 
environment are especially high in an increasingly global 
marketplace, where production processes are frequently beyond 
the reach of strong domestic regulations and consumer choice 
provides one of the only incentives for environmentally sound 
production.
    The attack on ecolabeling has been mounted quietly by a 
sophisticated, well-funded coalition of industry lobbyists. 
Those lobbyists have carried their campaign into a broad array 
of domestic and international fora. The industry coalition is 
comprised of eleven trade associations in the paper, 
electronics, packaging, and cleaning products industries (among 
others) purportedly representing 2900 companies with more than 
$1 trillion in annual sales. The ostensible purpose of this 
coalition, which calls itself the Coalition for Truth in 
Environmental Marketing Information (CTEMI), is to promote the 
marketing of objective, factual information about environmental 
aspects of products so that consumers may make informed 
purchasing decisions.
    In fact CTEMI is dedicated to doing away with third-party 
seal of approval programs, which it considers ``fundamentally 
flawed.'' Its campaign accuses seals of being barriers to 
trade, obstacles to innovation, subjective and unscientific, 
and ineffective at educating consumers.
    CTEMI has taken these and other arguments to many U.S. 
Federal agencies and international organizations over the past 
year-and-a-half. Perhaps its greatest success so far was nearly 
convincing the U.S. Trade Representative last June to propose 
general principles of ecolabeling before the Committee on Trade 
and Environment of the World Trade Organization. These 
principles, which, for example, called for ecolabeling to be 
based on ``sound science,''appeared under the guise of a code 
of good practice but would clearly have been used to suppress 
ecolabeling programs around the world.
    Also on the international level, the International 
Organization for Standardization (ISO), an industry-dominated 
international standard-setting body, is now developing rules 
for ecolabels that would sharply constrain the way labeling 
systems operate. Proposed rules would dictate ecolabeling 
standards, the way in which standards are developed, and the 
form of the label itself. Perhaps the most insidious provision 
in the draft standard is a requirement to achieve consensus in 
developing criteria. Given that ecoseal programs represent 
environmental leadership in the market, a mandate for consensus 
with industry is tantamount to blocking or devaluing the 
standards on which ecoseals are based.
    While ISO standards themselves are nominally voluntary, the 
ISO is recognized as an official international standard-setting 
body under the World Trade Organization (WTO). The WTO could 
ultimately require adoption of ISO standards by both 
governments and independent labeling programs. Even in the 
absence of formal WTO requirements to adopt ISO standards, the 
huge advertizing budgets of industries that might subscribe to 
ISO-based ecolabeling standards could be used to flood markets 
with claims about the environmental benefits of ISO-certified 
products, overshadowing the presence of independent, third-
party labels in the marketplace.
    In addition, the WTO itself is now debating new guidelines 
for ecolabeling programs. The application of current WTO rules 
to ecolabeling programs is ambiguous. A range of interests, 
including several developed nations and an overwhelming number 
of developing nations, as well as members of the international 
business community, are pushing for a strict interpretation of 
these rules in order to constrain ecolabeling programs, 
including private, voluntary programs. Such a restrictive new 
interpretation of WTO rules may arise through any of a variety 
of channels: through an interpretive declaration by the WTO 
trade ministers, through an opinion issued by a formal WTO 
dispute settlement panel, or through adoption of new rules or 
interpretive language by one of the WTO's standing committees.
    In addition to these generalized attacks on ecolabeling 
through international and domestic institutions, specific 
industry actors who fear that their poor environmental 
performance will become a competitive disadvantage, are using 
both international and domestic fora to wage battles against 
individual ecolabels programs. For instance, certain paper and 
textiles companies are lobbying to have the United States, and/
or other third party nations bring a WTO challenge to the 
ecolabels being developed by the European Union. Given the 
inherent pro-trade bias of the WTO, and because the party 
bringing any such challenge would pick a case with the most 
trade-egregious facts, such a challenge offers another way in 
which broad new constraints could further weaken the consumer's 
right to obtain environmental information through ecolabels.
    The attack on the consumers' right to know jeopardizes 
independent, third party labeling programs covering a host of 
products that affect an enormous array of environmental and 
social values. Examples include timber and wood products from 
well-managed forests; fruits and vegetables produced under 
conditions that attempt to preserve local environmental and 
social values--such as limits on the use of artificial 
pesticides and fertilizers, clean water, soil conservation, 
decent labor conditions, and preferences for family farmers; 
consumer products such as paints and cleaners which limit 
toxics in the home and in production; milk produced from cows 
treated with bovine growth hormone (BGH), a product linked by 
preliminary scientific data from Europe to elevated rates of 
breast cancer and other health problems, and; coffee produced 
under traditional ``shaded'' conditions which eliminates the 
need for artificial pesticides while preserving wildlife and 
traditional, small-farmer communities in developing countries.
    Ultimately, other types of consumer labels, such as those 
indicating products made with good labor practices, could also 
be undermined. Jeopardized labels include the ``rugmark'' label 
indicating oriental rugs made without child labor, and good 
labor practice labels indicating that clothing was not made 
under sweatshop conditions.

                   III. The Future of US Trade Policy

    Rather than address squarely the failures of the current 
trade policy, policymakers seem intent on adding fuel to the 
fire. The Clinton Administration will soon request fast-track 
authority from Congress to negotiate expansion of the NAFTA to 
Chile and possibly beyond. In addition, the Organization for 
Economic Cooperation and Development (OECD) might complete 
negotiation of a Multilateral Agreement on Investment (MAI) in 
May.
    Both agreements are fraught with environmental peril.
    A. NAFTA Expansion--Approval of the NAFTA by Congress in 
the fall of 1993 was based on assurances that each of the NAFTA 
countries had strong environmental laws, but only enforcement 
was lacking in the case of Mexico. As indicated above, the 
NAFTA environmental side agreement was negotiated to encourage 
effective enforcement by offering the opportunity for citizen 
complaints for persistent patterns of failure to effectively 
enforce environmental laws. In addition, NAFTA Article 1114 
allows for consultations between governments if any country 
waives its environmental law to attract investment.
    The principle of ``good laws, well-enforced'' enshrined in 
the NAFTA environmental side agreement and in NAFTA Art. 1114 
is relevant to any US trading partner even if we do not share 
borders--and therefore a high risk of cross-border pollution. 
If actually implemented, the principle of ``good laws, well-
enforced'' could help prevent countries from competing with 
each other in the international market by weakening their laws 
or relaxing enforcement. As we have seen, the NAFTA deal did 
not provide the teeth strong enough to make this good idea a 
practical reality.
    Even so, Chile--and other potential NAFTA partners in Latin 
America--do not meet the basic test applied to the original 
NAFTA members. Chile does not have a strong system of 
environmental protection. It lacks regulations to implement its 
framework environmental law. And it lacks any protection 
whatever for its Native Forests. As a result, Chile's Central 
Bank now predicts that logging for export will destroy all of 
Chile's native forests within thirty years.
    While adding Chile to NAFTA may have relatively small 
overall environmental and economic impact, Chile will also set 
the pattern for proposals to expand NAFTA to additional 
countries. It makes little sense to expand a failed agreement 
without substantially improving it. In particular, readiness 
criteria should be established to ensure that any potential 
NAFTA partner adopts and enforces strong environmental laws. 
The obligation to effectively enforce strong domestic 
environmental laws must be enforceable through a binding 
international dispute mechanism. That mechanism should be a 
core part of any trade agreement, and not relegated to a side 
bar. Finally, NAFTA should establish a secure, dedicated source 
of funding for environmental enforcement and infrastructure.

B. The Multilateral Agreement on Investment

    The (MAI raises even greater cause for concern than NAFTA 
expansion. Originally negotiated in the OECD, a ``club'' of the 
world's richest nations, the MAI will be offered to developing 
countries who agree to its terms on a ``take it or leave it'' 
basis. The MAI will open all economic sectors to foreign 
investment, strip countries and states of the right to adopt 
laws and regulations which have the effect of discriminating 
against foreign investors, and allow foreign investors to 
directly challenge our laws in domestic courts under the MAI's 
rules. In addition, increased capital mobility under the MAI 
will further increase investors' ability to play countries off 
against one another for tax breaks, low wages, and concessions 
on their environmental obligations.
    1. Threats to US Environmental Laws--A number of US 
environmental laws are already considered vulnerable under the 
MAI. Examples include:
     Recycled-content laws which tend to favor domestic 
firms better able to source production inputs locally;
     the Community Reinvestment Act (CAR), which 
requires banks to lend a portion of their deposits to the 
communities where they are based. The CAR could be vulnerable 
under the MAI on grounds that it puts a competitive handicap on 
foreign banks which chose to operate in lower income 
communities. The CAR is important environmentally because it 
helps concentrate investment in inner city neighborhoods, 
reducing the tendency for urban sprawl, and
     Land-use restrictions around parks and protected 
areas, which could be interpreted under the MAI as partial 
expropriations of private property.
    2. Racing Toward the Bottom, Again--Moreover, increased 
flows of foreign investment to developing countries with 
inadequate environmental laws could jeopardize environmental 
resources of international significance. Developing countries 
desperate for foreign capital will be tempted to ignore 
environmental impacts, exacerbating the international ``race 
toward the bottom.''
    To cite just one example, thanks to relaxation of 
investment restrictions, mining investment in Brazil leapt to 
$2.5 billion last year from an average of only $40 million per 
year over the previous five years. According to The Wall Street 
Journal, the catalyst for the investment surge was elimination 
of a 49 percent cap on foreign participation in mining 
ventures. It is precisely this type of discrimination between 
foreign and international investors that the MAI will eliminate 
globally.
    Due to both geography and size, Brazil holds South 
America's richest deposits of gold and other precious metals. 
Unfortunately, many of the deposits lie under the Amazon 
rainforest, a region of incalculable biological richness and a 
vital sink for carbon emissions that would otherwise accelerate 
global warming. Indeed, Brazil's rainforests are in deep 
trouble if the interests of transnational investors prevail. 
According to The Journal, ``The most notable challenge is 
obtaining reliable geological data in a country that is still 
largely unsurveyed and covered by great swaths of inhospitable 
jungle. `The country isn't mapped in detail, and you've got all 
those darn trees in the way.' says Ross Lawrence, a Toronto-
based mining consultant.'' Destruction of the Amazon rainforest 
is already accelerating with the influx of mining investment, 
road construction, and commercial logging as timber companies 
gain access to trees along roads often built for miners. If 
Brazil's case is any indicator, the world's rainforests will 
come under increasing pressure should the MAI go forward.

        IV. The Environment Community says ``Enough is Enough''

    In response to the growing evidence that US trade policy 
does not respect environmental realities, environmentalists 
have joined together across the NAFTA divide to call for an 
``environmentally responsible trade policy.''
    1. MAI--On February 13, Sierra Club, National Wildlife 
Federation, and the World Wildlife Fund joined six other 
organizations in calling for a one year postponement of the 
MAI. In addition, our organizations called for a) an 
environmental review of the MAI consistent with OECD and 
Clinton Administration policy, b) the promulgation of 
environmental ``readiness criteria'' to ensure that MAI members 
have and enforce strong environmental laws, c) mandatory, 
enforceable requirements to prevent weakening of laws to 
attract investment, d) measures requiring investors to operate 
under the stronger of host or home country environmental laws, 
e) guarantees that the MAI could not be used to weaken or 
eliminate legitimate environmental protections, f) measures 
updating the 1976 OECD guidelines on Multinational Enterprises, 
and g) measures to open up dispute resolution under the MAI to 
the public and to environmental experts.
    The long list of demands reflects our concern that the MAI 
slips well below even the inadequate NAFTA in its sensitivity 
to environmental concerns.
    2. Fast-track.--On February 27, Sierra Club and National 
Wildlife Federation joined four other environmental 
organizations in calling on the Administration to seek fast-
track authority with specific environmental negotiating 
objectives. To put US trade policy on an environmentally 
responsible path fast track needs to include negotiating 
objectives to (a) safeguard US environmental laws, b) ensure 
that international corporations comply with high environmental 
standards no matter where they operate, c) ensure that our 
trading partners have strong environmental laws consist with 
their sovereign rights to establish appropriate domestic 
development policies, and d) require environmental assessment 
of new trade agreements.
    We believe that the proposals in these two letters are the 
minimum necessary measures to ensure an environmentally 
responsible trade policy. I hope the Committee will take them 
seriously under consideration. So doing, you will be in step 
with the wishes of US voters, 73 percent of whom believe that 
environmental and labor issues should be addressed in trade 
agreements, according to a recent BankBoston survey.
    So doing, you will also address the disquiet growing among 
a broad range of globalization advocates, from Thomas Friedman 
on the op-ed pages of The New York Times to the 1,000 corporate 
executives recently gather in Davos, Switzerland for the World 
Economic Forum. These voices of the establishment have now 
begun to wonder whether willy-nilly globalization can really 
achieve its aims. As this subcommittee considers the future of 
US trade policy, I would in particular urge you to consider the 
words of Harvard Professor Michael Sandel, recently quoted by 
Mr. Friedman. As Sandel writes, ``Democracy today is not 
possible without a politics that can control global economic 
forces, because without such control it won't matter who people 
vote for -corporations will rule.''
    For the sake of our democratic ways, if for nothing else, 
let's get off the ``free-for-all'' free trade merry-go-round. 
Let's seek a path to a responsible trade policy.
      

                                

    Chairman Crane. Thank you.
    Mr. Holmer.

STATEMENT OF ALAN F. HOLMER, PRESIDENT, PHARMACEUTICAL RESEARCH 
                  AND MANUFACTURERS OF AMERICA

    Mr. Holmer. Thank you very much. My name is Alan Holmer. In 
the mideighties, I ran the dumping and countervailing duty 
program at the Commerce Department. During the second Reagan 
administration, I was Clayton Yeutter's general counsel, and I 
was Deputy U.S. Trade Representative for the last 2 years of 
the Reagan administration.
    I was here with the Subcommittee and the Full Committee for 
the 1985 trade bill, which went nowhere; the 1986 trade bill, 
that died in the Senate; and the 1988 trade bill and the United 
States-Canada Free Trade Agreement, both of which became law.
    I know about the challenge of establishing a trade policy 
and renewing fast track in an environment where you have a 
President that is of one party and a Congress of another party.
    I am pleased to testify this afternoon on behalf of the 
Pharmaceutical Research and Manufacturers of America, including 
companies like Searle in Illinois; in California, companies 
like Amgen, Genentech, and Alza; in New York, companies 
headquartered there like Pfizer and Bristol-Myers Squibb. These 
are the pioneer companies, the companies that develop over 90 
percent of all new medicines that are made in the United 
States. Our business is biomedical innovation. Our mission is 
to discover and develop new medicines to prevent and to cure 
disease.
    When we succeed, everyone succeeds. Americans and people 
all the world over lead longer, happier, healthier, more 
productive lives. Last year alone, we brought 53 new medicines 
to market, covering 40 different diseases, including heart 
disease, cancer, Alzheimer's, asthma, glaucoma, and multiple 
sclerosis. Our companies don't plan to stop there. In 1997 our 
companies will invest $19 billion on research and development, 
over 21 percent of sales.
    The issue before this Subcommittee this afternoon is of 
vital importance to biomedical innovation. Our innovation 
suffers from inadequate pharmaceutical patent protection in 
markets around the world. The TRIPs agreement that was 
negotiated in the Uruguay round under fast track moves us very 
much in the right direction, but not fast enough and not far 
enough. That is why the Uruguay Round Agreements Act calls for 
acceleration and improvement of TRIPS.
    More generally, the United States needs new fast track 
authority. First, we need fast track authority to stimulate 
economic growth and job creation. In today's global market, we 
need access to customers, suppliers, goods, services, and 
markets all over the globe. If we regress from or stall on 
trade liberalization, the United States will fall behind. Our 
economic growth will be suboptimal, and we will have fewer new 
jobs.
    You have heard all the reasons about that in the testimony 
that has been presented this morning and this afternoon, and I 
won't try to repeat it here, but I would like to focus on two 
issues that you, Mr. Chairman, and Mr. Matsui raised earlier.
    The first relates to NAFTA. Obviously, there was a 
financial crisis recently in Mexico. The last time they had a 
comparable crisis, as you mentioned, was in 1982, and what they 
did was they increased the tariffs on U.S. exports going to 
Mexico, and our exports fell by one-half.
    This time, they had a financial crisis, and what did they 
do? Well, Mexico raised tariffs on all sorts of countries 
around the world, but not against United States exports because 
they couldn't. They couldn't do it because we have NAFTA. The 
NAFTA protected U.S. interests. As a result, U.S. exports are 
already back now at record levels to Mexico.
    Second, an issue that both you, Mr. Chairman, and you, Mr. 
Matsui, raised about the lack of attention from the public and 
the fact that there is not uniform support in the United States 
for free trade. I think that is right, but I don't see anything 
that has occurred as being really a seismic shift.
    I can remember being at USTR back in 1985, back when we had 
a $170 billion trade deficit. You will remember this, Mr. 
Matsui. Remember the Rostenkowski-Gephardt-Bentsen bill, the 
one that was going to establish a mechanical way of addressing 
the trade deficit with Japan? I can remember your former staff 
director, Rufus Yerxa, calling me up down at USTR saying, 
``Alan, there is just no constituency up here for free trade.'' 
That was 12 years ago, and those were difficult times, but the 
answer is not to retreat. The answer for all of us--including 
the private sector to do a better job of educating the American 
people on the benefits of open markets, the benefits of strong 
intellectual property protection, and the benefits of free 
trade.
    Engagement will not solve all of our problems, but 
retreating won't solve any of our problems.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Alan F. Holmer, President, Pharmaceutical Research and 
Manufacturers of America

    Good morning, Mr. Chairman and Members of the Subcommittee. 
I am Alan Holmer, President of the Pharmaceutical Research and 
Manufacturers of America, or PhRMA. PhRMA represents the 
country's major research-based pharmaceutical and biotechnology 
companies, which are leading the way in the search for new 
cures and treatments that will enable patients to lead longer, 
healthier, and more productive lives.
    There is no industry in America that is more committed than 
ours to innovation, and the ability to innovate depends, in 
turn, on strong protection of intellectual property rights in 
the United States and around the world. That is why I 
appreciate this opportunity to discuss PhRMA's views and 
objectives on U.S. trade policy, which we hope to achieve by 
working with this Subcommittee, Congress, and the 
Administration.
    The Committee's announcement of this hearing touched on 
several issues directly relevant to innovation, and, 
specifically through biomedical innovation, to improved 
healthcare and better lives for patients all over the world. If 
U.S. industries, such as pharmaceuticals, are to capitalize on 
their strengths, U.S trade policy must focus on breaking down 
trade barriers, including lack of adequate intellectual 
property protection for American products. Open overseas 
markets are critical to the continued success of the U.S. 
research-based pharmaceutical industry, which generates almost 
one-half of its sales in foreign markets.

                                Summary

    This testimony, after providing a brief background 
discussion of the intellectual property provisions in the North 
American Free Trade Agreement (NAFTA) and the Uruguay Round 
Trade Agreements that established the World Trade Organization 
(WTO) as well as some pertinent data about our industry, will 
focus on several areas that raise concerns and present 
opportunities for U.S. trade policy. It will consider:
     Bilateral Trade Problems and Opportunities
     China's Accession to the WTO
     Multilateral Agreements/Issues
     Transatlantic Business Dialogue (TABD)
    The following are among the major points made in the 
testimony:
     Three countries present special problems because 
of their total failure to provide adequate intellectual 
property protection--Argentina, India, and Egypt.
     China is negotiating to join the WTO, but the 
pharmaceutical industry has grave concerns about whether the 
U.S. should support China in this effort in view of its 
intention to impose price/profit controls on drugs and its lack 
of effective enforcement of its patent law.
     PhRMA strongly supports the granting of ``fast-
track'' negotiating authority to begin the process of expanding 
NAFTA.
     The Transatlantic Business Dialogue presents 
another important vehicle for pursuing U.S. trade objectives.

                               Background

    As noted by the Committee, the 103rd Congress passed two 
landmark trade agreements, NAFTA and the Uruguay Round Trade 
Agreements that established the World Trade Organization. Both 
of these agreements were pushed by the United States to open 
foreign markets to competition, trade, and investment.
    Both agreements contain important sections on intellectual 
property protection that have wide-ranging regional and global 
effects. The NAFTA, specifically Chapter 17, represents the 
highest standard of intellectual property protection ever 
achieved by the United States in an international agreement. 
NAFTA provided effective legal protection for pharmaceutical 
patents, including pipeline protection that enabled U.S. 
inventors to obtain patent protection for medicines already 
patented in the United States but not yet marketed (or 
patented) in Mexico. The Mexican patent law implementing these 
NAFTA provisions took effect immediately for all fields of 
technology, including pharmaceuticals. PhRMA strongly believes 
that the NAFTA intellectual property provisions should be the 
model for future trade agreements.
    Regrettably, the intellectual property section of the WTO 
Uruguay Round Agreement, the Trade Related Aspects of 
Intellectual Property, or TRIPs, falls short of the NAFTA 
standard. Although the two agreements contain similar 
substantive provisions, TRIPs, at the insistence of a number of 
developing countries, allows such countries to delay 
pharmaceutical patent protection until 2005.
    Furthermore, unlike NAFTA, TRIPs provides no pipeline 
provision, leaving many life-saving, breakthrough new medicines 
subject to patent piracy in such important markets as 
Argentina, India, and Egypt. Because of these two major flaws 
in the TRIPs agreement, when the 103rd Congress approved the 
Uruguay Round Agreement Implementation Act, it stated that the 
United States will seek both an acceleration of TRIPs 
implementation and enactment of laws in foreign countries to 
strengthen TRIPs standards.
    Patent piracy reduces the amount of revenue that companies 
can invest in research and development. Pharmaceutical R&D is 
costly, lengthy, and risky. On average, it takes more than $500 
million and 12-15 years to discover, develop, and obtain 
approval of a new medicine. And only one in 5,000 compounds 
ever makes it to market. The political risks are steep as well. 
Throughout the world, cost-containment pressures and regulatory 
impediments inhibit the industry's ability to continue its high 
level of investment in new products.
    Despite these disincentives, PhRMA companies continue to 
lead the world in pharmaceutical innovation. This year, these 
companies are investing a record $19 billion in research and 
development--21 percent of sales. But to maximize the benefits 
of biomedical innovation, the U.S. Government must pursue a 
trade strategy that builds on our national and industrial 
strengths.
    The issues discussed below present our views on important 
U.S. trade problems and challenges.

               Bilateral Trade Problems and Opportunities

Argentina

    Unlike its neighbors Brazil and Mexico, Argentina has not attempted 
to halt flagrant pharmaceutical patent piracy. Despite repeated 
assurances by Government officials over the past eight years, Argentina 
still does not protect pharmaceutical patents and Argentine pirates 
continue to expand their business in other Latin American countries, 
exporting pirated pharmaceutical inventions and obstructing initiatives 
to improve the level of protection in the hemisphere.
    In March 1996, Argentina approved a new patent law, which, due to 
its deficiencies, ambiguities, and contradictions, fails completely to 
provide protection for pharmaceutical patents. The new legislation 
falls far short of the commitment made by President Menem in 1989 to 
enact a patent law in Argentina that would afford product protection 
for pharmaceuticals immediately, provide protection to products in the 
pipeline, and severely limit the compulsory licensing of patents.
    Under the 1996 legislation, pharmaceutical product patent 
protection is deferred until October 2000. Due to the lack of 
protection for medicines in development (the pipeline) and other severe 
deficiencies, however, effective pharmaceutical product protection 
cannot be expected even after that date. Deficiencies in the law 
include restrictions on biotechnology; exceptions to patent rights and 
open-ended compulsory licensing; ambiguous language on exhaustion of 
rights; lack of protection to health registration data, and ineffective 
enforcement procedures.
    Consequently, the new legislation does not fulfill several minimum 
mandatory standards to protect intellectual property included in the 
multilateral WTO/TRIPs Agreement. Thus, it is clear that patent 
protection will not be effectively enforced even after TRIPs is fully 
implemented. Further, extensive litigation is likely to attempt to 
resolve the many ambiguous and contradictory provisions in the patent 
law.
    On December 18, 1996, the Argentine Congress approved legislation 
on trade secrets that also falls far short of international standards 
and TRIPs. The law does not provide any protection to the proprietary 
data that pharmaceutical companies submit for registration. Article 5 
compels the Ministry of Health to approve similar products (i.e., 
copies) in a maximum of 120 days based on the submission of minimal 
information. By not providing a term of protection (as is the case with 
similar legislation in other countries), a competitor does not have to 
submit its own data during that term and, thus, can be in the market in 
less than four months.
    The lack of effective pharmaceutical patent protection is 
ultimately detrimental to Argentina. Argentine patients suffer because 
the country's capability for innovative biomedical research has been 
stifled without intellectual property protection, and foreign 
investment continues to flow to other countries. For example, following 
Brazil's passage of a strong intellectual property law, U.S. 
pharmaceutical companies announced investments in that country of about 
$1 billion.
    In 1995, PhRMA estimated that its member companies lost $540 
million to Argentine patent pirates. Current market trends show losses 
running at the same level. However, exports by Argentine pirates to 
other Latin American countries increase this figure by millions of 
dollars due to the loss of potential U.S. exports to other countries. 

India

    India remains one of the world's worst offenders of patent rights. 
Under the Indian Patent Act of 1970, the country provides no effective 
protection for pharmaceutical patents. As a result, India is becoming a 
haven for bulk pharmaceutical manufacturers that pirate the 
intellectual property of companies from other countries.
    While India has a few immediate TRIPs obligations, notably to 
provide a statutory basis for implementation of the mailbox 
requirements and the five-year marketing exclusivity provisions in the 
TRIPs Agreement, it has failed to comply even with these minimum 
requirements. To attract foreign direct investment and join the growing 
group of developing and newly industrialized countries that have 
decided to offer first-rate patent protection, India should adopt a 
patent law that offers immediate product patent protection for 
pharmaceuticals, including pipeline protection.
    USTR has filed a formal complaint in the WTO against India, asking 
for a panel to be convened to consider the country's refusal to provide 
minimum protection for pharmaceutical products under TRIPs. While this 
is a positive step, PhRMA urges a stronger U.S. Government effort to 
obtain effective intellectual property protection in India.
    Significantly, after the Indian Government changed its copyright 
law several years ago, both local and foreign investors proceeded to 
create a Silicon-valley style industry in the Bangalore region, 
employing thousands of skilled computer specialists who no longer had 
to leave the country to find gainful employment.

Egypt

    Egypt is a significant market--indeed one of the largest--in the 
Middle East/Africa region, but it does not provide any meaningful 
patent protection for pharmaceuticals. This not only harms our 
industry, but also leaves Egypt behind many other countries, such as 
Mexico and Brazil, that have enacted effective intellectual property 
regimes that benefit their patients, their healthcare systems, and 
their economies.
    A draft law has been prepared by the Government and is now awaiting 
two key Government recommendations before it is submitted to the 
Parliament--on the length of any ``transition'' period before which 
product patent protection will be effective, and on whether pipeline 
protection will be included. Most of the substantive provisions reflect 
the standards established by TRIPs. However, a draft prepared more than 
two years ago did not contain a clause for delayed implementation and 
included a pipeline clause. Due to the influence of companies opposed 
to patent protection in Egypt, as well as efforts by anti-patent forces 
in Argentina and Canada, these two crucial issues are now undecided.
    The United States, with its large foreign aid commitment to Egypt 
and numerous other bilateral programs, has many channels of 
communication with the country, including the Gore-Mubarak Partnership. 
We urge that Congress ensure that all possible courses of action are 
identified and used to persuade Egypt to improve its intellectual 
property regime.

                      China's Accession to the WTO

    There are few trade issues that will be as important this 
year as China's accession to the WTO. We understand that the 
Administration wants these negotiations to proceed smoothly, 
but also wants China to remove the impediments to accession 
before the U.S. supports its bid.
    PhRMA has identified ``pharmaceutical price and profit 
controls'' and ``administrative protection'' of pharmaceutical 
patents as the two principal issues affecting our industry's 
interests in China and our priorities in the WTO accession 
negotiations.
    The proposal to impose price controls is a critical recent 
issue that raises serious questions about China's commitments 
to open trade. The details of such controls have not been 
disclosed by the Chinese Government. In a meeting in early 
March with industry representatives, however, officials of the 
State Pharmaceutical Administration of China (SPAC) and the 
State Planning Commission made it clear that price controls 
will be implemented by the end of this year.
    Price controls would seriously compromise existing 
investments and the willingness of foreign pharmaceutical firms 
to continue to invest in China. These controls would create 
enormous market distortions and would undermine the spirit of 
the WTO, depriving foreign firms of many of the benefits 
conferred through Chinese accession.
    Another area of great concern to PhRMA companies is the 
lack of compliance with the United States-China Memorandum of 
Understanding (MoU) on Intellectual Property Protection, with 
specific reference to ``administrative protection'' of 
qualifying pharmaceutical patents. The SPAC, mentioned above, 
is responsible for administering provisions for ``pipeline'' or 
marketing exclusivity. These provisions have been implemented 
unevenly and with stringent and cumbersome requirements. In 
several cases, a Chinese company has been able to register a 
copy of a U.S. original product even though the U.S. company 
has been informed that it has been given marketing exclusivity 
under the provisions for ``administrative protection.''
    If China's Government does not comply with the provisions 
of the MoU, it is difficult to believe that it will comply with 
its accession provisions to the WTO. Certainly, if China does 
not adequately address these problems, our industry will not be 
able to support China's accession.

                     Multilateral Agreements/Issues

Free Trade Area of the Americas (FTAA)

    The Free Trade Area of the Americas (FTAA) provides an opportunity 
for the US Government to negotiate increased trade liberalization in 
the Western Hemisphere. NAFTA was a landmark agreement that lowered 
many barriers, eliminated many tariffs, and significantly upgraded the 
terms of intellectual property protection. PhRMA supports the granting 
of ``fast-track'' negotiating authority to begin the process of 
expanding NAFTA. By establishing NAFTA's standards, particularly in 
intellectual property, as regional standards, important bilateral 
objectives may be achieved, such as stopping Argentine patent piracy.

Asia-Pacific Economic Cooperation (APEC) Forum

    PhRMA strongly supports the 18-member Asia Pacific Economic 
Cooperation (APEC) forum and the principles of free trade on which it 
was founded. Specifically, we support APEC's efforts to develop more 
transparent trade and investment systems, streamlined approval and 
registration processes, and lower tariffs. APEC also reinforces the 
WTO's commitment to ensuring the development of free and fair 
international trade practices. Finally, we believe that our industry's 
active participation in, and support for, the APEC forum will foster 
goodwill and strategic connections in the region.
    Doing business in the Asia-Pacific region is fraught with 
difficulty and ambiguity, especially for the research-based 
pharmaceutical industry that depends heavily on high standards of 
intellectual property protection and is heavily regulated. It can be 
difficult to determine what tariffs and commercial regulations apply to 
particular transactions or what government agency is responsible for 
granting licenses. The result often is costly legal entanglements, time 
wasted, and bad business decisions.
    APEC seeks to ameliorate some of these problems. For instance, the 
APEC Committee on Trade and Investment is developing a tariff database 
that will list each member's tariff structure and customs process. The 
Subcommittee on Customs hopes to publish a customs guidebook with 
information on current regulations and non-tariff barriers. 
Additionally, APEC's efforts to harmonize members' regulatory and 
approval processes across a wide-range of industry sectors, including 
the pharmaceutical sector, will facilitate business transactions and 
reduce the time and money spent on launching a new product in the 
region.
    Although many of our member companies doing business in the APEC 
area expect eventually to manufacture regionally much of what is now 
being exported there, APEC's efforts to reduce tariff rates will make 
it less costly for PhRMA companies to import necessary raw materials 
and to export regionally manufactured products throughout the Asia-
Pacific region. For example, China, at the prodding of fellow APEC 
members, agreed at the 1995 Osaka Ministerial meeting of APEC to reduce 
tariff rates by 30 percent on more than 4,000 items, many of which are 
pharmaceutical-related.
    PhRMA also supports APEC because it serves to bolster the WTO. 
Thus, it appears that China may use APEC as a vehicle for implementing 
certain measures that fulfill WTO obligations or for discussing 
possible implementation of measures that suit APEC's aims and WTO's 
obligations.

                 Transatlantic Business Dialogue (TABD)

    The TransAtlantic Business Dialogue (TABD) is another 
important vehicle for pursuing U.S. trade objectives. The TABD 
aims to facilitate closer economic relations between the U.S. 
and the European Union to contribute to the creation of a 
TransAtlantic marketplace. We have been involved with the TABD 
since its inception. In the pharmaceutical sector, the TABD is 
addressing mutual recognition of manufacturing laboratory and 
clinical practices, acceptance of clinical trials, expert 
reports, and exchange of assessment reports. It also is seeking 
to adopt common harmonized technical requirements to avoid 
conflicting trademarks.
    PhRMA supports the speedy development of a Mutual 
Recognition Agreement on Current Good Manufacturing Practices 
(CGMP) between the U.S. and the European Commission. Any 
understanding that may be reached between the two parties, 
however, must be based on the need to ensure that predetermined 
quality requirements for drug products are met, EU and U.S. 
inspectors have a common level of qualifications, CGMP 
harmonization is facilitated, and clear and uniform 
interpretations are provided on compliance.
    We note that, until such time as an MRA is concluded, 
exports by our member firms from the U.S. to the EU are subject 
to batch testing for quality assurance at point-of-entry in the 
EU. This not only poses practical and immediate problems to our 
members, but also creates a possible non-tariff trade barrier 
because U.S. imposes no such requirement on imports into this 
country from the EU.
    Negotiations are moving slowly despite a call by industry 
in both the U.S. and Europe that the parties enter into a 
confidence-building phase to overcome mutual misunderstandings 
and distrust. At a time of scarce resources, the MRA 
negotiations hold the promise of achieving greater economies-
of-scale without sacrificing standards of quality assurance.
    Finally, the TABD is urging stronger patent protection in 
Europe by calling for avoidance of amendments to weaken patent 
laws in Europe and for the adoption of the EU Biotech Patent 
Directive, which would harmonize patent protection for 
biotechnology-derived products throughout Europe. It is also 
urging that price controls be replaced by market-driven 
competition, and that parallel trade be curtailed as long as 
drug price controls exist with differing levels of patent 
protection.

                               Conclusion

    In conclusion, Congress has several opportunities to 
improve the trade environment for American industry. To 
capitalize on our comparative advantages, as a nation and as 
individual industries, the Subcommittee and Congress must 
continue to provide active leadership. Intellectual property 
protection, as a key to innovation, needs to be improved in 
several important emerging markets, such as Argentina, India, 
and Egypt. And, even where there has been improvement, as in 
China, important issues of implementation and enforcement 
remain. Regionally and multilaterally, economic liberalization, 
resulting in increased trade and investment, can be realized 
through the FTAA, APEC, and TABD initiatives that involve many 
of our major trading partners.
      

                                

    Chairman Crane. Thank you, Mr. Holmer.
    Ms. Wallach.

 STATEMENT OF LORI WALLACH, DIRECTOR, PUBLIC CITIZEN'S GLOBAL 
                          TRADE WATCH

    Ms. Wallach. Mr. Chairman, Members of the Subcommittee, 
thank you for the opportunity to testify. My name is Lori 
Wallach, and I am the director of Public Citizen's Global Trade 
Watch. Public Citizen is a consumer group founded by Ralph 
Nader in 1972 that now has 125,000 members nationwide.
    Past witnesses in today's hearing have called for more of 
the same in U.S. trade policy. In my testimony, I am calling 
for a time to pause and study the outcomes of the status quo 
U.S. trade and investment policy. Specifically, I propose 
establishing a blue-ribbon commission comprised of diverse 
representatives of business, labor, environmental, and other 
sectors involved in the trade and international investment 
debate to study the real-life outcomes of the U.S. trade and 
investment policy. For the past approximately 20 years, we have 
been heading in one direction, and it has taken decades of 
planning and since the early eighties, also negotiations. 
Ultimately, that design, that model has been locked in with 
NAFTA and the World Trade Organization.
    Now the question that is posed is the one that Mr. Rangel 
stated which is, What are the effects on people of that policy?
    Today, we have heard from a variety of different 
corporations and from some former government officials who now 
represent business--their constituencies think the status quo 
is a good thing, but what about the broad public interest?
    I find it very interesting that USTR Barshefsky repeatedly 
says the current trade debate about fast track is not about 
NAFTA. Actually, it is exactly about NAFTA because the 
fundamental question is the NAFTA model.
    The recent NAFTA and GATT negotiations have culminated in 
one set of rules that integrate services and goods, trade and 
dispute resolution that include investment rules. It is one way 
of doing business. It is one set of rules.
    However, when a President asks for fast track authority to 
expand NAFTA, we are no longer talking about negotiations in a 
vacuum. It is about adding more countries on to one set of 
rules. The question is, Did that version work? We have had 3\1/
2\ years of NAFTA to see. We will have more data under the 
World Trade Organization. It is on this basis of factual 
inquiry of outcomes for which we call for such a blue-ribbon 
study.
    If one studies now the real-life outcomes of NAFTA in 3\1/
2\ years, NAFTA has not measured up to its proponents' 
promises. In fact, the question now is more about whether it 
has broken.
    The whole issue is in what outcomes this set of rules, if 
applied to other countries, will result. NAFTA is the set of 
substantive rules we have adopted, and fast track is the 
process we have used for negotiations, but only recently. Fast 
track has only ever been used on five trade agreements. In 
fact, there are a lot of Members of Congress who now live with 
the political liability of today's trade agreements expanding 
into a lot of issues beyond traditional tariffs and quotas who 
are rethinking the fast track version of sharing of authority 
over international commerce.
    The fast track process also gets to the issue that Chairman 
Crane has raised about whether there is misinformation or a 
lack of information about trade.
    I would say the contrary to lack of or misinformation is 
true as it pertains to: For the first time the U.S. public is 
actually quite aware of what the personal implications are for 
their jobs, for their communities, for their futures of 
international trade and investment policy.
    The defenders of the status quo, the set of rules we have 
now with NAFTA and the WTO, suggest that anyone who is a 
critic, such as my organization, is antitrade. But, it is 
really not a question of ``trade or no trade.'' It is about 
what rules we trade by.
    We have now a set of rules that I think has been properly 
called corporate-managed trade. For instance, we subsidize 
investment risk insurance. Chapter 11 of NAFTA provides at no 
cost to a company, insurance for their investments backed by 
the U.S. Treasury. But, is that the best way to go?
    Thus, we pose five questions in the testimony that should 
be reviewed, not the least of which is the geopolitical 
assumptions under which our trade policy has been framed.
    Finally, why we think it is very important for this blue-
ribbon panel we have proposed to be diverse goes to the issue 
of environment and labor that has stalled new trade negotiating 
authority. Witness after witness today has tried to say these 
issues are external to trade policy, but indeed, they are a 
core part of trade policy. What a blue-ribbon panel would have 
to review is: Will U.S. trade policy recede back to a narrower 
set of issues such as traditional tariff and quota terms. Or, 
will it, like NAFTA, have whole chapters on food safety 
standards, environmental standards, and so forth? There is no 
way to deny that environment and other nontraditional issues 
are in the center of today's trade policy. Today's trade pact 
sets rules about these areas. The real question is, Will the 
treatment of these issues be balanced, or will our trade policy 
be pulled back to no longer cover extraneous areas?
    In conclusion, either on the substance or on the politics, 
it doesn't appear the exact status quo of our current trade 
policy will last. The question is, Do we plan for changes that 
make an inevitable change beneficial to the public interest, or 
will we stand by mired in the status quo and let those changes 
occur randomly?
    Thank you very much, and I look forward to your questions.
    [The prepared statement follows:]

Statement of Lori Wallach, Director, Public Citizen's Global Trade 
Watch

    Mr. Chairman and members of the committee, on behalf of 
Public Citizen and its members nationwide, thank you for the 
opportunity to testify. My name is Lori Wallach. I am the 
director of Public Citizen's Global Trade Watch. Public Citizen 
is a consumer advocacy group with 125,000 members nationwide 
founded in 1974 by Ralph Nader. Public Citizen is a member of 
the Citizens Trade Campaign along with hundreds of other 
consumer, labor, religious, environmental, family farm and 
other progressive citizens' groups across the country. The 
combined membership of the Citizens Trade Campaign member 
organizations is over 7 million. The issue raised by today's 
hearing is very broad one: the future direction of U.S. trade 
policy? This question could be the basis--and has been the 
basis recently--of long books, including some to which I and 
others in my organization have contributed.
    Indeed, the committee should be praised for considering 
that broad topic. In the past decade, U.S. international trade 
and investment policy has careened speedily down one path 
leading to the Uruguay Round of the General Agreement on 
Tariffs and Trade (GATT) and its World Trade Organization (WTO) 
and to the North American Free Trade Agreement (NAFTA).
    Some argue we should continue straight along this old 
policy path--pushing for a NAFTA for Asia through the Asian 
Pacific Economic Cooperation, for NAFTA-plus global investment 
rules with strong WTO-style enforcement through the 
Multilateral Agreement on Investment and for expansion of the 
NAFTA's rules to the entire hemisphere. Many of those 
supporting the expansion of the old status quo of substantive 
international trade and investment policy also promote a 
continuation of the old process for making international trade 
and investment policy. Thus, we see negotiations on an 
expansive, powerful Multilateral Agreement on Investment 
underway since 1995 at the OECD of which virtually no Members 
of the U.S. Senate or House of Representatives are aware, 
including those with jurisdiction over banking and other 
industries directly targeted by the pact. As well, the millions 
of families, pensioners, small investors, small and minority 
businesses and others who would be directly impacted by the 
proposed pact have no idea it is being negotiated. Under the 
current trade advisory committee, the handful of environmental 
and labor representatives sprinkled into the 800 security-
cleared industry advisors are the only non-business interest 
representatives allowed official access to draft texts of the 
agreement. Indeed, the negotiations of this proposed far-
reaching international investment agreement which is planned to 
be completed by mid-May have been so secretive, that state 
attorney generals and many high-level agency officials in the 
federal government have no idea that the U.S. position in the 
negotiations is to push for ``investor-to-state'' dispute 
resolution--the right of private investors to be able to sue 
governments in binding dispute resolution to charge that the 
governments have broken their obligations under the 
international agreement.
    Others now argue that the time has come to pause, and in 
the name of prudence, to review the outcomes of our past policy 
decisions and the policy-making processes that led to this 
status quo.
    Unlike gravity or death, the system we now have in place of 
corporate economic globalization with its engines of NAFTA and 
the WTO is only one choice. This system developed in the vacuum 
left by unregulated corporate behavior and the unregulated flow 
of billions in global financial markets. It then took years of 
planning and careful strategy by the interests who are 
benefitting from the status quo to lock it in via international 
agreements such as the 1994 GATT Uruguay Round.
    However, just as this set of rules and incentives is 
resulting in one set of outcomes, a different set of rules and 
incentives would provide different outcomes.
    For instance, the World Trade Organization and NAFTA do not 
target all ``fetters'' on commerce for elimination. Rather, the 
agreements promote the elimination of restrictions that protect 
people, while increasing protection for corporate interests. 
For instance, the regulation of commerce for environmental, 
health or other social goals is strictly limited. Labor rights, 
including prohibitions on child labor, which were to be 
included in the Uruguay Round under congressional orders, were 
entirely left out as inappropriate limitations on global 
commerce. But the protection of corporate property rights--such 
as intellectual property--received expanded monopoly power. The 
right for capital to invest in any country in any area absent 
conditions was also strengthened.
    The small minority of interests that are benefitting from 
this particular system have tried to convince the world that 
either the changes and their negative outcomes are not 
significant, or alternatively, that this system and its effects 
are inevitable. It appears that this public relations campaign 
cannot counter the reality of these policies outcomes: There 
has been growing public protests--from Korea to France to 
Germany to India--against implementation of these policies as 
required in developed countries through compliance with trade 
pacts and in developing countries through compliance with 
structural adjustment plans from multilateral development 
banks. As well, public opinion polling in the United States 
shows deteriorating public approval of our trade policy--not 
because the public does not know about it, but on the very 
basis of what the public knows about the outcomes of NAFTA and 
the WTO.
    My organization falls into this second category of those 
who believe the time has come for a careful review of the goals 
and outcomes of trade and investment policies. We believe it is 
vital to examine several key questions in forming the direction 
of our future policy in the areas of international trade and 
investment:
    1. What are the specific goals we want our trade and 
investment policies to obtain and what pitfalls must we avoid?
    2. How does our status quo policy objectively measure up to 
these goals and potential problems?
    3. Are we making our trade and investment policies based on 
current and accurate geopolitical, social and economic data?
    4. Is our policy forward-looking to include likely future 
scenarios we will encounter?
    5. Is the processes for making our trade and investment 
policies designed to serve the broad public interest?
    Each of these questions merits careful consideration by 
thoughtful people representing a wide variety of interests and 
qualified in a wide variety of disciplines. Thus, we believe 
the time is overdue to create a national blue-ribbon 
commission--comprised of a truly diverse set of large and small 
business representatives, labor and environmental 
representatives, experts in public health, natural resources 
and food security and agriculture and more. This blue ribbon 
commission would be given a time line to prepare a report. A 
moratorium on further major international trade and investment 
commitments should be adopted until we have available the 
guidance such an intensive study would provide.
    What goes by the name of trade and investment policy today 
inherently shapes--by incentive or regulates by law--almost 
every aspect of what we have traditionally considered our 
domestic social, labor, economic, health and environmental 
policies. Consequently, such a diverse panel of experts is 
required to consider future U.S. trade and investment policy.
    Recent attempts by U.S. business organizations and some 
Members of Congress to argue that environmental and labor 
issues have no place in trade policy are bewildering. These 
issues are clearly essential to our current trade and 
investment policies. Indeed, those who now want to deny that 
today's trade and investment policies directly include and 
affect labor, environmental, social and other noncommercial 
matters are the very individuals and industries who pushed for 
trade policy to leave the realm of tariffs and quotas and 
invade for the purpose of deregulation the entire breadth of 
health, environmental, social and economic policies that had 
been previously areas of domestic jurisdiction. This outcome 
was promoted through the imposition of the NAFTA and the GATT 
Uruguay Round rules.
    A simple review of the chapter headings of the actual NAFTA 
and WTO texts reveals that both recent pacts have moved 
significantly beyond their traditional roles of setting quotas 
and tariffs to institute new and unprecedented controls over 
domestic environmental and safety and other product standards, 
over regulation of industries from banking to transportation to 
communications to insurance, over intellectual property and 
investment rules, and even domestic administrative procedures, 
to name a portion of their new, expansive jurisdiction.
    The real question is not whether today's trade agreements 
include labor and environmental rules. The questions is about 
what sort of rules they contain. Indeed, a closer review of the 
voluminous rules contained in those 700-page long agreements 
shows that the rules taken as a sum elevate maximization of 
trade and international investment flows above other 
potentially competing social, political and economic goals.
    As a practical matter, the pacts accomplish this goal by 
requiring the democratically-elected governments that are NAFTA 
and WTO members to accept strict legal limitations on what 
domestic policies they may pursue. The World Trade Organization 
text is quite clear on this matter, stating: ``Each member 
shall ensure the conformity of its laws, regulations, and 
administrative procedures with its obligations...'' The 
agreements we have now apply the ``least trade restrictive'' 
test to environmental, health, labor and other domestic 
standards. This legal standard means domestic laws must be 
reviewed to ensure that they do not hinder the maximization of 
trade flows. Maximization of trade flows--not job creation, 
wage increases, or other economic goals--is elevated as the 
highest value under these rules.
    A blue ribbon panel might expose this inherent conflict in 
the status quo and suggest some resolutions. For instance, 
either:
    Trade and investment policy can be pruned back to the realm 
of tariffs and quotas and not take into account other policy 
questions relating to the environment, human rights, 
development, food security and labor right which could be 
determined in other international pacts, or, alternatively, if 
trade and investment policy continue to encroach on these 
others issues, they must be considered and balanced in the 
policy formation process.
    My organization would advocate limiting the scope of 
international trade and investment policy so that it is not the 
default impetus of the making of our human rights, social, and 
environmental policy. Domestically, we do not put food safety 
or forestry conservation standards in the middle of tax 
legislation aimed at promoting business development. 
International agreement concerning these other issues need to 
be given equal footing with international commercial rules, 
with disputes settled in an open, unbiased setting--not the 
secretive dispute resolution bodies of international commercial 
pacts.
    The American public, according to a November 1996 poll 
conducted by Wirthlin and Associates for the BankBoston, wants 
environmental and labor policies integrated into trade policy. 
While 75% of Americans cannot agree on much of anything and 
less than 50% elected recent Presidents, the Wirthlin poll 
found 75% of Americans think we must put labor and 
environmental measures into future trade agreements.
    These are only some of the opinions that should be taken 
into consideration in thinking about our trade and investment 
policy as we approach the millennium.
    We constantly hear that the core of U.S. post cold war 
foreign policy is international commercial policy. This is an 
odd supposition in a number of ways: it directly contradicts 
the notion of trade and investment policy being free from other 
issues. Trade has become the basis of our decisions on nuclear 
proliferation, human rights and international environmental 
matters. Be it by default or with intent, we now regularly put 
maximization of trade and investment deregulation ahead of 
these other values.
    Moreover, putting trade and investment policy in the realm 
of foreign relations blurs the reality that these polices first 
and foremost mean real life effect on jobs, wages and 
communities here in the United States. Promoters of the status 
quo pushed for NAFTA and still occasionally defend it arguing 
that such economic engagement is good for our relations with 
our southern neighbor, Mexico. As the $1.7 trade surplus the 
United States had with Mexico in 1993 crashed into a $16.3 
billion deficit in 1996--an all time record breaking the 
previous record trade deficit with Mexico in 1995--defenders of 
the status quo argue that this meant jobs for Mexico and only 
the loss of bad, low paying, menial jobs for the United States.
    Of course, the Commerce Department data shows that a major 
part of the new NAFTA trade deficit is in autos and auto parts 
and high end electronics, like televisions. These are the high 
wage, high tech jobs U.S. workers are supposed to find in the 
new global economy. Meanwhile, the majority of the modest 
growth of U.S. exports to Mexico one can find swamped under the 
massive flood of new imports from Mexico, are parts going to 
Mexican assembly plants to make goods for re-export to the 
United States and capital equipment for setting up new 
factories to produce good to re-export to the United States. 
Only 12 percent of U.S. exports to Mexico consist of consumer 
goods.
    Even as this shift was occurring, the Washington Post and 
Wall Street Journal were reporting about how U.S. service-
related jobs including computer programming, insurance 
actuarial work, medical record keeping, airline reservations 
were being shifted overseas to English-speaking developing 
countries like Jamaica, Barbados, India or low-wage regions 
like Northern Ireland. As far as relations with Mexico go, 
polling data shows Mexican public opinion of the United States 
is significantly lower than before NAFTA. As well, the assorted 
international relations issues--which NAFTA promoters had used 
to justify the loss of some low-paying U.S. jobs--have actually 
deteriorated in the three years of NAFTA including issues of 
border health and the environment, illegal drug trafficking, 
and poverty-drive emmigration of Mexican families unable to 
support their families at home.
    Finally, to the extent there is a logic to the status quo 
trade policy--considered the core of our post-cold-war 
international policy--it is premised on geopolitical, economic 
and technological basis that disappeared with the end of the 
cold war.
    The diverse segments of the U.S. society that have opposed 
more of the same old trade status quo--and who now argue for 
forward-looking new policies to replace the old status quo 
represented by NAFTA--are accused of being unwilling to accept 
``new realities.'' It is actually those locked into the status 
quo who are failing to take into account significant global 
changes.
    First, whether it ever had merit, the U.S. cold war policy 
of providing the U.S. as a market-of-last-resort to all comers 
as a lure for building alliances and reliance to contain the 
``Soviet threat'' no longer has a basis. Yet the old policies 
and the trade deficit they it created continue. Second, this 
status quo denies the fundamental transformation of the world's 
economies inherent in the new entry into one global 
``capitalist'' system of literally several billion educated, 
skilled and low paid workers in China and the former Soviet 
bloc. (As scholars and policy-makers in developing countries 
point out, we cannot forget the implications on those 
populations that forcing western, intensive agriculture 
practices and mandatory open food trade will have in the 
developing world where the majority of citizens are farmers.) 
Of course, in the long term, the combination of these factors, 
and the relentless downward pressure of this strategy on wages, 
means fewer and fewer people will be able to buy goods, causing 
a global crisis in effective demand.
    Third, those clinging to the status quo fail to recognize 
that the new computer and communications technology now 
operating under the old rules guarantee enormous instability in 
financial flows. The globalization of finance has occurred in a 
vacuum of corresponding safeguards and regulations. Missing 
today are international or national policies appropriate to 
this reality. For instance, computer and other communications 
developments now allow for the daily transfer of over one 
trillion dollars around the globe daily in nonproductive 
trades, such as currency speculation. In this chaos, what 
happened to Mexico in December 1994 will happen again in Mexico 
and elsewhere over and over absent new rules premised on the 
reality of the new technological capacity. It is only matter of 
time before the run is on the U.S. dollar and we experience the 
same domestic economic catastrophe that this rampaging 
financial river has wrought on others.
    What are we doing in response to this inherent instability? 
Recognizing the scope of the problem and taking systematic 
steps to counter it? No, instead we are trying to force 
countries, to eliminate such safeguards and adopt the thorough 
deregulation that contributed to Mexico's meltdown. One example 
of such a safeguard is in Chile where the U.S. is trying to 
eliminate its ``speed bumps'' to limit withdrawal of certain 
portfolio investment for set time periods after investment.
    Finally, we need rules that recognize perhaps the starkest 
reality of all: the limited ecological capacity of this planet 
to literally survive the impacts on water supplies, natural 
resources, food production, and absorption of waste and toxics. 
The scientific data on each of these questions is growing and 
needs to be reviewed as a basis for informed policy-making for 
the future. Just to pose one question in this vein: Have those 
now pushing the existing NAFTA rule be expanded to Chile 
considered that the Chilean federal government recently 
completed a study showing that if current logging practices are 
continued--and NAFTA would intensify logging in Chile--Chile 
will be without forests in ten years. Logging is just one of 
four natural resources extraction industries that are the basis 
of 80 percent of Chile's exports.
    The implications for other natural resources industries 
comprising the 80 percent of exports would be devastating: 
without trees to hold soil and help with rain absorption, 
agriculture and salmon fish farming would be harmed. The social 
and health impacts would be even more broad and would have 
hemispheric implications. A growing movement in Chile, 
including small businesses and the church, is now asking this 
question of Chile's business and political elite who are 
pushing for NAFTA expansion.

                               Conclusion

    It is increasingly evident that the status quo of trade and 
investment policy cannot hold. If we ignore for the moment the 
crisis in effective demand and the dangerous instability in 
global capital flows that the status quo promotes, the public's 
disapproval of the outcomes of this system will force changes.
    As a political matter, polling continues to show a growing 
``anxious'' class. President Clinton may be able to brag about 
the new jobs created by the U.S. economy in the past four 
years, but consider the types of jobs the economy under the 
status quo trade and investment rules is creating. The U.S. 
Department of Labor's Bureau of Labor Statistics reports that 
the top four occupations having the largest numerical increase 
over the next decade are: waiters and waitresses, retail 
clerks, cashiers and janitors.
    U.S. wages have failed to grow significantly including, for 
the first time in recorded economic history, during this time 
of economic recovery. With expenses rising, a major swath of 
the population is working harder to earn less.
    Meanwhile, as the stock market and CEO compensation swells 
to untold record levels, massive layoffs continue. The sense of 
despair and loss of control this situation breeds is at least 
part of the explanation for the tumultuous electoral behavior 
of the past two U.S. federal elections.
    The anxious class is newly politicized and looking for 
answers--in the Perot movement, in the ultra-conservative 
nationalist presidential candidacy of Patrick Buchanan, in a 
liberal third party and in fearful isolated groupings.
    As a nation, we must deal with this situation with 
thoughtfulness and care, studying what changes are necessary in 
our trade and investment status quo to obtain policy goals we 
choose.
    Or, we can ignore the building discontent with the status 
quo and wait for more random changes, which almost certainly 
will occur haphazardly, piece by piece.
    My organization would certainly prefer the former, 
thoughtful model of designing our future trade and investment 
policy. Indeed, we would look forward to playing a role in 
constructing such a forward-looking international trade and 
investment policy for the next millennium.
      

                                

    Chairman Crane. Thank you for your testimony.
    Ms. Wallach, you call for the moratorium on new trade 
agreements, and for all practical purposes, we have had that 
now 2 years in a row. But given that other countries continue 
to move forward in the absence of U.S. trading negotiation 
authority, wouldn't such a moratorium exclude the U.S. from 
this global process, and wouldn't a moratorium limit our 
ability to shape the new trade rules so that they support U.S. 
interests?
    Ms. Wallach. Actually, the United States is in a unique 
position to truly take a leadership role in a forward-looking 
trade policy because we are the consumer market of choice. We 
have a unique leverage, and unfortunately, a huge trade deficit 
that represents that great consumer market, that many other 
countries want access to.
    Whereas some smaller consumer markets might be in the 
situation you have described, the United States is the market 
everyone wants. We are in a position to actually promote a new 
thoughtful policy and demonstrate leadership, and it will be to 
our great detriment not to do so. The long-term implications of 
the current status quo don't suit the public interest.
    Chairman Crane. Well, one of the concerns I have in that 
area is that the absence of our negotiating authority has 
caused Brazil to consolidate its MERCOSUR relationship with our 
South American neighbors, with the exception of Chile, but the 
European Union and the Japanese and others are moving in to 
fill the vacuum created by an absence of our presence, and I 
think that would be injurious rather than beneficial to the 
very things you are concerned about.
    Ms. Wallach. All of those countries are currently members 
of the GATT. The United States has guaranteed MFN market access 
into those countries already under the GATT. The United States 
is not experiencing dropping export levels with those 
countries. The question is, What in the long term are a set of 
trade rules that guarantee market access, which is good for 
U.S. jobs and business, but also set rules for products coming 
back into the United States.
    This seems to be the half of the formula that is missing. 
What are the terms from market access into the United States? 
Now they are solely commercial, but there are key issues that 
will implicate the wages of people in Illinois what happens to 
small family farmers there.
    For instance, will we have some basic environmental and 
labor standards, or will we have a race to the bottom? And 
those are the set of issues, what the terms are for trading as 
far as market access that are very vital, and untouched now.
    Chairman Crane. Mr. Holmer, could you speak to that point, 
especially with regard to your industry and Argentina?
    Mr. Holmer. Mr. Chairman, your question is right on the 
mark. If the United States does not act, clearly, the world is 
going to leave us behind.
    Canada and Mexico, they both negotiated free trade 
agreements with Chile. The EU is looking at an FTA with the 
MERCOSUR countries. China has targeted Mexico, Argentina, 
Brazil, Chile, and Venezuela. Japan has undertaken all sorts of 
trade initiatives throughout Asia and Latin America.
    This morning Ambassador Barshefsky talked about the fact 
that with respect to Chile, there are real-world consequences 
that United States companies are facing. We are trying to sell 
telecommunications equipment into Chile. What is the effect? 
Chile has an 11-percent tariff. For Canada, that has gone down 
to zero. What is the impact on United States exports going to 
Chile? United States exporters essentially have an 11-percent 
penalty compared to our competitors in Canada. That is a real 
impact on U.S. exports and U.S. jobs.
    Regarding Argentina, we need to get stronger patent 
protection. For 8 years Argentina Government leaders have made 
commitments to the Bush administration and the Clinton 
administration that they will have strong patent protection. 
They haven't delivered.
    If we were able to have an expanded NAFTA or a free trade 
agreement in Latin America, we believe we could get Argentina 
to come across and provide the kind of patent protection law we 
need. But without that fast track authority, we will have a 
devil of a time trying to get them to come to the table.
    At an earlier time, we had the same problems with Mexico. 
We couldn't get Mexico to provide a strong patent law. What 
happened? We were going to have a NAFTA. Mr. Rostenkowski had a 
number of very serious conversations with the leaders of 
Mexico. They produced a world class patent law, and the NAFTA 
Agreement now on intellectual property is the finest 
intellectual property agreement that the United States has ever 
negotiated. That is the kind of leverage you can have with fast 
track negotiating authority.
    Chairman Crane. Now, Mr. Cowen, could you comment on 
penetrating that South American market?
    Mr. Cowen. Well, our largest growth area within TRC is 
South America.
    We have heard comments that environmental standards in 
foreign countries are actually decreasing. We are a U.S. 
company, strictly in the environmental services market; that 
the U.S. market is flat to down. If we don't go overseas, our 
business is deteriorating, similar to what is happening in our 
industry, because of a lack of reauthorization of Superfund, 
among others.
    Let me give you a couple of real examples of what we are 
doing. We designed and built a state-of-the-art, $25 million 
landfill in Santiago, Chile, for a United States client. It is 
based on U.S. environmental standards.
    We are working in Peru for the mining industry, improving 
air pollution relating to the copper industry. We have designed 
a hazardous waste cell to contain hazardous waste within 
Argentina.
    Now, environmental standards in Latin America are basically 
emerging for many reasons exclusive of United States trade 
agreements. As their economies are improving, citizens are 
looking for better environmental standards.
    I think a lack of trade policy will only hurt us. We are 
competing against the Europeans. We are competing against the 
Japanese. I think whatever we can do to enhance with a trade 
agreement by, first of all, bringing Chile as our next NAFTA 
partner, will only improve the United States selling of 
environmental technology and doing work within Latin America. 
It is probably the largest growth market, but if we don't do 
something on trade, like you said, we could be edged out of 
that market.
    Chairman Crane. Thank you very much.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Ms. Wallach, we have had a number of discussions on a 
number of issues such as these over the years, not recently, 
but over the years. Let me say this. I don't necessarily take 
issue with the goals you are trying to achieve in some of the 
areas you are discussing.
    The problem I see is that about two-thirds of the world 
population right now is in many of these less-developed 
countries, maybe even a little more than that, but I am just 
thinking about India, China, parts of Latin America, parts of 
Eastern Europe, and parts of Russia, and that being the case, 
if we basically impose a moratorium and then attempt to use as 
leverage our markets with these countries, I wonder whether or 
not we would be starting trade wars all over the world with 
approximately two-thirds of the world population.
    I think the real problem is how do we handle these things 
in a practical way. Obviously, in order to keep our economy 
running, with the slow growth that we have, 2.3, 2.5-percent 
growth, about 30 percent of our GDP is based upon trade and 
exports. What would you suggest? I would think we would have 
some severe economic problems in this country if, in fact, we 
followed the model you are suggesting.
    Ms. Wallach. You are asking what should be the relations 
with those countries that are not now under, for instance, the 
WTO?
    Mr. Matsui. I am assuming you are suggesting that with 
respect to Mexico, we perhaps roll back the tariffs or increase 
some of the tariffs. I don't want to put words in your mouth, 
but I am suggesting you favor the pre-NAFTA situation. 
Obviously, China would be a problem to you for labor reasons 
and otherwise.
    What are you suggesting we do? What are you suggesting 
would happen in terms of our trade relations with these 
countries?
    Ms. Wallach. I personally and my organization and others I 
work with, including a lot of people in those other countries, 
have some very specific ideas of what kind of international 
rules are different than these status quo rules that you would 
set up as international global commercial terms. Obviously, 
negotiating international standards versus putting in place 
unilateral ones are highly preferable. The reason why we 
believe it is very important to have a broad indepth commission 
includes some of the very issues you have raised. For instance, 
what you do about trade with China, a country of 1.2 billion 
people. These questions go to the assumptions that currently 
underlie our status quo trade policy. Our old assumptions do 
not take into account all of those potential workers there in 
Vietnam, China, and the former Soviet Union, for instance, who 
were previously excluded from global markets by their political 
and economic systems.
    There are some arguments that, for instance, insiders like 
Mr. Soros and Sir James Goldsmith have been raising about how 
you take the current set of rules and you apply them to what is 
a very different set of realities about the global work force 
and potential markets. Market size is way behind the work force 
size. Thus, the question becomes what rules do you put in place 
that actually establish markets versus just very low worldwide 
wages because of the labor surplus. Those kinds of big 
questions are why I think it is very important we stop now and 
review. We have a set of rules. They have been applied to a 
large portion of the world's economy.
    We have data coming out of those rules, and now we face 
huge questions about how to proceed--the biggest one being 
China.
    Mr. Matsui. This morning, Ambassador Barshefsky testified, 
and I have great hopes that over the next 4 years or so, she 
will make significant progress in some of these areas at the 
WTO and perhaps the administration and other international 
organizations, but particularly the WTO.
    She was able to get the issue of labor on the table, and it 
is going to take time. There is just no question, because these 
countries obviously don't have the same standards as we do.
    Some of them go all the way back to the 1890's when we were 
not having particularly strong labor standards ourselves. The 
problem is you have different stages of development of 
countries that we are trading with. Obviously, we would like to 
have some symmetry, but it is a very, very difficult problem, 
and I don't know how you really address this problem except to 
engage these countries and trade with them and hope that you, 
through trade, affect their behavior somehow and affect some of 
the standards they might have.
    Ms. Wallach. May I just address this issue of labor rights?
    Mr. Matsui. Yes, please. Yes.
    Ms. Wallach. When I saw the actual language coming out of 
the Singapore Ministerial, frankly, I found it to be one of the 
most depressing turn of events at the WTO, given that while the 
word ``labor standards'' was mentioned, it was in the context 
of dismissing the propriety of those issues being dealt with in 
connection to trade rules and that rather, the ILO should be 
the body of jurisdiction.
    So, to the extent there are some people who think what you 
do is, if you will, ``green the GATT,'' ``blue the GATT,'' by 
putting labor and environmental and other rules in parallel to 
the trade rules, what seems pretty apparent is that actually 
the direction of that body is just to the contrary. There was a 
vacuum before Singapore about whether or not those issues would 
be considered appropriate. The Singapore Ministerial 
Declaration gave the first political signal that no, in fact, 
they weren't appropriate to include in trade terms.
    Mr. Matsui. In fact, you are right. They did suggest to go 
to the ILO. On the other hand, we did get this on the table, 
and obviously, we are going to continue to discuss this with 
them. I think, over time, perhaps we are going to make some 
changes, but this is a matter that is going to take, in my 
opinion, significant time. We are not going to be able to solve 
this problem in 1 month or 2 months or 10 months or even 5 or 6 
years, perhaps, but obviously, we have to make a start.
    Again, I don't disagree with your goals. I think this is a 
very serious environmental issue, obviously the whole labor 
issue. I just don't know how we can address these issues in any 
other context except in the WTO. Obviously, using sanctions, 
trade sanctions on many of these things could just result in an 
escalating trade war that we would lose control over.
    I know we have had these discussions in the past. On the 
other hand, I appreciate what you are doing in the sense of 
raising these issues.
    Ms. Wallach. And turning it into a big discussion is why 
the idea of the blue-ribbon panel--because what you just bring 
to mind is a saying, one of my Malaysian colleagues often 
repeats: If you have your whole family packed into a car and 
you are going really fast on a road, but you are not quite sure 
where it is going and you have heard there could be some 
cliffs, before you just keep going straight on at full speed, 
you slow down or you stop and look and see where you are going. 
That is the point of taking a review now.
    We have made a lot of steps in one direction. Now the 
question is, What are the outcomes?
    Mr. Matsui. Mr. Seligman.
    Mr. Seligman. Thank you, Mr. Matsui.
    To carry Lori's metaphor one step further, actually, I am a 
little bit perplexed, given the fact there have been a number 
of questions raised about the NAFTA and the WTO, why we are 
rushing ahead so rapidly with this new investment agreement 
with implications that are so great, the multilateral agreement 
on investment.
    Mr. Matsui, you ask about a practical step to begin to 
insert, if you will, different kinds of rules into these 
agreements. The MAI, multilateral agreement on investment, as 
it is being negotiated right now, in the Organization for 
Economic Cooperation and Development, is really among the 
wealthier countries of the world. It is not a question of 
north-south trade or north-south investment. It is not a 
question of bridging standards between developed and less-
developed parts of the world. And yet, there are absolutely no 
provisions whatever in this agreement to deal with the 
environmental issue, or labor issues for that matter.
    It is particularly troubling because the Organization of 
Economic Cooperation and Development actually has a policy on 
its book requiring or calling for--it is nonbinding, of 
course--calling for environmental assessment of major trade and 
investment agreements.
    Now, it would seem to me a fairly simple matter for the 
United States, which represents conceivably 30 or 40 percent of 
OECD production, to simply call on its trading partners to live 
up to the policy on the books. Why don't we find out what the 
environmental implications of that agreement are before rushing 
ahead and implementing it?
    I would call your attention to one example I cite in my 
testimony of investment liberalization in the country of 
Brazil, which has been mentioned here, and that investment 
occurred principally in the mining sector, which as you know is 
very sensitive, in particular because many of the ores in 
Brazil lie beneath the Amazon rain forest, otherwise known as 
the lungs of the world.
    There is a particularly amusing, from my standpoint, remark 
by a Toronto investor bemoaning the fact that there are all 
those darn trees in the way that the mining companies have to 
get rid of before they can make good on their investment.
    I am just pointing this out as an example of the kind of 
conflict, unintentional, we may be getting into when we are 
rushing ahead with trade and investment liberalization without 
looking down the road and seeing that a cliff lies ahead that 
we should be paying attention to.
    Mr. Matsui. Thank you. I thank all four of you. I 
appreciate it.
    Chairman Crane. Well, I want to thank you all, too, and 
remind you again that your printed statements will be made a 
part of the permanent record, and thank you for participating.
    And now our final panel which consists of Sidney Weintraub, 
William E. Simon Chair in Political Economy at the Center for 
Strategic and International Studies; John Sweeney, a policy 
analyst for International Trade and Latin American Issues at 
the Heritage Foundation; and Mitchell Cooper, counsel to the 
Rubber and Plastic Footwear Manufacturers Association.
    Gentlemen, if you will try to confine your oral 
presentations to no more than about 5 minutes, your printed 
statements will be made a part of the permanent record. And 
with that, we will start with you, Mr. Weintraub.

   STATEMENT OF SIDNEY WEINTRAUB, WILLIAM E. SIMON CHAIR IN 
   POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Mr. Weintraub. Thank you, Mr. Chairman. I am going to talk 
primarily about free trade in the Western Hemisphere. I want to 
introduce some comments at first on NAFTA, but I don't want to 
dwell on NAFTA. Many of the points I am going to make, you have 
already heard. I heard some of them, and I haven't been here 
all day, but I will go ahead and make them very briefly, in any 
event. Repetition won't hurt too much.
    First, my own background. I am now at the Center for 
Strategic and International Studies. I had been a professor at 
the University of Texas at Austin for about 20 years. I spent 
about 25 years before that in the U.S. State Department, much 
of that working on trade and financial issues. That is my 
background.
    I want to make one or two points about NAFTA, and then I 
will go on to free trade in the hemisphere. The big fear when 
NAFTA was being debated in the United States was that it would 
cause great loss of jobs because of the low wages in Mexico, 
the runaway investment, and the resultant imports back into the 
United States.
    I have written about this in a book that just came out, but 
let me just sort of summarize my main point. Since NAFTA has 
been in effect, the United States has been creating about 2.5 
million jobs a year. Every time employment seems to go up too 
much, not only does Wall Street go bonkers, but Alan Greenspan 
and the Federal Reserve try to slow down the job creation.
    The problem, as we have had it, as the Feds sees it, is not 
that we are losing jobs, but that we are creating too many 
jobs. Therefore, the argument that NAFTA would lead to massive 
job loss just isn't so. It just hasn't been brought out.
    Every 2 weeks we create as many jobs as have been certified 
as lost as a result of increased imports from Canada and 
Mexico. I don't want to make light of the fact of the people 
who are losing those jobs. They need assistance. That is a real 
issue, but the issue of massive job loss in the United States 
has proved to be quite false. Just the reverse is going on.
    Many of your previous witnesses talked about the growth in 
trade with Mexico, despite the financial collapse at the end of 
1994 and 1995. I won't repeat that, but the existence of NAFTA 
and the way Mexico went about its recovery was really quite 
remarkable.
    There is also an argument that we lose jobs when imports 
occur. You can't very well be losing jobs when imports occur if 
you are already at full employment. If you are already at full 
employment, any additional jobs would just lead to greater 
inflation. I suggest that many of the criteria which people use 
to attack NAFTA won't stand up to careful investigation.
    I also have great problems, as most economists do, and that 
is my discipline, with looking at bilateral trade balances to 
represent a global picture of what happens in the U.S. trade.
    Let me make 10 points about free trade in the Americas, and 
many of those, these points, have already been made by others, 
and therefore, I don't think I have to spend too much time on 
them.
    The first one is that our tariffs are already lower than 
everybody else in the hemisphere, and second, we are facing 
discrimination in these markets. These points were made over 
and over again by many of your other witnesses, and therefore, 
I just find it incomprehensible that we would not try to level 
the playingfield in our competition in Latin America.
    Second, if you look at the United States share of exports 
into Latin America, we capture about 40 percent of the Latin 
American market. We capture, by contrast, about one-half as 
much or less, of the markets in other continents, of the 
European market or the Asian market. The failure to enter into 
hemispheric trade in this market really means that we are going 
to sacrifice the very market where we have the greatest natural 
advantage, and it is very hard for me to understand why we 
would want to do that.
    The third point is, a lot of the discussion really revolves 
around merchandise trade. Many executives came here. These 
chief executive officers are involved not only in merchandise 
trade, they are involved in the export of services, and the 
export of services, in a way, it is far more dynamic than the 
export of goods.
    All of the antifree trade arguments seem to leave out that 
this is one of the great competitive advantages of the United 
States. Telecommunications, videos, insurance, banking, 
transportation, you name it, and the best way to open up other 
markets which are even more closed, relatively, to services 
than they are to goods.
    A point made by others, U.S. tariffs now average about 3 to 
4 percent. Latin American tariffs average from about 10 to 25 
percent, or 11 percent if you pick Chile. It is a good deal for 
us to negotiate. We give up much less than we get back in 
return.
    One of the important things to keep in mind is that the 
whole development model of Latin America went through a 
profound transformation in the eighties, from being a closed 
area, highly dependent on import substitution, not too 
concerned about exports. The model has changed completely. 
Latin America is now opening. The countries are depending on 
exports. In other words, we are now negotiating, or would, if 
we could negotiate, with a group of countries that do not look 
inward, but with a hemisphere that is now globally engaged.
    Several of your previous witnesses made the point that 
other countries are now entering into talks with Latin America. 
The European Union is there. Jacques Chirac just made a trip to 
South America. The German Chancellor has been there recently. 
The Japanese Prime Minister has been there recently.
    All countries are engaged in the globalization taking 
place. Many of the people who are advising us not to go ahead 
with a free trade area in the Americas, not to go ahead with 
further negotiation are really saying they don't want 
globalization. That is understandable, but globalization is a 
force beyond anything we can do in this room, and it is almost 
childish, I think, to sort of say let's withdraw from the 
world. We can't do it. We can't do it at all.
    Two other quick points and then I will quit. The hemisphere 
is now largely democratic. Some of the democracies are weak, 
but it is all there. For the first time in the modern era, 
maybe the first time ever, what exists in Latin America are two 
conditions that should be very important to us, open markets 
and democratic dominance. I think this is the moment to take 
advantage of these two phenomena which we should and do deeply 
believe.
    Let me make one economic point that I would like to close 
with. The United States is going to have a deficit in the 
current account of its balance of payments, in its trade in 
goods and service, and as long as we invest more than we save. 
This must be so because of the way we keep our balance-of-
payments accounts. Since we generally have a surplus with the 
world in our exports of services, this means that the deficit 
is going to have to be in the trade account. There is no way to 
avoid a global deficit in the trade account if our savings 
don't increase enough to cover our investment. That is just the 
double-entry bookkeeping of the balance of payments.
    What I am saying is that protectionists, even if they were 
to succeed, would not eliminate the merchandise deficit, unless 
they were willing to give up a lot of the investment now being 
made, or unless we were able to save more than we are saving 
now. I think this point ought to be kept in mind as this debate 
goes forward.
    Thank you.
    [The prepared statement follows:]

Statement of Sidney Weintraub, William E. Simon Chair in Political 
Economy, Center for Strategic and International Studies

    The United States, under the North American Free Trade 
Agreement, already is moving to eliminate trade barriers 
between Canada, Mexico, and the United States. My emphasis, 
therefore, will be on U.S. trade policy toward the rest of the 
Western Hemisphere.

                          Performance of NAFTA

    First, however, a few words about NAFTA because its 
progress has influenced thinking about hemispheric free trade. 
Those who opposed NAFTA at the outset are continuing a drumbeat 
against the agreement. As is generally known, the opponents of 
NAFTA point to the collapse of the Mexican economy in 1995, the 
alleged loss of jobs due to direct investment in both Mexico 
and Canada, and the large U.S. merchandise trade deficits with 
each of the two countries.
    I do not wish to engage in a lengthy discussion of NAFTA 
here, but I have done so in a book published recently by the 
Center for Strategic and International Studies, entitled 
``NAFTA at Three: A Progress Report.'' I wish to make just a 
few points. The massive loss of jobs alleged to have resulted 
from NAFTA is made against the backdrop of record job-creation 
in the U.S. economy of some 2.5 million a year since the 
agreement has been in effect. The U.S. ``problem,'' as the 
Federal Reserve sees it, is too much job-creation.
    The total documented U.S. job loss due to increased imports 
from Canada and Mexico is about 120,000 for the three plus 
years NAFTA has been in place. The United States has created as 
many jobs every two weeks as have been documented to be lost 
because of imports from Canada and Mexico over the entire 
existence of NAFTA. And this does not count the jobs created by 
increased exports to those two countries. The reality is that 
job-creation in the United States depends overwhelmingly on 
developments in the domestic economy.
    Looking just at Mexico, two-way trade was $81.5 billion in 
1983, the year before the agreement went into effect. Last 
year, 1996, two-way trade was almost $130 billion. All of the 
increase was not due to NAFTA, but much of it was. U.S. exports 
to Mexico in 1993 were $42 billion and last year they were $57 
billion. Canada and Mexico are our first and third most 
important trading partners.
    The United States did have a large deficit in merchandise 
trade with Mexico last year, amounting to $16 billion. The 
merchandise trade deficit with Canada was $23 billion. The 
argument that this led to the loss of jobs is belied by the 
facts of U.S. job-creation. The U.S. Federal Reserve Board has 
conducted monetary policy since NAFTA has been in place on the 
assumption that the United States has full employment. This, in 
essence, means that the U.S. economy as a whole could not have 
created more jobs without stimulating inflation. Under these 
circumstances, the imports from Canada and Mexico provided 
greater choice to consumers without overall job loss.
    Some people lost jobs in competing industries. Some workers 
were unable to take advantage of the job-creation of the U.S. 
economy. But the way to deal with these problems is through 
better adjustment programs, not to deny choice to 260 million 
consumers.
    The U.S. merchandise trade deficit with Mexico can be 
explained mainly by the combination of U.S. economic growth and 
economic decline in Mexico in 1995. By now, the Mexican economy 
is recovering. A bilateral merchandise trade balance is not 
normally a meaningful measure. It omits trade in services, 
which is about 20 percent the size of merchandise trade; the 
United States generally exports more services than it imports 
from the two NAFTA partners, but this also depends on income 
growth. Looking at trade with a single country uses a shifting 
bilateral measure instead of the global picture of U.S. trade. 
And, most important, focusing on the merchandise trade balance, 
whether bilateral or global, shifts blame to others for 
outcomes produced at home.
    The United States inevitably will have a deficit in the 
current account of the balance of payments as long as it 
invests more than it saves. We must, under these circumstances, 
import capital to finance the investment and, the way the 
balance of payments is measured, this translates into a current 
account deficit to compensate for the capital account inflow. 
The largest single element of the current account is 
merchandise trade. Those who believe that the sky is falling 
because the United States has a bilateral or global trade 
deficit (and it is not clear to me why they believe this) 
should focus on the real causes (inadequate U.S. saving) and 
not blame foreigners for our own shortcomings.

                       Free Trade in the Americas

    Enough on NAFTA. I would like to turn to the rest of the 
hemisphere. In the interest of brevity, I will limit myself to 
ten reasons for seeking free trade in the Americas.
    1. As the United States dawdled on taking steps toward 
negotiating a Free Trade Area of the Americas, facts were being 
created on the ground by other countries. Argentina, Brazil, 
Paraguay, and Uruguay formed and deepened MERCOSUR, the Common 
Market of the South. Other subregional economic groupings were 
reinforced in the Andean countries, Central America, and the 
Caribbean. Many countries entered into bilateral and 
plurilateral free-trade agreements. Chile and Bolivia 
associated themselves with MERCOSUR. MERCOSUR is flirting with 
the idea of a free-trade agreement with the European Union.
    This means that U.S. products already are facing 
discrimination in exporting to South and Central America, and 
will face even more in competition with products from other 
countries in Latin America, and perhaps even in Europe. This 
can be significant for many products and can affect U.S. 
agricultural and manufactured exports. The only way to overcome 
this handicap is by entering into free trade ourselves. There 
is no other realistic option. Members of this Congress who 
oppose free trade must explain to exporters in their districts 
why they must compete in the hemisphere under a handicap.
    2. This is our hemisphere. U.S. exporters capture more than 
40 percent of the Latin American and Caribbean market, compared 
with proportions one-third to one-half as large in other 
hemispheres, such as Europe and Asia. Thus, as hemispheric 
countries grow economically and suck in imports, the effect is 
considerably greater for U.S. traders than is similar growth in 
Asia or Europe. The failure to enter into hemispheric free 
trade sacrifices this natural advantage in what has been our 
most favorable market.
    Omitting Canada and Mexico, for which free trade already 
exists, U.S. exports to hemispheric countries were almost $53 
billion in 1996. The merchandise trade balance with this region 
was positive by about $3.5 billion, but this, in my view, is 
not in itself an important consideration. What is worth keeping 
in mind is that as Latin America prospers, and it inevitably 
will in light of the responsible economic policies being 
followed in the main countries of the region, its large 
population represents a significant and growing market. Why 
would we want to give it away?
    3. The United States exports more than goods; we also sell 
services. When the anti-free traders make their arguments, they 
invariably omit U.S. exports of telecommunication services, 
movies, videos, insurance, banking, transportation, and a host 
of other services. These service sales are estimated to be 
about 20 percent the value of merchandise exports. The most 
dynamic U.S. exports are related to services, such as those 
deriving from the information revolution that is largely a U.S. 
creation. The precedent for inclusion of services in trade 
agreements was established in NAFTA and carried over, although 
less comprehensively, in the Uruguay Round of the General 
Agreement on Tariffs and Trade. The best way to assure an open 
market for U.S. service exports to Latin America and the 
Caribbean is through a hemispheric free-trade agreement 
encompassing these activities.
    4. A modern free-trade agreement does not stop at trade in 
goods and services, but goes beyond that to examine internal 
measures that impede trade. Trade negotiations no longer are 
limited to tariff reduction, as is evident from the 11 working 
groups set up in the hemisphere after the Miami Summit meeting 
of December 1994 to deal with other issues.
    NAFTA includes provisions on investment, government 
procurement, the protection of intellectual property, standards 
for industrial goods, sanitary and phytosanitary standards, 
customs procedures, and dispute settlement, among other 
matters. The NAFTA parallel agreements contain understandings 
on environmental and labor protection and, while I realize that 
these are controversial, the disagreement relates primarily to 
the use of trade sanctions for carrying them out, not to the 
underlying desire to deal with these issues internationally. I 
hope that persons of good will on both sides of the aisle in 
the Congress do not hold up the benefits of hemispheric free 
trade by their inability to resolve their differences on these 
issues.
    5. The Uruguay Round brought U.S. tariffs down to about 3 
to 4 percent on average, while those in Latin America and the 
Caribbean range from 10 to 25 percent. Even the 3 to 4 percent 
range is overstated because of the many nonreciprocal tariff 
preferences granted by the United States to developing 
countries generally, to nations in the Caribbean Basin, and to 
those in the Andean region. The price for the United States to 
obtain access to Latin American and Caribbean markets in a 
hemispheric free-trade negotiation is a bargain. There are, of 
course, higher U.S. tariffs and other barriers on sensitive 
products, just as there are prohibitive restrictions on the 
importation of many products elsewhere in the hemisphere. The 
most arduous negotiations will be on these products, but this 
does not negate the conclusion that the United States would get 
more trade-barrier reductions than it would have to give up in 
hemispheric free-trade negotiations.
    6. The prevailing economic development model in Latin 
America and the Caribbean changed radically during the 1980s, 
from closed markets based on an import-substitution model, to 
open markets that stress the imperative of exporting. These 
changes were urged for many years by the United States. Nations 
largely closed to foreign direct investment now actively seek 
such investment from the United States and other industrial 
countries. We are no longer negotiating with countries that 
look inward, but rather with a hemisphere that has become 
globally engaged.
    The idea of hemispheric free trade, which would have been 
rejected out of hand 15 years ago, was greeted with enthusiasm 
when first proposed by President Bush in the Enterprise for the 
Americas initiative in 1990. There is now less enthusiasm in 
the hemisphere, largely because the United States has given 
little indication that it really intends to follow through. 
Negotiation for hemispheric free trade requires the granting of 
fast-track authority to the administration and the failure to 
achieve this raises skepticism in the hemisphere about U.S. 
trade intentions.
    7. Those who oppose an open U.S. market in exchange for 
open markets elsewhere in the hemisphere are, in essence, 
modern-day Luddites. They reject the reality of globalization 
under which investment moves out of the United States as well 
as into it. They would prefer that the United States produce 
all kinds of products, those that require low skills and 
provide only low wages, rather than emphasize those industrial 
and service activities that require skilled personnel and new 
technologies. They can no more succeed than could the Luddites 
and still retain a vibrant, high-wage, productive U.S. economy. 
U.S. companies are not alone in seeking opportunities for 
foreign investment and coproduction as the way to enhance trade 
competitiveness. Western European countries and Japan are doing 
the same. U.S. companies have a long history of investment in 
Latin America and the Caribbean and this is one reason why they 
dominate most hemispheric markets. The United States cannot 
close itself off from the imperatives of globalization and 
still remain prosperous; and there is no region where this 
reality is more germane than in our own hemisphere.
    8. Today, almost for the first time in the history of the 
Americas, all countries in the hemisphere, save Cuba, are 
democratic. Many of the democracies are frail. Many have 
electoral and other flaws. Many countries in the hemisphere 
lack universal educational opportunities, have weak judicial 
systems, and tolerate excessive corruption. But the essential 
building block is there in the form of democratically elected 
governments and legislatures and the conviction that further 
development of their democracies is the path of the future. 
This situation does not exist in widespread fashion in other 
regions, other than Western Europe. Hemispheric free trade can 
thus take advantage of two features that hardly existed 
earlier, economic policies based on market principles and 
political structures based on democratic aspirations.
    9. Two points mentioned earlier in the discussion of NAFTA 
should be emphasized, one on jobs and the second on merchandise 
trade deficits. There is no evidence that an open market 
prejudices U.S. job creation. We have witnessed this in recent 
years, when jobs were created at record levels in the United 
States at the very time of maximum U.S. openness to imports and 
during the three years of NAFTA's existence. There is now 
examination among U.S. economists as to whether and how much an 
open market prejudices the wages of low-skilled U.S. workers, 
but there is little disagreement on the point that U.S. job-
creation depends overwhelmingly on domestic economic policy. 
The argument that hemispheric free trade would lead to massive 
job losses in the United States has as little basis as the 
contention that NAFTA would lead to substantial net job losses.
    10. The United States must have a current account deficit 
as long as it invests more than it saves at home. There are two 
key parts to the current account of the balance of payments, 
trade in goods and trade in services, and the United States 
today exports more services than it imports. This makes it 
inevitable that the deficit will show up in the merchandise 
trade account. Blaming government negotiators, or open markets, 
or the unfairness of other countries, or whatever, will not 
change this reality. The corrective is straightforward--to save 
more, if we do not wish to reduce investment. Raising U.S. 
savings by eliminating the budget deficit should help reduce 
the merchandise trade deficit.
    The United States is a global trader. It will have 
bilateral deficits with some countries and surpluses with 
others. The United States now has a modest surplus in 
merchandise trade with Latin America, other than Mexico. 
However, these bilateral and regional numbers are subject to 
change, almost year by year, depending on the relative 
strengths and weaknesses of economies. Protectionism does not 
get at the root issue of trade balances, the cries of 
protectionists notwithstanding.
      

                                

    Chairman Crane. Thank you, Mr. Weintraub.
    Mr. Sweeney.

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

    Mr. Sweeney. Mr. Chairman, Members of the Subcommittee, 
thank you very much for the invitation to be here today.
    I submit a longer written testimony for the record. I won't 
repeat many of the points my colleague, Dr. Weintraub, made. I 
agree with them wholeheartedly.
    My background includes 33 years living and working in 
Central and South America in trade, primarily, as a businessman 
and as a journalist. I think I know the area and the issue 
quite well.
    America began retreating from free trade the day that the 
peso collapsed in 1994 in Mexico. That retreat until now has 
not been reversed, and every day that passes, every minute that 
passes, we lose position in the Western Hemisphere. We lose 
influence and leadership in the Western Hemisphere. We lose 
markets in the Western Hemisphere, and we lose jobs here in 
America as a result.
    The 105th Congress and the Clinton administration should 
seek to achieve some very specific objectives to reestablish 
America's leadership role in the process of worldwide expansion 
of trade.
    First, we have to put American trade expansion back on 
track. Second, we must expand the North American Free Trade 
Agreement to Chile. Third, we must enlarge and deepen the World 
Trade Organization. Fourth, we must support the Asia-Pacific 
economic cooperation forum to make it a better vehicle for 
liberalizing Asian trade. Fifth, we must work at improving 
United States relations with China, which admittedly is a 
difficult challenge. Sixth, we must strengthen America's trans-
Atlantic ties with the European Union, and seventh, we must 
build congressional and public support for free trade and 
investment.
    Now, to reverse the retreat from free trade that we have 
seen in the last 2 years, it is absolutely indispensable that 
Congress grant the executive a new fast track negotiating 
authority quickly in order to facilitate Chile's accession to 
the NAFTA.
    The enlargement of NAFTA to include Chile would reaffirm 
America's commitment to creating a Free Trade Area of the 
Americas by 2005. Moreover, the inclusion of Chile in NAFTA 
would confirm America's commitment to leading the FTAA process 
at the same time that it would open a new gateway for United 
States exports to markets in South America and APEC, of which 
Chile is also a member, as well as MERCOSUR, of which Chile is 
now an associate member.
    The renewal of broad fast track negotiating authority, 
without any language linking trade issues to labor standards 
and the environment, would also 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 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 in this 
world today will invest the time or the resources in 
negotiating any kind of trade agreement with the United States 
if American negotiators cannot guarantee that any agreement 
reached will not be mutilated beyond recognition by the U.S. 
Congress.
    However, to get America's trade expansion back on track, we 
need strong presidential leadership. Without strong executive 
leadership, even the wisest and best-intentioned congressional 
leadership will find it nearly impossible to advance America's 
trade interests. So far, we have not seen that leadership 
forthcoming.
    Before closing, I would like to make a couple of points 
here about an issue that has been very much on the agenda in 
the last 3 weeks. It was not going to be part of my testimony, 
but I would like to talk about the issue of Mexico drug 
certification.
    Congressional critics of President Clinton's decision to 
certify Mexico as an ally fully cooperating in the fight 
against drug trafficking are right to question that decision. 
Mexico could be doing more to aid in that process. However, 
decertifying Mexico will not purge the corruption in Mexican 
law enforcement. It will not reduce the flow of illegal drugs 
crossing the United States-Mexico border every day, and it 
might well weaken the Zedillo administration beyond recovery.
    Before voting to decertify Mexico, Congress should 
carefully weigh the potentially negative consequences of 
punishing Mexico for the Clinton administration's failed drug 
policies, and I would like to mention just two of these 
consequences, and I will stop, sir.
    First, it would probably scare foreign investors into 
pulling their money out of Mexico. Decertification would be 
equivalent to an official no-confidence vote in the stability 
of the Mexican economy, and many foreign investors would react 
accordingly by divesting themselves of Mexican bonds and 
equities. More economic hardship in Mexico would fan the fires 
of growing social discontent in that country, and it would 
certainly increase the incentive for many Mexicans to migrate 
illegally to America.
    The second consequence that it would have that I would like 
to mention here is that it would derail U.S. trade expansion in 
the rest of the Western Hemisphere. The Mexican drug 
certification flap between Congress and the Clinton 
administration has pushed trade off the congressional agenda 
for the past 3 weeks.
    If Mexico is decertified, the future of NAFTA would be in 
doubt. If NAFTA fails, not only would we see more hardship and 
turmoil in Mexico, but we will have no vehicle upon which to 
build a Free Trade Area of the Americas.
    Thank you, sir.
    [The prepared statement follows:]

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

                   Free Trade Is Important to America

    Free trade makes good economic sense. It creates jobs and 
maximizes personal economic liberty; it provides a larger 
market in which American companies can sell their products; and 
it enables businesses to import crucial components to 
manufacture products in a cost-competitive manner. 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 Americans, which the following 
facts substantiate:
    America is the world's largest exporter of goods and 
services. In 1995, America sold over $783 billion in goods and 
services worldwide. According to the Office of the U.S. Trade 
Representative, total international trade accounted for 30 
percent of the 1996 U.S. gross domestic product (GDP), or $2.3 
trillion. 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.
    Since the collapse of the Mexican peso at the end of 1994, 
however, NAFTA has become a political football for politicians 
who claim that free trade causes such domestic problems as 
increased drug trafficking and illegal immigration. But these 
critics are mistaken. NAFTA did not cause the Mexican peso 
crisis and is not responsible for America's social problems. 
Moreover, far from being a failure, NAFTA has scored some 
impressive trade and investment successes. During NAFTA's first 
two years (1994 and 1995), trade and foreign direct investment 
among the U.S., Mexico, and Canada increased. The average U.S. 
tariff on Mexican products fell from 3.5 percent to 1.5 
percent, while average Mexican tariffs on U.S. products dropped 
from 10 percent to 4.9 percent. As a result, trade among the 
three NAFTA countries rose by 17 percent in 1994 to $350 
billion, and bilateral U.S.-Mexico trade grew by 20.7 percent, 
surpassing $100 billion for the first time.
    In 1995, despite the recession caused by the peso's 
collapse, overall U.S.-Mexico trade increased 8 percent to $108 
billion, while total intra-NAFTA trade grew 10.6 percent to 
$380 billion. After declining by 8.9 percent in 1995 to $46.3 
billion, U.S. exports to Mexico increased by 12.1 percent 
during the first three months of 1996 compared with the same 
period in 1995.
    During 1996, two-way merchandise trade with Mexico 
increased 20.2 percent from the previous year, to nearly $130 
billion, of which $56.7 billion were U.S. exports to Mexico, 
while $73 billion were imports from Mexico, including $36.8 
billion of exports that originated from maquiladora assembly 
plants in Mexico. Exports now account for about 30 percent of 
Mexico's gross domestic product.
    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

    To reverse America's retreat from free trade, 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.

The U.S. Should Seek to Improve Relations with China.

    China is indisputably one of the most important challenges 
facing American policymakers. China's emergence as a great 
power will be among the defining events of the next century. 
This will be true not only for Asia, but for the international 
system as well. How China integrates into the international 
system, and whether it accepts or rejects existing 
international economic, political, and legal norms, will define 
the very nature of that system. The U.S. should not try to 
isolate China in the international community. Instead, U.S. 
policy should seek to open and expose China to the outside 
world. Washington should work to expand the economic freedoms 
which international commerce and China's own modernization have 
engendered. International trade will continue to open China's 
economy, furthering economic reform, economic freedom, and, 
ultimately, greater political openness. To achieve these goals, 
the U.S. government should pursue several strategies:
    (1) Congress should renew MFN status for China. The U.S. 
should encourage China to open itself to the outside world and 
to adhere to international rules and standards of conduct. 
However, the U.S. also should punish China selectively for 
security transgressions, but do so without unduly hurting 
Americans or isolating China. Instead of revoking MFN, which 
would harm Americans more than Chinese, not solve China's human 
rights problems, and isolate China from further American 
influence, we should approach China with carrots and sticks--
promising to reward them when they adhere to international 
standards (with support for WTO membership, for example, if 
they meet the criteria), but punishing them selectively when 
they do not. We want to keep China open to U.S. trade and 
influence, but that does not mean that we give them a blank 
check to do anything they please.
    We should continue MFN status for China, encourage non-
military trade, maintain high level contacts, and support 
public diplomatic activities inside China. However, we must 
also be willing to consider some ``sticks'' to express our 
displeasure over threatening behavior. For example, we should:
     Consider restrictions on Chinese military 
commercial activities.
     Urge the Clinton administration to be far more 
vigilant in enforcing U.S. sanctions against Chinese 
transgressions in proliferating missiles and militarily 
dangerous technologies.
     Curtail World Bank support for China.
     Restrict the flow of satellite expertise and 
technologies to China.
     Maintain a strong military presence and capability 
in Asia to deter China from aggression.
     Work with our friends and allies in Asia to 
develop a defense against Chinese and other ballistic missiles.
    We share concerns about Chinese human rights abuse but we 
feel that revoking MFN would only make matters worse. Instead 
of revoking MFN, we should offer alternative ``sticks'' with 
which to punish China--sticks which address the specific 
security threats to Americans, but which avoid a general cut-
off of trade that would be harmful to American interests. 
However, we should not apologize for China's behavior by 
adopting an ``engagement at any cost'' approach, or by over-
emphasizing China's progress toward liberalization. Our 
approach is one of balance--one that best serves the interests 
and values of all Americans.
    Our goal is a peaceful and mutually productive relationship 
with China. As it now stands, it makes no sense to assume that 
we have two simplistic choices--either to ``engage'' China 
regardless of what they do, or to ``contain'' and isolate them. 
These are false choices. Instead, we should have a balanced 
policy that moves China, however slowly, in the right 
direction. This requires telling the Chinese clearly what we 
(and the world) expect of them, to reward them when they 
comply, but to punish them (selectively) when they don't. These 
``rules of the road'' should be the benchmark against which we 
measure the breadth and depth of our engagement of China.
    If we cut off all trade with China, Europeans, Japanese, 
Koreans and others will rush in to take our place, relieving 
China of the economic pressure intended by the trade cut-off. 
In fact, the Chinese government would likely retaliate by 
cracking down on dissidents even more.
    The best way to promote human rights in the long-run in 
China is to retain MFN, because it creates internal pressures 
and external influences that favor liberalization. Some 
disagree, arguing that economic liberalization has not produced 
enough political freedoms or democracy in China. But these 
skeptics exaggerate the degree of economic liberalization in 
China. The Heritage Foundation's Index of Economic Freedom 
shows that China, economically, is still ``mostly unfree.'' 
Therefore, we should not be surprised that political 
liberalization has been so slow. As China liberalizes more 
economically, we would expect more political liberalization to 
follow.
    Trading with commercial Chinese companies that manufacture 
shoes and other consumer goods is good for the cause of freedom 
in China. It spreads free market values and institutions and 
opens China to outside influences. However, we should not 
necessarily allow Chinese military front-enterprises unimpeded 
access to the U.S. if doing so endangers our security. Not all 
trade with China is equal. Some is good while some is 
potentially harmful if it spreads weapons that endanger 
Americans and American interests. We need to distinguish 
between these two types of trade.
    The ``isolate China'' strategy has been tried and failed. 
There was a time when we not only did not have trade relations 
with China, but did not have diplomatic relations as well. Yet, 
during this time, when China was going through its horrible 
Cultural Revolution, millions of Chinese were killed and 
suffered unspeakable human rights abuses. Historically, the 
more isolated communist China has been from the outside world, 
the worse it has treated its people.
    It is not appropriate to apply Cold War analogies of China 
and the Soviet Union. China is a growing dynamic economy, not 
the economic basket case of the Soviet Union; therefore, it is 
not about to crack if we apply enough pressure. Others will 
simply trade with China if we do not. Nor is China the military 
threat the Soviet Union was. China does not now possess the 
ability to project its conventional military power around the 
globe the way the Soviet Union did during the Cold War 
(although it does have nuclear ballistic missiles). We should 
be vigilant and deter China if it should become aggressive in 
the future, but we are not yet on a Cold War footing with 
China.
    China is not yet an enemy, but it does cross our security 
interests on certain issues--proliferation and Taiwan, for 
example. When it does, we should respond forcefully. Therefore, 
we should consider imposing limited and targeted trade 
restrictions on Chinese commercial activities that threaten our 
security. However, the U.S. should not revoke China's MFN 
status.
    (2) The U.S. should support the accession of China to the 
WTO as a developed country, when it meets the criteria. The 
accession of China to the WTO would give China an enhanced 
stake in the stability of the global trading system and in the 
peace and prosperity of the Asia-Pacific region. By integrating 
China into the WTO, the ability of U.S. policymakers to 
persuade China to respect the rules of the international 
trading system would increase significantly. Moreover, the 
conditions under which China joins the WTO will establish a 
precedent for about 30 other countries that also want to join 
the world trade body.
    If the conditions for entry are too rigid, China may be 
discouraged from joining the WTO and choose instead to remain 
outside the global trading system, exporting its goods to other 
countries (including the U.S.) without being subject to the 
same trading rules observed by its trade partners. However, if 
the conditions established for China's entry into the WTO are 
too lax, other countries waiting in line to join the WTO 
certainly will seek similar conditions. The U.S. should 
encourage China's accession to the WTO as a developed country, 
allowing some flexibility in terms of the deadlines for China's 
compliance with the standards applicable to developed 
countries. However, purely political considerations--such as 
Beijing's insistence that it enter the WTO before Taiwan--
should not be a factor.
    However, there is a caveat: If it turns out that China is 
guilty of involvement in the Democratic Party's campaign 
fundraising scandals, such a turn of events would seriously 
jeopardize China's prospects for joining the WTO and retaining 
its MFN status.
    (3) Congress should encourage the Administration to 
negotiate a bilateral intellectual property protection pact 
with China. As a quid pro quo for supporting China's accession 
to the WTO, the U.S. should press China to negotiate a 
bilateral agreement on intellectual property protection based 
on NAFTA standards rather than the WTO's TRIPS agreement. The 
objective of such an agreement should be to apply the rule of 
law across the entire country, instead of the current unwieldy 
and inefficient process whereby China's progress in this area 
is based on a quota system that quantifies the number of 
factories closed for violating intellectual property rights.

The U.S. should seek to enlarge and deepen the World Trade 
Organization.

    The United States has long been a supporter of the General 
Agreement on Tariffs and Trade (GATT), an international 
agreement first signed by 24 countries (including the U.S.) in 
1947. The first GATT trade agreement reduced barriers to trade 
that helped cause the global depression of the 1930s. Since 
1947, there have been eight rounds of negotiations under the 
auspices of GATT, with each round liberalizing trade a little 
more. The most recent, called the Uruguay Round, was signed 
into U.S. law in 1994 and created a new body called the World 
Trade Organization (WTO).
    There are now 129 members of the WTO, which provides these 
countries with a means to resolve trade disputes without 
resorting to trade protectionism. The WTO establishes the rules 
of international trade by which all members of the WTO must 
abide. These rules govern business contracts, the liability for 
not fulfilling a contract, and the resolution of disputes over 
interpretation of a contract's terms. Without agreement on 
these rules, any nation could conduct business arbitrarily 
according to its own domestic laws, which often are contrary to 
laws in other countries. However, the Clinton Administration 
has not utilized the WTO effectively to avoid trade disputes 
with America's trading partners. Instead, it has tried to 
bypass the WTO and has used unilateral trade measures, like 
Section 301 of the 1974 Trade Act, to settle trade differences 
with other countries.
    Instead of resorting to unilateral trade measures, the U.S. 
should seek more actively to expand and deepen the WTO by 
implementing these strategies:
    (1) The Administration should implement the Uruguay Round 
Agreements. The U.S. should make sure that all members of the 
WTO fully and faithfully implement their trade liberalization 
commitments in accordance with established timetables and 
deadlines for compliance. The U.S. also should ensure that 
tariff barriers phased out by WTO members are not replaced by 
regulatory barriers. This means that, instead of bypassing the 
WTO to manage trade differences unilaterally, the U.S. should 
make full use of the WTO's multilateral dispute resolution 
rules to go after regulatory barriers that undermine American 
exports and foreign investment. In addition, the U.S. should 
complete in 1997 the sectoral agreements to liberalize trade in 
financial services and basic telecommunications. The completion 
of these multilateral agreements was deferred until 1997 as a 
result of the Clinton Administration's refusal to sign the 
agreements before the 1996 U.S presidential elections.
    (2) The Administration should urge other members of the WTO 
to hold a new negotiating round with the goal of achieving 
global free trade and investment by 2010. The President should 
exercise bold leadership and press other WTO members to convene 
a new round of global trade liberalization talks by 1998. The 
new WTO round should subsume APEC's goal of free trade and 
investment by 2010 as its own. This policy should encourage 
APEC to accelerate the liberalization of trade and investment 
in Asia. It would not be the first time that trade 
liberalization in one set of negotiations spurred 
liberalization in another. For example, the creation of APEC 
helped bring the Uruguay Round negotiations to a successful 
conclusion in the early 1990s.
    (3) The Administration should promote the accelerated 
implementation of the Trade-Related Aspects of Intellectual 
Property Rights (TRIPS) Agreement. Strong protection of 
intellectual property rights benefits both developed and 
developing countries. Weak intellectual property protection 
deters the foreign investment that helps fuel economic 
development. The Uruguay Round Agreements, which took effect in 
1995, represented a significant advance for the protection of 
intellectual property. The Trade-Related Aspects of 
Intellectual Property Rights (TRIPS) Agreement, which also took 
effect in 1995, formally codifies substantive standards for the 
protection of all forms of intellectual property and includes 
administrative and judicial procedures, civil and criminal 
penalties and procedures, and customs regulations designed to 
uphold these standards. However, the American business 
community considers the TRIPS agreement only minimally 
acceptable. It is U.S. policy to encourage other countries to 
adopt intellectual property protection standards more stringent 
than TRIPS. For example, the NAFTA standards for intellectual 
property protection are more rigorous than TRIPS. These 
standards should not be lowered for any country--such as Chile, 
Argentina, Australia, New Zealand, or Singapore--that wishes to 
accede to NAFTA.
    (4) The Administration should negotiate a Multilateral 
Agreement on Competition Policy. Because there is no 
international agreement governing competition policy, the U.S. 
and other governments have been tempted to act unilaterally to 
resolve what are, in reality, competition policy problems. Such 
unilateralism increases global trade friction and undermines 
confidence in the recently established WTO dispute settlement 
mechanism. The U.S. government should seek to negotiate a 
Multilateral Agreement on Competition Policy. The most 
promising route for such negotiations is the Organization for 
Economic Cooperation and Development (OECD). While the WTO 
ultimately is the proper forum for negotiating a worldwide 
agreement, developing WTO rules on competition policy would be 
a very lengthy and difficult process because of the diverse 
development levels and legal traditions among WTO members. 
Consequently, the developed countries, which share similar 
interests, are more likely to reach a workable competition 
policy agreement through the OECD in a reasonable time. The 
Multilateral Agreement on Competition Policy should incorporate 
competitive conduct rules, separation of commercial and 
regulatory activities, and privatization and competitive 
neutrality principles. A Multilateral Agreement on Competition 
Policy based on these principles would force most signatory 
countries to reform or abolish their existing antitrust or 
antimonopoly laws.\1\ In addition, such an agreement would 
foster economic deregulation and significantly alleviate trade 
friction arising from competition policy differences, reducing 
the likelihood of disruptive unilateral trade actions.
---------------------------------------------------------------------------
    \1\ Regardless of the existence of a multilateral agreement on 
competition policy or the lack of one, the U.S. should not hesitate to 
abolish its antiquated antitrust laws immediately and unilaterally. 
These laws burden America's business with outdated regulations that 
prevent them from engaging in joint ventures with other domestic and 
foreign firms. Moreover, these laws are often misused by the U.S. 
government to persecute and harass productive and successful U.S. 
companies.
---------------------------------------------------------------------------
    (5) The Administration should negotiate a Multilateral 
Agreement on Investment Policy. The Uruguay Round Agreements 
established the first global rules for liberalizing 
international investment with the Agreement on Trade-Related 
Investment Measures. As a result, the U.S. now has three major 
sets of rules for investment liberalization: the WTO Agreement 
on Trade-Related Investment Measures, the NAFTA, and the APEC 
Investment Principles. The U.S. is also negotiating a fourth 
agreement: the Multilateral Agreement on Investment (MAI). 
Dissatisfied with the limited scope of the WTO Agreement on 
Trade-Related Investment Measures and the non-binding nature 
and deficiencies of the APEC Investment Principles, the U.S. 
and other developed countries launched negotiations through the 
OECD in May 1995 to draft a comprehensive, binding MAI. The 
finance ministers from the OECD member countries directed their 
negotiators to have the MAI treaty ready for signing before May 
1997. The U.S. should not seek exceptions for itself to the 
rules for investment liberalization, and should press other 
OECD members to make as few exceptions as possible.

The U.S. should support the APEC Forum as a Better Vehicle for 
Liberalizing Asian Trade.

    East Asia is the home of the world's fastest growing 
economies. Since the early 1980s, the volume of imports and 
exports exchanged across the Pacific has exceeded U.S. two-way 
trade with every other region of the world. In 1995 American 
exports to Pacific Rim countries totaled over $188 billion and 
supported over 3.6 million American jobs. In today's post-Cold 
War world, an ever more profitable economic relationship with 
East Asia remains one of America's foremost strategic 
interests. Thus, it is imperative that Washington seek ways to 
expand trade with Asia. To accomplish this goal, the U.S. 
should seek to create the world's largest free trade area in 
the Asia-Pacific region. The Asia-Pacific Economic Cooperation 
(APEC) forum, formed in 1989, is an instrument the U.S. can use 
to foster trade liberalization and enhance American commercial 
opportunities in the region. To make APEC a better vehicle for 
liberalizing Asian trade, the U.S. should execute several 
strategies:
    (1) The Administration should harmonize and merge NAFTA and 
the Australia and New Zealand Closer Economic Relations (CER) 
agreements. The governments of these important U.S. trading 
partners have expressed strong interest in a faster process of 
trade liberalization than that which was agreed upon during 
APEC's November 1994 meeting in Bogor, Indonesia. By merging 
the NAFTA and CER agreements, the U.S. could promote American 
economic and strategic interests in several areas. For example, 
since trading disciplines currently contained within the NAFTA 
and CER are more rigorous than those established by the WTO, 
the merger of the NAFTA and CER agreements would place 
increased pressure on other U.S. trading partners to upgrade 
their own trade standards and regulations. Similarly, the 
convergence of the NAFTA and CER agreements would provide a 
powerful inducement for other APEC countries--such as China, 
Japan, and South Korea--to speed up APEC's timetable for trade 
liberalization. Such trade agreements also would energize the 
sluggish FTAA process in the Western Hemisphere, contribute to 
restoring American leadership to that process, and generate 
momentum for the eventual merger of the FTAA and APEC into a 
single free trade area encompassing more than half of the 
world's population.
    (2) The Administration should strengthen APEC's Investment 
Principles into a binding agreement. At the Leaders' Meeting 
held in Bogor, Indonesia, in November 1994, APEC adopted a set 
of non-binding Investment Principles. While these principles 
represent an important step toward a more comprehensive accord 
than the WTO's Agreement on Trade-Related Investment Measures, 
five of the ten principles are inadequate and should be 
strengthened. These inadequate principles cover the transfer of 
funds, capital movements, national treatment of foreign 
investors, performance requirements, and investment incentives. 
At future APEC meetings, the U.S. should press other member 
countries to establish an unfettered right to move funds across 
international borders, eliminate any restrictions on cross-
border investment flows, eliminate all exceptions to national 
treatment, prohibit all trade-related investment performance 
requirements, and prohibit any special government grants and 
tax subsidies to attract investment that are not generally 
available to all potential domestic and foreign competitors. 
Once these voluntary investment guidelines have been improved, 
the U.S. should press for the conversion of APEC's Investment 
Principles into a legal agreement that binds all APEC members.
    (3) The U.S. should support concerted unilateralism in the 
Asia-Pacific region. This building-block approach to trade 
liberalization acknowledges the great diversity in economic 
development of APEC's members and is a necessary stage in the 
process of building the confidence required to undertake more 
comprehensive trade negotiations after the year 2000. Under 
``concerted unilateralism,'' each APEC member would be 
responsible for presenting its own individual action plan for 
meeting APEC's broad trade liberalization objectives. These 
plans would be subject to peer review and peer pressure by 
other members.
    (4) The U.S. should seek to merge NAFTA, the Association of 
South-East Asian Nations (ASEAN) free trade area, and the 1983 
Closer Economic Relations (CER) agreement between Australia and 
New Zealand, into a single free trade area by no later than 
2000. APEC members are not located only in the Asia-Pacific 
region, but in the Americas as well. Current Western Hemisphere 
countries that form part of APEC include the U.S., Canada, 
Mexico, and Chile. Currently there is some disagreement among 
Asian members of APEC regarding the admission of new members. 
For example, ASEAN is opposed to admitting any new members, 
especially India, that might diminish the trading advantages 
enjoyed by ASEAN countries. The U.S. should press APEC to admit 
new members, particularly from Latin America where governments 
generally are more supportive of rapid trade liberalization.

                               Conclusion

    America has always benefited from free trade and 
investment. Whenever Washington has erected protectionist walls 
around America, it has paid the price with lost jobs, higher 
consumer costs, lower competitiveness, and infringements on 
individual economic liberty. To ensure America's economic 
growth and stability in the future, America's leaders, 
especially in Congress, must rededicate their efforts to 
support free trade and investment. They must make the opponents 
of free trade, the media, and the general public understand how 
much America's economic well-being depends on their freedom to 
buy and sell goods from whomever they choose.
    American leadership has consistently pushed the world 
toward democracy and economic freedom. As America approaches 
the 21st century, it must become increasingly more competitive 
in a global economy. No country has ever prospered by closing 
its domestic markets to foreign trade or investment. In order 
for the U.S. to maintain the highest living standards in the 
world, it has to face the challenges of the global market and 
lead the world in strategies for overcoming them. The 
restoration of public and political support for free trade 
requires strong leadership with a commitment to free trade 
principles and a willingness to take immediate action. To 
continue to straddle the free trade fence will condemn America 
to economic stagnation and allow other countries to lay claim 
to the title of Land of the Free.
      

                                

    Chairman Crane. Thank you, Mr. Sweeney.
    Mr. Cooper.

 STATEMENT OF MITCHELL J. COOPER, COUNSEL, RUBBER AND PLASTIC 
               FOOTWEAR MANUFACTURERS ASSOCIATION

    Mr. Cooper. Thank you, Mr. Chairman.
    Let me start with two assurances. First, I will take less 
than 5 minutes. Second, I want you to know that what I am about 
to say is neither inconsistent with nor disapproving of the 
persuasive testimony that you have heard today regarding the 
need for some type of fast track legislation.
    Having said that, let me point out to you that rubber 
footwear is, as I think you know, a labor-intensive, import-
sensitive industry. Labor constitutes more than 40 percent of 
total cost. Imports of fabric upper footwear and 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.
    A major concern of this industry with respect to trade 
objectives and initiatives is the distinction between our 
government's approach to such multilateral negotiations as the 
Kennedy, the Tokyo, and the Uruguay rounds, and its approach to 
such bilateral free trade agreements as NAFTA.
    The rules for multilateral negotiations have permitted 
careful scrutiny of the degree to which tariffs can be cut on 
specific harmonized system items, whereas, in bilateral 
negotiations, the only flexibility has been in the length of 
time over which all duties would go to zero.
    Thus, in recognition of the unique import sensitivity of 
rubber footwear and slippers, the duties on the core items of 
this industry remained untouched in the Kennedy, Tokyo, and 
Uruguay rounds, and we are talking about high duties. The 
average duty on waterproof footwear is 37.5 percent today. The 
average duty on fabric upper footwear is approximately 40 
percent.
    On the other hand, under NAFTA, rubber footwear and slipper 
duties are being phased out over a period of 15 years, a period 
longer than that for virtually every other American industry, 
but at the end of which duties on imports from Mexico will have 
been eliminated.
    Unless current policy is modified, perhaps in the language 
of fast track, if not, I hope by persuasion of people like you, 
Mr. Chairman, in an effort to save, among others, the plant in 
Rock Island, Illinois, which is run by Norcross Safety Products 
people who make waterproof footwear, but unless current policy 
is modified, so as to permit limited exceptions to duty-free 
treatment in bilateral negotiations, what is left of this 
domestic industry cannot realistically expect to survive.
    The validity of this statement is evidenced by our 
experience under the Caribbean Basin Initiative. CBI-II removed 
the exemption from duty-free treatment which had previously 
existed for footwear from the Caribbean. The direct consequence 
of this change in the law has been the rubber footwear imports 
from the Dominican Republican increased from 200,000 pairs a 
year in 1990 to 12 million in 1996, and that, Mr. Chairman, 
represents some modification of my printed testimony. Only 
yesterday, I got from the ITC a correction of the figure of 10 
million in 1996 to 12 million.
    Most of these imports are accounted for by American 
companies which closed plants in States such as Maine, 
Pennsylvania, West Virginia, and Georgia, and shifted their 
production to the Dominican Republic.
    We are now at a truly critical juncture. The United States 
hopes to commence free trade negotiations with Chile, with the 
rest of Latin America, and with countries in the Pacific rim. 
In previous bilateral trade negotiations, the United States has 
relied on article XXIV of the GATT in justification of its no-
exception rule. The fact is, however, that paragraph 8 of that 
article defines a free trade agreement as one where, ``The 
duties and other restrictive regulations of commerce are 
eliminated on substantially all the trade between the 
constituent territories or products originating in such 
territories,'' and I've added the emphasis to 
``substantially.''
    If new bilateral agreements would adhere to the 
``substantially,'' all the trade language in the GATT, the 
rules of engagement would be closer to those in multilateral 
negotiations where the unique needs of particular import-
sensitive industries can be taken into account.
    The history of past negotiations demonstrate that there are 
very few domestic industries whose survival is as threatened by 
imports as is rubber footwear and slippers. Surely, the 
benefits that would otherwise accrue from a free trade 
agreement would not be diminished by excluding this minuscule 
fraction of 1 percent of this country's trade from duty-free 
treatment.
    Accordingly, we urge that any structuring of policy 
objectives in upcoming trade negotiations should contain 
sufficient flexibility to permit the survival of an otherwise 
threatened domestic industry.
    Thank you.
    [The prepared statement and attachment follow:]

Statement of Mitchell J. Cooper, Counsel, 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 the 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.
    A major concern of this industry with respect to trade 
objectives and initiatives is the distinction between our 
Government's approach to such multi-lateral negotiations as the 
Kennedy, the Tokyo, and the Uruguay Rounds and its approach to 
such bi-lateral free-trade agreements as NAFTA. The rules for 
multi-lateral negotiations have permitted careful scrutiny of 
the degree to which cuts in tariffs on specific Harmonized 
System items are warranted, where as in bi-lateral negotiations 
the only flexibility has been in the length of time over which 
all duties would go to zero. Thus, in recognition of the unique 
import-sensitivity of rubber footwear and slippers, the duties 
on the core items of this industry remained untouched in the 
Kennedy, Tokyo, and Uruguay Rounds. On the other hand, under 
NAFTA rubber footwear and slipper duties are being phased out 
over a period of 15 years (a period longer than that for 
virtually every other American industry but at the end of which 
duties on imports from Mexico will have been eliminated).
    Unless current policy is modified so as to permit limited 
exceptions to duty-free treatment in bi-lateral negotiations, 
what is left of this domestic industry cannot realistically 
expect to survive. The validity of this statement is evidenced 
by our experience under the Caribbean Basin Initiative. CBI II 
removed the exemption from duty-free treatment which had 
previously existed for footwear from the Caribbean. The direct 
consequence of this change in the law has been that rubber 
footwear imports from the Dominican Republic increased from 
200,000 pair a year in 1990 to 10 million pair in 1996. Most of 
these imports are accounted for by American companies which 
closed plants in such states as Maine, Pennsylvania, West 
Virginia, and Georgia and shifted their production to the 
Dominican Republic.
    We are now at a truly critical juncture. The United States 
hopes to commence free-trade negotiations with Chile, with the 
rest of Latin America, and with countries in the Pacific Rim.
    In previous bi-lateral trade negotiations the United States 
has relied on article XXIV of the GATT in justification of its 
no-exception rule. The fact is however, that paragraph eight of 
that article defines a free trade agreement as one where ``the 
duties and other restrictive regulations of commerce...are 
eliminated on substantially all the trade between the 
constituent territories or products originating in such 
territories'' (emphasis added). If new bi-lateral negotiations 
would adhere to the ``substantially all the trade'' language in 
the GATT, the rules of engagement would be closer to those in 
multi-lateral negotiations where the unique needs of particular 
import sensitive industries can be taken into account.
    The history of past negotiations demonstrates that there 
are very few domestic industries whose survival is as 
threatened by imports as is rubber footwear and slippers. 
Surely, the benefits that would otherwise accrue from a free 
trade agreement would not be diminished by excluding this 
minuscule fraction of one percent of this country's trade from 
duty free treatment. Accordingly, we urge that any structuring 
of policy objectives in upcoming trade negotiations should 
contain sufficient flexibility to permit the survival of an 
otherwise threatened domestic industry.
      

                                

Appendix I

         Rubber and Plastic Footwear Manufacturers Association

American Steel Toe
PO 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
Littleton, NH

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

Hudson Machinery Worldwide
PO Box 831
Haverhill, MA 01831

Spartech Franklin
113 Passaic Ave., Kearney, NJ 07032

Kaufman Footwear
Batavia, New York

Frank C. Meyer Co.
585 South Union Street
Lawrence, MA 01843
(with plants also in New Jersey, Missouri, Maine, Mississippi, and 
Puerto Rico)

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

Norcross Safety Products
1136 2nd Street,
PO Box 7208
Rock Island, IL 61204-7208

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

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

                                

    Chairman Crane. Thank you, Mr. Cooper.
    Mr. Weintraub, how would you assess United States relations 
with Mexico and the operation of NAFTA at the present time?
    Mr. Weintraub. I have a hard time at the present time 
because of the narcotics debate that has taken place here in 
the Congress over the past several weeks.
    There was a tremendous transformation that took place in 
United States relations with Mexico starting in the 
mideighties. Up until that time, as the title of a well-known 
book by Alan Riding said, our relationship with Mexico was 
distant. We were not very close. Mexican politicians ran for 
office blasting the United States. It was quite common.
    Starting in the mideighties, when Mexico began to think in 
terms of free trade with the United States and of a closer 
relationship, those relations became warmer, more cordial, more 
cooperative. If you read the Mexican press on a regular basis, 
the transformation was quite remarkable.
    In the last few weeks, a lot of the old animosities have 
come out again. There has been deep resentment in Mexico of 
some of the very harsh language used during the discussion of 
drug certification. So, at the moment, I would say that the 
relationships still have not completely reverted, but they have 
deteriorated from what they were for about 10 years until about 
3 or 4 weeks ago.
    Chairman Crane. You, I believe, mentioned or made reference 
to the President's commitment to hemispheric free trade, or did 
you, Mr. Sweeney, by the year 2005? One of you, I think, made a 
reference to that.
    Realistically, do you think we will get a balanced budget 
in the year 2002 with greater probability than hemispheric free 
trade by 2005?
    Mr. Weintraub. I hope you get a balanced budget by the year 
2002. Let me be super confident and say that will succeed, and 
I will give the 2005 date for hemispheric trade the same odds, 
Mr. Chairman.
    Chairman Crane. Do you want to comment on that, Mr. 
Sweeney?
    Mr. Sweeney. I don't know enough about the budget to make a 
comment like that. I would hope we can balance it quickly, 
although as a person who watches events in Washington, I have 
my doubts about the sincerity and commitment of some of what we 
are seeing coming out of this administration.
    As for the prospective for making a Free Trade Area of the 
Americas by the year 2005, I think that may happen, but the 
issue is, will the United States be a player or not, and right 
now, quite frankly, the United States is not a player.
    In the last 2 years, United States relations with the rest 
of Latin America have deteriorated to an alarming extent. From 
Mexico City to Buenos Aires and Santiago, many Latin Americans 
who had staked their businesses, their political careers, their 
futures on some kind of hemispheric arrangement are now saying, 
Well, the yankees don't want us, let's do a deal with Europe, 
let's do a deal with Asia, let's do a deal with China. Nobody 
is waiting for the United States.
    One of the previous panelists was saying we should declare 
a moratorium and then leverage. My comment to Sidney as we were 
listening to that is how incredibly arrogant of Americans to 
think that we can set standards for the rest of the world and 
tell them to wait until we make up our minds whether we want to 
play the game or not.
    Right now we are not there, and we are not there because 
this administration has chosen not to lead.
    Chairman Crane. In your written testimony, Mr. Sweeney, you 
suggest that the United States should seek to merge NAFTA, the 
Association of Southeast Asian Nations Free Trade Area, and the 
1983 Closer Economic Relations Agreement between Australia and 
New Zealand into a single free trade area by no later than the 
year 2000. First, you might comment on the advantages of 
negotiating with these governments, but second, let me ask you 
once more with regard to the timeframe.
    Given what we have gone through the last 2 years, do you 
think that is doable?
    Mr. Sweeney. I think it is doable, sir, if the leadership 
is here in the United States, if we have the leadership and we 
are exerting that leadership.
    I know that Australia and New Zealand and countries that 
belong to ASEAN are interested in faster trade liberalization 
than other countries that belong to APEC. The Australians, and 
particularly the government of New Zealand, has indicated they 
are willing to negotiate at a faster pace. Singapore would like 
to do the same.
    Many countries in South America are interested in doing 
trade deals with Australia and New Zealand and ASEAN. 
Argentina, for example, recently suggested a free trade 
agreement between MERCOSUR and ASEAN. That would be a market of 
600 million people.
    I think it can be done. There are a lot of countries out 
there that want to do it. The only country that doesn't seem to 
make up its mind, lamentably, is America.
    Chairman Crane. That is really what I mean. We would be an 
active participant, presumably. I thought you meant in 
achieving that stated role.
    Mr. Sweeney. I certainly hope we would be, sir, but I think 
the issue is up in the air right now.
    Chairman Crane. Well, the concern, of course, I have is 
that we still have not resolved fast track, although I am 
pleased to report that Ambassador Barshefsky has that as her 
number one priority, and certainly, it is our number one 
priority, too. But unfortunately, Mickey Kantor derailed the 
fast track extension, you will recall, and I was sympathetic to 
hear his line of argumentation. But I really did not see any 
benefits flowing out of guaranteeing that we didn't have that 
in place. Chile has been hanging in the wings all this while, 
waiting to get the United States off the dime. It is very 
unfortunate, and in the interim, we are, I think, losing our 
clout with our other South American neighbors.
    Would any of you share that opinion?
    Mr. Sweeney. Yes, sir, I do, and more than losing clout, I 
think we are losing prestige. I think we are losing image. We 
are losing influence, and we are poisoning the well of our 
friends and allies, and I think that is very dangerous, 
particularly since Latin America at this moment in time is at a 
difficult point in its transition from closed inward-looking 
economies to outward-looking competitive export of economies.
    Growth in Latin America has been slower than it should have 
been in the last 6 or 7 years. Poverty has increased in Latin 
America because reforms have not advanced at a sufficiently 
rapid pace, and a backlash is starting to build up. If the 
United States does not get back into the game and start 
supporting its friends and allies in Latin America who are 
committed to reforming the region and opening it up, we are 
going to see a return to social discontent and unrest in many 
countries. We are going to see increased illegal immigration to 
the United States. We are going to see the increased 
penetration of transnational criminal enterprises throughout 
the Western Hemisphere, and all of these developments will be 
to the detriment of America's economic and security interest in 
the Americas.
    Chairman Crane. Well, I share that concern, and the thing 
that is troublesome is that I was in Miami when the President 
made that commitment at that Miami conference, and there was 
basically ecstacy on the part of the 34 Democratic countries 
that were represented at that conference about this kind of 
commitment. Since that time, our inaction, which I hope will be 
overturned very soon, but our inaction has worked, I think, to 
the detriment of our hemispheric interests, our world 
interests, if you will, and I hope we can achieve these 
objectives over the course of the next 2 years.
    Something you talked about, Mr. Weintraub, was jobs, and we 
have what they are calling, for all practical purposes, full 
employment right now in the United States, and I am curious, 
with the modest economic growth rate of 2.5 percent, do you 
know how many illegals are working in the United States right 
now?
    Mr. Weintraub. The estimate of the INS, the most recent 
study, is 5 million.
    Chairman Crane. Five million. Here we are at full 
employment. We are employing 5 million illegals.
    I mentioned earlier today that we had a luncheon with our 
delegation and Mayor Daley from Chicago last week, and he 
indicated they couldn't get tool and dye workers in Chicago, 
and they had to import legal immigrants to do tool and dye work 
and pay them $20 an hour. That is not a bad income for, I 
guess, a tool and dye worker. I don't know what all the job 
skills entail, but $40,000 a year ain't bad, and especially how 
attractive an offer that was to a lot of legal immigrants who 
came over here to fill those slots.
    I am just wondering, is our economic growth so prodigious 
at this moment in history that we can't find the workers to do 
the work we need?
    Mr. Weintraub. Well, it would appear that we can't find the 
workers to do what we need in a good many fields, in a good 
many skilled fields.
    I think you have to distinguish. The unskilled worker has 
been having a hard time, and there is real hardship among 
unskilled workers.
    Chairman Crane. Well, are all of those 5 percent 
unemployed? Are they all unskilled workers?
    Mr. Weintraub. Of the 5 million, by no means, but a good 
proportion of them are unskilled, not all of them, I am sure, 
but there are skill shortages.
    If you look at the want ads all over the country, there are 
shortages of people with particular skills, and jobs go wanting 
in the United States today.
    Chairman Crane. Well, one of the things I recall, when 
Steve Syms was a Member of the House, his family had an apple 
orchard outside of Boise. He told me that come harvest time, 
his dad offered jobs picking apples. Now, this was 1972. You 
make the adjustment for the deterioration of our dollar. His 
dad was offering $5 an hour to pick apples. That would be like 
$20 an hour or more today, and couldn't get locals to come out 
and pick apples.
    As it turns out, illegal immigrants from Mexico came there 
at harvest time and they started harvesting the crop. Then the 
immigration officials descended on them and gathered them all 
up and took them back south of the border. His dad was having 
heart arrest that his crop was going to rot on the trees. They 
were all back in 2 days.
    He said they routinely would go from different crops to 
different crops to harvest and then go back down to Mexico. I 
am wondering because it certainly doesn't take a lot of skill 
to pick apples.
    Mr. Cooper. Mr. Chairman, may I make--I am sorry.
    Chairman Crane. Oh, sure thing.
    Mr. Cooper. May I make a comment?
    Chairman Crane. Yes, indeed. I am curious about----
    Mr. Cooper. Well, I can't disagree, obviously, with 
anything that has been said on this subject, other than to 
point out that the picture is not a uniform one.
    I started to represent the rubber footwear industry over 30 
years ago, at which time there were approximately 30,000 
employees. Now I would like to think there is not a cause-and-
effect relationship with my representation and the fact that 
employment has fallen to approximately 5,000 employees, but 
that is the fact.
    Chairman Crane. Well, let me ask a question in that 
context. Are you only producing one-sixth of the footwear that 
you were producing with 30,000?
    Mr. Cooper. No, because there is a fair amount of 
mechanization, a fair amount in this industry, just as there is 
abroad, but I will point out to you, for example, that even 
under the relatively high tariffs, admittedly high tariffs, 
that this industry has, a company like Nike found it profitable 
to lay off 1,000 employees in Maine, to close its domestic 
operations, and to shift everything to the Pacific.
    All I am trying to point out is that within the macro 
picture, there is a micro picture, and I think it is in 
everybody's best interest not to lose sight of the fact that 
everybody has not been the beneficiary of a rising tide, and 
that it is not--you don't have to say we are opposed to fast 
track or we are opposed to trade negotiations. We favored the 
Uruguay round, the Kennedy round, the Tokyo round, and this 
industry's problems were recognized. You can have it both ways. 
You can have enormous success in a free trade negotiation, for 
example, if you are 99.5 percent successful. That is what 
happened in NAFTA. Everybody except less than one-half of 1 
percent in American industry was phased out over a period of 10 
years or less, but there was some recognition that there are a 
few industries in this country which do require special 
consideration, not because they are inefficient, but because 
they are so labor-intensive and because the products can be 
manufactured in relatively undeveloped countries where wages 
are so very low.
    All we are saying is that if you apply the same rules of 
the game to bilaterals that you apply to multilaterals, I think 
you would find more support in the House of Representatives for 
fast track legislation than exists today.
    Chairman Crane. Let me ask you a question. Did you go 
overseas to manufacture any of your shoes?
    Mr. Cooper. A lot of my clients are importing by either----
    Chairman Crane. No, no, no. I mean your business. Did you 
start manufacturing overseas?
    Mr. Cooper. Well, I am a lawyer for 15 companies. No, no. I 
am counsel to this industry.
    Chairman Crane. Let me ask you a second question. When the 
industry provided 30,000 jobs domestically, have you any idea 
how many of those boots they produced a year?
    Mr. Cooper. I have that figure, Mr. Crane. I don't want to 
cite it off the top of my head. Clearly more today.
    Chairman Crane. But you are producing more boots now?
    Mr. Cooper. More--no, no. That is inaccurate. I am sorry. 
No, we are not. The total consumption is greater.
    When I started to represent them, imports took about 20 
percent of the market. Today it is 80 percent of the market. 
No, domestic production is down.
    Chairman Crane. That is because you can't meet the demand? 
Is that it?
    Mr. Cooper. It is because it is very simple to manufacture 
this product now in countries like the People's Republic and in 
Vietnam, in the Dominican Republic where it is now duty free, 
and to bring it in and to compete successfully against domestic 
production.
    Chairman Crane. Well, you are talking about cheaper labor 
beyond our borders.
    Mr. Cooper. That is correct.
    Chairman Crane. Yet, you talked about mechanization of the 
domestic industry. That should reduce costs significantly and 
give you a more competitive leg up against----
    Mr. Cooper. I am sorry, but this mechanization is taking 
place there, too. The companies that are doing this are 
companies like Nike and Reebok. They are American companies. 
They are, to some extent, my clients, Mr. Chairman, but the 
balance of interests of my clients has remained in this country 
because they want to be known as American producers of American 
products, and as long as they can continue to operate here, 
they will do so.
    Chairman Crane. Mr. Traficant always insists that 
government purchases be labeled ``made in America.''
    Mr. Cooper. That is right.
    Chairman Crane. I am curious because our auto industry 
finally revived due to Japanese competition, and the Japanese 
were implementing things they had learned from us, like the 
robotization of the body assembly lines, and they produced a 
better quality product at a lower price. Detroit finally came 
to its senses and started doing the same thing, but I am 
wondering if there isn't a parallel when you talk about 
mechanization of some of the production of boots.
    Mr. Cooper. Well, we are not talking about companies that 
are either Japanese companies or Indonesian companies. We are 
talking largely about American companies who have brought their 
skill and knowhow over there because they can manufacture for 
less. The production processes are the same there as they are 
here. The product is no better. Nobody is going to be able to 
persuade me that if they go into a Foot Locker and choose 
between a New Balance, which is made in this country, or a Nike 
which is made abroad, that they are doing it on the basis of 
quality. No one has ever faulted the quality of a New Balance 
shoe against a Nike shoe. I mean, they are both high-quality 
shoes. It is a question of where can you produce at the least 
cost.
    The Government has recognized this. That is why the duties 
have remained high in this industry. Although there has been 
mechanization, labor is still the principal item of cost, and 
they have not been able to overcome that.
    Chairman Crane. Mr. Sweeney, did you have a comment?
    Mr. Sweeney. Well, yes, I have two comments. One, I think 
if you look at what is happening in the United States today and 
compare it with what is happening in other parts of the world, 
you find that there has been a shift of jobs overseas at the 
lower skill end of technological companies and manufacturing 
enterprises. I think that is an inevitable process that would 
have happened irrespective of whether or not the United States 
was a free trader and was negotiating free trade agreements.
    As the world economy grows and countries come out of the 
Third World and start developing and trying to join the first 
world, first of all, they have a surplus of labor. That is 
their strongest factor of production, and they are going to 
specialize in those areas where they can take advantage of 
that.
    At the same time, however, you see here in America, going 
back over the last 20 years, that many new jobs have been added 
at the higher end of the technology or the skills scale, if you 
will.
    The second comment I wanted to make is that whenever you 
hear people talking about trade, you hear about workers which 
is a very important thing. A worker who loses his or her job is 
something very painful. I have been unemployed. I know what it 
feels like. It is a terrifying situation to find yourself in, 
but we are also talking about consumers. Free trade, 
unquestionably, has benefited the American consumer and the 
American family. There is a tradeoff as we see the economy 
globalizing and job shifting overseas in some areas, but at the 
same time ultimately, the American consumer benefits, and I 
think the historical record shows that, beyond the shadow of 
any doubt.
    Chairman Crane. Well, I was going to cite another example. 
In my district, I have the corporate headquarters of Motorola, 
and we have a community college close by. Motorola got the 
community college to introduce targeted courses for specific 
upgrading of skills for their employees, and other corporations 
have followed suit since. There is an upgrading of skills of 
employees that has been initiated by corporations, and 
mercifully, it has worked out to everyone's advantage, 
including the community colleges.
    Well, gentlemen, I want to thank you for your testimony and 
appreciate your presentations, and your written statements, as 
I have indicated before, will be made a part of the permanent 
record, and keep the inflow coming, including Mr. Cooper, on 
how many of those jobs we lost in the shoe industry.
    One thing I want to say, Mr. Cooper, before you go, though.
    Mr. Cooper. Yes.
    Chairman Crane. You talked about plastic. Didn't you say 
something about some plastic component in shoes?
    Mr. Cooper. Yes. It is rubber. Well, the industry is rubber 
and plastic.
    Chairman Crane. When Procter & Gamble was here, did you 
hear them testifying----
    Mr. Cooper. I was here, yes.
    Chairman Crane [continuing]. About the billion plastic 
lids----
    Mr. Cooper. Right.
    Chairman Crane [continuing]. That are made for Pringles, 
and that is in Lee Summit, Missouri? I will give you the 
address if you are interested.
    Mr. Cooper. That is all right.
    Chairman Crane. Thank you all.
    With that, the Subcommittee stands adjourned. This 
concludes our hearing, but the record will be open until April 
1 of this year.
    [Whereupon, at 4:40 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement Submitted on Behalf of: AK Steel Co., American Beekeepers 
Association, American Honey Producers Association, American Textile 
Manufacturers Institute, AMT--The Association for Manufacturing 
Technology, Bethlehem Steel Corp., California Forestry Association, 
Coalition for Fair Atlantic Salmon Trade, Coalition for Fair Lumber 
Imports, Cold-Finished Steel Bar Institute, Copper and Brass 
Fabricators Council, Ferroalloy Association, Footwear Industries of 
America, Fresh Garlic Producers Association, Independent Forest 
Products Association, Inland Steel Industries, Inc., Intermountain 
Forest Industries Association, Leather Industries of America, LTV Steel 
Co., Municipal Castings Fair Trade Council, National Steel Corp., 
National Association of Wheat Growers, Northeastern Lumber 
Manufacturers Association, Southeastern Lumber Manufacturers 
Association, Southern Tier Cement Committee, USX Corp., Valmont 
Industries, and Western Wood Products Association

                            I. Introduction

    Chapter 19 of the North American Free Trade Agreement 
(``NAFTA'') extended to Mexico the novel and unprecedented 
system for resolving antidumping duty (``AD'') and 
countervailing duty (``CVD'') appeals that was introduced by 
the U.S.-Canada Free Trade Agreement (``CFTA'') in 1989. Under 
this system, AD and CVD determinations made by NAFTA-countries' 
government agencies are appealable to ad hoc panels of private 
individuals from both countries affected, rather than impartial 
courts. The international panels do not interpret agreed NAFTA 
AD or CVD rules; rather, they review agency determinations 
solely for consistency with national law.
    This system departs radically from traditional 
international dispute settlement principles whereby 
international bodies resolve disputes over the interpretation 
of internationally agreed texts. Unlike any other international 
dispute mechanism in which the United States participates, the 
Chapter 19 system entails direct interpretation of U.S. law and 
implementation under national law of decisions rendered by non-
judges and indeed by non-citizens. In practice, this system has 
led to the implementation of decisions that contravene U.S. 
laws.
    The Chapter 19 system should be reformed or eliminated from 
the NAFTA. It certainly should not be extended to additional 
U.S. trade agreements. Indeed, doing so would compound its 
problems. Language should be included in fast-track legislation 
to prevent this from occurring. (Proposed legislative text is 
attached to this statement.) Statutory containment of Chapter 
19 would not only prevent the compounding of a major policy 
mistake but also improve the prospects for fast track 
negotiating authority and expanded free trade.

                              II. Summary

    Established as an interim measure only for U.S.-Canada 
trade, the Chapter 19 system is fundamentally flawed and 
undemocratic. It places far-reaching decision-making power in 
the hands of private individuals who do not have judicial 
experience and who are not accountable for their performance. 
Under this system, international panels--with foreign nationals 
frequently in the majority--are allowed to interpret and 
implement U.S. law, and their decisions have the force of law. 
Constitutional safeguards to assure judicial impartiality are 
lost when such panels replace U.S. courts. Justice Department 
officials warned Congress in 1988 that, for this very reason, 
the proposed system was unconstitutional.
    In addition, the system's ad hoc and fragmented nature 
dooms it to failure as a replacement for domestic courts. 
Especially if the system were extended to additional countries, 
industries attempting to exercise their rights against unfair 
trade from different points of origin would end up facing a 
multiplicity of panel and court proceedings likely to yield 
divergent rulings on identical issues. Neither industry nor the 
government agencies involved could afford to prosecute so many 
litigations. The result would be incoherent bodies of law, an 
unpredictable environment for litigants and businesses, and 
even the possibility of most-favored-nation problems resulting 
from unequal application of AD and CVD laws. In short, the 
system would become unworkable (and congressionally-mandated 
U.S. trade remedies unusable).
    The Chapter 19 system has already failed in some of its 
most critical disputes. As Congress has noted, panels reviewing 
U.S. Government determinations have repeatedly disregarded the 
requirement that they behave like a U.S. court and apply U.S. 
law, and they have impaired implementation of U.S. trade 
remedies. Panel decisions have created an environment in which 
U.S. industry can have little faith in U.S. trade remedy 
policies as applied to imports from Canada and Mexico, much 
less to imports from an even broader array of countries.
    The Chapter 19 system need not, and should not, be extended 
to other countries since the WTO dispute settlement system 
satisfies U.S. importers' and exporters' need for international 
dispute resolution. Unlike the Chapter 19 system, the WTO 
system is based on traditional international dispute settlement 
principles, i.e., international bodies interpreting 
international rules. The unprecedented impairment of sovereign 
legal functions entailed by Chapter 19--with foreign nationals 
interpreting and implementing domestic law--is unworkable in 
the United States and, in the long term, in any other country.
    Congress should direct the Administration to negotiate the 
reform or elimination of Chapter 19 from the NAFTA. In 
addition, any legislation renewing fast-track procedures should 
expressly prohibit agreements that extend the Chapter 19 system 
to trade with additional countries and make negotiating 
authority and fast track procedures inapplicable to 
implementation bills for such agreements.
    Precluding extension of Chapter 19 is needed to limit the 
deterioration of U.S. trade remedies and the administration of 
justice. In addition, doing so would enhance prospects for fast 
track and expanded free trade by removing a widespread concern 
about them. Consequently, containment of Chapter 19 would lead 
to broader support for fast track negotiating authority and 
expanding free trade.

                III. Background on the Chapter 19 System

    A primary Canadian goal in negotiating the CFTA was 
exempting Canadian exports from the United States' AD and CVD 
laws. The United States maintained a contrary and more cautious 
position: the agreement should establish disciplines on unfair 
trade practices rather than permitting them to go unsanctioned.
    U.S. and Canadian officials reached a compromise on this 
issue as the negotiations drew to a close in the Fall of 1988. 
The CFTA provided that after the agreement came into effect the 
United States and Canada would pursue negotiations on subsidy 
disciplines and a ``substitute system'' of AD and CVD rules. 
CFTA at Art. 1907. Pending achievement of the ``substitute 
system,'' and for a maximum of seven years, the countries would 
operate under the Chapter 19 system of AD/CVD review by panels. 
Id. at Art. 1906.
    Chapter 19 was revolutionary and extremely controversial. 
First, judicial review of disputes involving customs duties by 
impartial courts created under Article III of the Constitution 
has a long history in the United States.\1\ Replacing impartial 
courts with binational panels raised the specter of unfair 
decisions and the circumvention of U.S. law.
---------------------------------------------------------------------------
    \1\ Reported cases include, for example, United States v. Tappan, 
24 U.S. (11 Wheat.) 418 (1826) and Elliot v. Swartwout, 35 U.S. (10 
Pet.) 137 (1836).
---------------------------------------------------------------------------
    Second, during Congress's consideration of the CFTA, U.S. 
Justice Department officials advised that the system would be 
unconstitutional if panel decisions were implemented 
automatically, as is now the case. United States-Canada Free 
Trade Agreement: Hearings Before the Senate Judiciary 
Committee, 100th Cong. 76-87 (1988) (``Senate Judiciary Comm. 
Hearing''). Several Members of Congress expressed serious 
reservations about the constitutionality and workability of 
Chapter 19, including Senators Grassley and Heflin. See id. at 
89-98; S. Rep. No. 100-509, at 70-71 (1988).
    The Chapter 19 system was ultimately accepted as part of 
the CFTA based on executive branch commitments to Congress 
that: 1) panels reviewing U.S. agency determinations would be 
bound by U.S. law and its governing standard of review, just as 
the U.S. Court of International Trade is so bound; 2) there 
would be strict and fully enforced conflict-of-interest rules; 
and 3) the system would be in place only a short while and only 
with Canada. According to one of the primary U.S. negotiators 
on this issue, the system could only work for Canada. It was:

        not, and [was] not intended to be, a model for future 
        agreements between the United States and its other trading 
        partners. Its workability stems from the similarity in the U.S. 
        and Canadian legal systems. With that shared legal tradition as 
        a basis, the panel procedure is simply an interim solution to a 
        complex issue in an historic agreement with our largest trading 
        partner.

United States-Canada Free Trade Agreement: Hearings Before the 
House Judiciary Committee, 100th Cong. 73 (1988) (Testimony of 
M. Jean Anderson).

    Although the Chapter 19 system was accepted, negotiations 
with Canada to create disciplines on unfair trade practices, 
including subsidies, failed. Nonetheless, with little 
additional discussion, and contrary to executive branch 
commitments to industry, the system was made a permanent part 
of the NAFTA in 1994.

 IV. Chapter 19's Design Is Flawed in Several Respects and has Serious 
                        Constitutional Problems

     Under the Chapter 19 system, panels are formed on a case-
by-case basis to review the consistency with national law of AD 
and CVD determinations issued, in the United States, by the 
Commerce Department (``DOC'') and the U.S. International Trade 
Commission (``ITC''). The panels contain five members--three 
from one country involved in the case and two from the other--
who are private-sector trade experts, usually lawyers.\2\
---------------------------------------------------------------------------
    \2\ Each country involved in the dispute appoints two panelists. 
NAFTA Chapt. 19, Annex 1901.2. The two countries are then to agree on a 
fifth panelist. Id. If they are unable to agree, the two countries 
decide by lot which country will select the fifth panelist. Id.

---------------------------------------------------------------------------
The System is Undemocratic and Unaccountable

    On its face, the system is, at minimum, anomalous. A group 
of private individuals, each with his or her own clients and 
interests, is empowered to direct the actions of government 
officials and dictate the outcome of cases involving billions 
of dollars in trade. These panelists do not have judicial 
training. Nor are they insulated, as judges must be, from 
outside pressures and conflicts. Once a case is over, the 
panelists simply return to their occupations--many of them 
practicing before the very agencies whose decisions they 
recently were reviewing. They are not accountable in any way 
for their decisions as panelists.
    This process is contrary to traditional principles of 
representative governance. Indeed, as indicated above, Justice 
Department officials advised Congress that the Chapter 19 
system contravenes a constitutional provision intended to 
establish accountability among U.S. decision-makers (the 
``Appointments Clause'').\3\ Congress cannot ``sanction'' or 
``correct'' erroneous decisions because the ``judges'' are not 
part of a standing judiciary.
---------------------------------------------------------------------------
    \3\ U.S. Const. art. II, Sec. 2, cl. 2. ironically, the 
Appointments Clause emerged, in part, from the Founders' experience 
with the British colonial government's selection of Royal officials, a 
preponderance of whcih were customs officials. The Founders included as 
a grievance in the Declaration of Independence that the King ``has 
erected a multitude of New Offices, and sent hither swarms of Officers 
to harass our People, and eat out their substance.'' The reference is 
to customs officials, Barrow, Trade and Empire 256 (1967).
    The constitutionality of the Chapter 19 system has been discussed 
in numerous articles. See, e.g.,  Barbara Bucholtz, Sawing Off the 
Third Branch: Precluding Judicial Review of Anti-Dumping and 
Countervailing Duty Assessments Under Free Trade Agreements, 19 Md. J. 
Int'l LK. & Trade 175 (1995); Alan B. Morrison, Appointments Clause 
Problems in the Dispute Resolution Provisions of the United States-
Canada Free Trade Agreement, 49 Wash. & Lee L. Rev. 1299 (1992).

---------------------------------------------------------------------------
The System Violates Principles of Impartial Judicial Review

    Article III of the Constitution establishes safeguards to 
assure an impartial federal judiciary, e.g., life appointment 
and freedom from salary diminution. As noted above, review of 
trade cases by Article III judges has a long tradition in the 
United States, and dispensing with Article III protections for 
reviews of AD/CVD determinations is unwarranted. In fact, and 
as further explained below, conflicts of interest on the part 
of panelists were a major problem in the Chapter 19 review 
involving Canadian softwood lumber. Even holding constitutional 
infirmities aside, the conflict-of-interest prone Chapter 19 
setup creates a serious perception problem damaging to the 
credibility of the international trading system.

The System's Premise is False and Objectionable

    The Chapter 19 system is premised on the outrageous 
assumption that domestic courts are incapable of resolving 
these cases in a fair and impartial manner. There is no 
evidence to support this proposition. In any event, this type 
of extraordinary device is not viewed as necessary in other 
litigation contexts in which foreign interests frequently 
participate, such as appeals of agency determinations in the 
communications arena. There is no basis to single-out trade 
remedies as requiring this mechanism.

The System's Ad Hoc, Fragmented Nature Renders it Unworkable

    The Chapter 19 system contemplates that a separate panel 
proceeding is to resolve each AD/CVD appeal on a country-by-
country basis. In practice, this cannot work, especially if 
Chapter 19 is extended to many different countries. An industry 
seeking a remedy against unfair trade from several countries--
as is often the case--would end up facing proceedings before 
panels for each of the countries from which unfairly traded 
merchandise is imported and, potentially, another proceeding at 
the Court of International Trade. The resulting decisions could 
relate literally to identical issues.
    Neither the affected industry nor the U.S. agencies 
involved could afford to engage in this multiplicity of 
litigations.\4\ Even if this were manageable procedurally, the 
panels would inevitably come to different interpretations of 
U.S. law on the same underlying facts and issues. Such an 
atomized judicial mechanism cannot retain (and indeed has never 
gained) credibility. The inevitable result is an unworkable 
system, leading to the effective neutralization of U.S. trade 
laws.
---------------------------------------------------------------------------
    \4\ Indeed, a recent Canadian survey indicated that a Chapter 19 
appeal can cost $100,000 to 150,000, while an appeal to a federal court 
costs only $25,000 to 40,000 to litigate. See Laura Eggerston, ``Costs 
Deter NAFTA Dispute Settlements,'' The Globe and Mail, Mar. 20, 1997, 
at B-9.

V. In Practice, Chapter 19 has Resulted in Bad Decisions With-
---------------------------------------------------------------------------
Out Remedy

    Before it came into effect, Senator Grassley expressed deep 
concern about the novel experiment in replacing the U.S. 
judiciary with panels and whether it could, in practice, earn 
the respect of private parties. Senate Judiciary Comm. Hearing 
at 89-90, 94, 96. Unfortunately, Senator Grassley's concerns 
have been vindicated. Based on the panels' track record, 
private parties cannot have faith that the trade laws will be 
administered fairly or correctly as regards imports from Canada 
and Mexico.
    Were they to adhere to the standard of review mandated by 
the NAFTA and U.S. law, panels would reach exactly the same 
results as the Court of International Trade and be very 
deferential to DOC and ITC trade determinations. In particular, 
they would sustain the agency's findings unless they have no 
``reasonable'' factual basis or are grounded on a legal 
interpretation that is ``effectively precluded by the 
statute.'' PPG Indus., Inc. v. United States, 928 F.2d 1568, 
1573 (Fed. Cir. 1991).
    As recognized by Congress, the reality has often been to 
the contrary.\5\ Panel decisions involving Canadian pork and 
swine imports were so flawed that the U.S. Government sought 
review by appellate Chapter 19 panels (``extraordinary 
challenge committees'' or ``ECCs''). The swine ECC virtually 
conceded that the lower panel erred but declined to take 
corrective action. Live Swine from Canada, No. ECC-93-1904-01-
USA, slip op. at 6 (Apr. 8, 1993) (``the Committee felt the 
Panel may have erred'').
---------------------------------------------------------------------------
    \5\ See North American Free Trade Agreement Implementation Act, 
Joint Senate Report, S. Rep. No. 103-189, at 42 (1993) (``[T]he 
Committee believes . . . that CFTA binational panels have, in several 
instances, failed to apply the appropriate standard of review. . . 
.''); see also North American Free Trade Agreement Implementation Act, 
House Ways & Means Committee Report, H.R. Rep. No. 103-361, at 75 
(1993).
---------------------------------------------------------------------------
     The Chapter 19 system also failed conspicuously in the 
last case involving subsidized Canadian softwood lumber, where:
     Both the lower panel decision and the ECC decision 
were decided by bare majorities divided by nationality. Certain 
Softwood Lumber Products from Canada, No. USA-92-1902-1904-01, 
slip op. (Dec. 17, 1993); Certain Softwood Lumber Products from 
Canada, No. ECC-1904-01-USA, slip op. at 37 (Aug. 3, 1994) 
(``Lumber ECC'').
     Two of the three Canadian members of the lower 
panel and their law firms had previously represented Canadian 
lumber interests and governments but did not disclose all of 
their conflicts. See Lumber ECC at 71-86, Annex 1 (Wilkey 
opinion).
     The panels disregarded extensive case law and 
explicit Congressional committee reports which specified the 
proper interpretation of the CVD law on litigated issues. See 
Brief of the United States, No. ECC-1904-01-USA, at 69, 79-80 
(May 3, 1994).
     An ECC member expressly chose to ignore the review 
standard for panels that is established by the NAFTA and the 
applica-ble U.S. statute. See Lumber ECC at 28 (Hart opinion) 
(indicating that panels need not apply the review standard of 
the Court of International Trade).
    The dissenter in the lumber ECC decision was former Federal 
Appeals Court Judge (and former Ambassador) Malcolm Wilkey. 
According to Judge Wilkey, the underlying panel majority 
opinion ``may violate more principles of appellate review of 
agency action than any opinion by a reviewing body which I have 
ever read.'' Lumber ECC at 37 (Wilkey opinion). Moreover, Judge 
Wilkey concluded that the lumber case violated all of the 
safeguards on which Congress based its conclusion that the 
Chapter 19 system is consistent with constitutional due process 
protections. Id. at 69-71, citing H.R. Rep. No. 100-816, Pt. 4, 
at 5 (1988).

VI. Recently Concluded Trade Agreements Demonstrate That Chapter 19 Is 
                              Unnecessary

    The infirmities in Chapter 19's design and its failures in 
practice demonstrate that the U.S. Government should not extend 
the Chapter 19 system to other countries. Even setting aside 
these problems with Chapter 19, however, it should not be part 
of future U.S. free trade relationships because it is not 
needed.
    First, the new WTO system fulfills any legitimate need for 
international AD/CVD dispute settlement. Unlike the Chapter 19 
system, WTO dispute settlement operates under standard 
principles of international dispute settlement: WTO panels 
resolve disputes over the meaning of the WTO agreements, 
deciding whether the importing country has complied with its 
international obligations. This process, coupled with access to 
domestic courts, should satisfy any concerns about securing 
unbiased review of AD/CVD determinations. There is simply no 
need for the intrusive system under which panels hand down 
controlling dictates on the application of domestic U.S. law.
    Even if Chapter 19's theoretical benefit to U.S. exporters 
showed real signs of materializing, that benefit would be 
vastly outweighed by the systemic problems described above and 
the undermining of U.S. trade remedy policies that would 
inevitably result. Moreover, the benefit to U.S. exporters 
would be marginal indeed since, with respect to ensuring that 
foreign governments' AD/CVD determinations comply with national 
law, the WTO agreements include provisions on effective 
judicial review. These provisions present an opportunity to 
achieve by more legitimate means the goals Chapter 19 was 
allegedly designed to promote.
    Finally, our current NAFTA partners and prospective new 
partner have indicated that Chapter 19 is unnecessary in future 
trade agreements. Mexico omitted Chapter 19 from trade 
agreements with several Latin American countries. Canada and 
Chile omitted the system from the trade agreement that they 
signed late last year as a precursor to NAFTA expansion, 
choosing expressly to rely instead on WTO dispute 
settlement.\6\ Furthermore, the Association of American 
Chambers of Commerce in Latin America, citing many of the 
concerns identified in this statement, has warned that at least 
U.S. business interests in Chile are likely to oppose inclusion 
of Chapter 19 in any agreement with that country.\7\
---------------------------------------------------------------------------
    \6\ Canada and Chile did not alter their CVD policies, but did 
reportedly agree to phase out AD remedies for bilateral trade. 
Weakening AD policies is not an option for the United States given the 
many U.S. industries that have suffered grievous injury--sometimes 
elimination--at the hands of dumped merchandise. In any case, the 
Canada-Chile agreement demonstrates that Chapter 19 is unnecessary in 
any new agreements.
    \7\ Letter from Vincent m. McCord, Vice President of the 
Association of American Chambers of Commerce in Latin America and 
Executive Vice President of the American Chamber of Commerce in Chile, 
to Donna R. Koehnke, Secretary of the International Trade Commission 
(July 19, 1995).
---------------------------------------------------------------------------
    Given these developments, there is no credible argument 
that Chapter 19 is needed to secure expanded free trade. 
Indeed, as discussed below, efforts to extend Chapter 19 are 
impeding the cause of expanded free trade.

           VII. Statutory Containment of Chapter 19 Is Needed

    Since Chapter 19 is harmful and unnecessary, measures are 
needed, at minimum, to ensure that it is not extended to 
additional trading partners. The most straightforward means of 
enacting such measures would be through the fast-track bill 
itself. The statute should direct the executive branch not to 
further alienate federal jurisdiction and authority to decide 
cases under U.S. law through international agreements and 
should withhold trade agreements negotiating authority and 
fast-track procedures from any such agreements.
    Ensuring that the problem of Chapter 19 will not be 
compounded through the trade agreements program will 
significantly benefit the prospects for fast track and expanded 
free trade. It will remove impediments (e.g., concerns about 
diminished sovereignty, constitutional problems) for those 
inclined to be supportive. At the same time, it is highly 
unlikely that any Member of Congress or any constituency will 
withhold his or her support from fast track, an expanded NAFTA 
or the FTAA if Chapter 19 is excluded from the resulting 
agreements.

                            VIII. Conclusion

    The U.S. Government should negotiate elimination of the 
Chapter 19 dispute settlement system as it exists with Canada 
and Mexico; under no circumstances should it be extended to new 
participants under the NAFTA or the FTAA. Congress should:
     ensure that fast-track legislation prevents 
extension of Chapter 19 to additional countries;
     hold hearings on the Chapter 19 system to 
investigate (1) whether the system is unconstitutional; (2) 
whether the system is necessary in light of WTO rules and the 
WTO dispute settlement system; (3) the suitability of the 
system as a permanent replacement for judicial review of trade 
cases; and (4) the past administration of the system; and
     direct the Administration to negotiate the 
elimination or reform of the Chapter 19 system from the NAFTA.
      

                                

Draft Section of Fast Track Bill

    1. Notwithstanding any other provision of law, the U.S. 
Government shall not enter into any treaty or other 
international agreement that, in whole or in part, would have 
the purpose or effect of transferring any jurisdiction or 
authority to decide cases under U.S. law away from the federal 
judiciary.
    2. The trade agreements negotiating authority of--[formerly 
Sec. 1102 of the 1988 Act] shall not apply to the negotiation 
of any trade agreement that would have the purpose or effect of 
transferring any jurisdiction or authority to decide cases 
under U.S. law away from the federal judiciary, and the 
procedures of Section 151 of the Trade Act of 1974 [fast 
track], or any similar successor provisions, shall not apply to 
implementing legislation submitted with respect to any such 
trade agreement.
      

                                

Statement of American Association of Exporters and Importers, New York, 
New York

                      Introduction and Background

    The American Association of Exporters and Importers (AAEI) 
is comprised of over 1000 U.S. member firms that export, 
import, distribute and manufacture a complete spectrum of 
products, including chemicals, electronics, machinery, 
footwear, autos/parts, food, household consumer goods, toys, 
specialty items, textiles and apparel. Members also include 
firms which serve the international trade community, such as 
customs brokers, freight forwarders, banks, attorneys, 
insurance firms and carriers. AAEI members conduct operations 
in all fifty states, employing millions of U.S. workers. 
Together, AAEI companies account for a large majority of non-
military, commercial U.S. trade.
    Over many decades, AAEI has cultivated strong working 
relationships with Federal departments and agencies regulating 
international trade, including the U.S. Trade Representative, 
the U.S. Customs Service, the Department of Commerce, the U.S. 
International Trade Commission and the Food and Drug 
Administration. As we prepare for the next century of 
international commerce, AAEI is grateful for the opportunity to 
present its comments on this crucial review of U.S. trade 
policy objectives and initiatives. Among the most pressing 
trade issues for which the U.S. must develop clear and 
unwavering policies and objectives concern trade with China, 
fast track negotiating authority, the continuation of the 
Generalized System of Preferences, expansion of free trade in 
the Americas and meaningful liberalization of trade in textiles 
and apparel.

                              China Trade

    AAEI has long favored, including as late as its June 11, 
1996 testimony before the Trade Subcommittee, the granting by 
the U.S. of permanent and Unconditional MFN trading status to 
China. AAEI has also urged concomitant revision of the Jackson-
Vanik Amendment toward this aim. AAEI believes that human 
rights, arms control, environmental, and other political and 
economic issues are more productively addressed and affected by 
means other than denial of, or threat of revoking normalized 
trade relations. Open trade, and its benefits to all, is more 
achievable within commercial engagement rather than by 
isolation of trading partner nations. A larger and more 
important step is the eventual inclusion of China into the 
World Trade Organization (WTO) on commercially acceptable 
terms. Continued exclusion of the important China market from 
potential disciplines and remedies under WTO has lost any 
effective advantage or meaning for the U.S. The WTO cannot 
function effectively with continued exclusion of China--one of 
the world's fastest growing trading economies. Additionally, 
WTO membership may compel China to reverse some restrictive 
policies bringing its economy more in line with other members.
    MFN status is the cornerstone of normal commercial trading 
relationships with countries worldwide, including China, and is 
a key aspect of the bilateral trade agreement with China 
entered in 1979. The term ``most-favored-nation'' is a 
misnomer, suggesting some sort of privileged trading 
relationship. In fact, we grant most of the world's nations MFN 
status, which merely entitles a U.S. trading partner to the 
standard tariff rates available to other trading partners in 
good standing.
    The Chinese market is already the world's third largest, 
according to an International Monetary Fund (IMF) study, and 
has continued to grow at an annual rate of more than 10%. This 
market is simply too important to our future international 
competitiveness and to the battle against inflation in the U.S. 
to ignore or to jeopardize through an unstable trading 
relationship. As President Clinton has recognized, MFN is an 
essential cornerstone for a long-term, stable bilateral 
relationship with China in both the economic and foreign policy 
realms. Any annual review process introduces uncertainty, 
weakening the ability of U.S. traders and investors to make 
long run plans, and saddles U.S./China trade and investment 
with a risk factor cost not faced by our international 
competitors.
    AAEI members agree that human rights issues warrant our 
attention and further bilateral negotiations between the U.S. 
and China. However, the Association does not believe that the 
threat of terminating MFN is an appropriate or constructive 
tool for pursuing this important U.S. foreign policy objective. 
History suggests that despite China's strong interest in trade 
with the U.S., efforts to impose our will on the Chinese 
government through a series of public demands will prove to be 
counterproductive. MFN is the foundation on which the U.S. 
bilateral relationship with China rests.
    Failure to renew China's MFN status would harm U.S. 
exporters as well as importers. China represents a significant 
and very promising market for U.S. exports, with over $13 
billion worth of U.S. goods purchased by the Chinese last year. 
The Department of Commerce estimates the value of U.S./China 
trade and investments will be $600 billion in the next five to 
seven years.
    AAEI strongly supports initiatives by the Administration 
and Congress to grant China MFN status on a permanent basis and 
urges serious consideration of a revision of the Jackson-Vanik 
Amendment toward this aim. A revision of Jackson-Vanik does not 
require a revision of U.S. human rights objectives. AAEI 
believes that President Clinton correctly determined that those 
objectives should not be limited to trade issues between the 
U.S. and China. U.S. human rights objectives can, and should, 
be attained without terminating China's MFN status. Terminating 
China's MFN status could only harm U.S. trade and foreign 
policy interests and ultimately, the progressive forces in 
China on which future progress will depend. Strong U.S.-China 
trade ties encourages private commerce initiatives within 
China.
    Looking ahead to the bigger picture, AAEI believes that it 
is through China's full integration into the world community of 
nations that its citizens will benefit from the relaxation of 
the current authoritarian political climate. Therefore, AAEI 
supports Administration and Congressional initiatives favoring 
China's admission to the World Trade Organization. Indeed, our 
own trading position is not helped by the continued exclusion 
of the crucial China market from potential disciplines and 
remedies under the WTO. Human rights, arms control, 
environmental and other political and economic issues are more 
productively addressed in a climate of normalized trade 
relations.

                    Fast Track Negotiating Authority

    AAEI supports renewal of Fast Track as an essential tool 
for the U.S. to conclude meaningful trade agreements with its 
partners. It gives U.S. negotiators the necessary backing and 
credibility to maximize U.S. interests on a multilateral level. 
The provision assures that Congress receives continuous updates 
through every phase of the negotiation process, culminating in 
a well-informed up or down vote. The notion that Fast Track 
binds the hands of Congress, preventing it from impacting 
important trade negotiations, is a misconception. Fast track 
legislation puts Congress into the negotiation process at a 
pivotal time, before it begins. Throughout the negotiations, 
Congress delineates detailed guidelines, to which the President 
must adhere. These guidelines set the framework for the 
negotiation process. The President is also required to 
continuously report back to Congress on the progress of the 
talks. To view Fast Track as a vehicle granting the President 
complete autonomy in trade negotiations is misleading. Congress 
gives up very little oversight authority by approving Fast 
Track. In fact, Fast Track statutorily defines and maintains 
the role Congress is to play.

         Continuation of the Generalized System of Preferences

    AAEI has supported GSP since its inception in 1974 and 
strongly urges its renewal. For over twenty years, GSP has 
given developing countries access to the world marketplace by 
allowing them to export many products to industrialized 
countries free of duty, while maintaining effective safeguards 
to prevent this treatment from harming U.S. production. GSP is 
based on a philosophy of trade, rather than aid, as a more 
effective, cost-efficient means of promoting sustained economic 
development.
    The imminent expiration of GSP is of great concern to 
importers. Over twenty other industrialized countries have 
adopted the GSP concept and continue to import goods duty-free 
from developing countries. The United States must continue this 
program in order to remain competitive in international trade 
and to foster development where needed.
    Additionally, duty-free sourcing of materials and 
components is important to U.S. industries which use them in 
production of finished products. If U.S. manufacturers can 
obtain these materials and components only at prices which 
include the payment of duty, increases in the price of finished 
products will inevitably be passed to the U.S. consumer. For 
example, a substantial volume of electrical products, such as 
outlets and switches, are imported from Beneficiary Developing 
Countries under GSP to be used in the housing industry. If such 
products are not available at prices which do not include duty, 
whatever increased costs are involved will be paid by 
purchasers of new homes.
    Finally, in the past, the existence of the GSP program has 
resulted in Beneficiary Developing Countries either protecting 
or improving intellectual property rights and living up to 
other international obligations. It is clear that if the GSP 
program is not renewed, countries which have previously 
protected or improved these rights will have no further 
incentive for doing so.
    AAEI urges that upon its expiration on May 31, 1997, GSP be 
renewed for at least ten years. The program has historically 
encouraged trade with underdeveloped nations and has led to 
substantial economic gains for both these countries and the 
United States.

                    Free Trade Area of the Americas

    The second fastest growing economic region in the world is 
Latin America. By 2010 it is estimated that the United States 
will send more U.S. goods and provide more services to Latin 
America than to Europe and Japan combined. Forging economic 
ties among nations of the Americas will solidify recent 
economic reforms, promote growth, develop the middle classes 
and strengthen democracy, while creating jobs in the United 
States.
    The negotiation of Chile's accession to the NAFTA is an 
important first step in developing hemispheric free trade. The 
United States must cultivate a partnership with the leader of 
economic reform in Latin America and its most vibrant economy 
in over a decade.
    If we do not act quickly, we may miss out on a valuable 
economic opportunity. Chile is currently negotiating separate 
agreements with both Mexico and Canada. It will be unfortunate 
if agreements are reached outside the NAFTA framework. Numerous 
separate agreements will complicate matters for business as 
well as the economy as a whole.

                     Trade in Textiles and Apparel

    AAEI regrets that the integration schedule decreed by CITA 
with regard to the agreed phaseout of the Multifiber 
Arrangement does not conform to the letter and the spirit of 
the GATT Uruguay Round Agreements. The U.S. failure to adhere 
to the agreed quota reductions will harm our standing in the 
international community. Furthermore, U.S. consumers, whose 
interests should be paramount in the process, will continue to 
bear the brunt of retaining almost 90 percent of our 
protectionist quotas for a full ten years. To maintain quotas 
on virtually all ``sensitive'' categories for ten years is to 
do a disservice to the very industry the quotas are designed to 
protect.
    By not providing for real liberalization in the first phase 
of integration, the United States failed to stimulate 
industrial adjustment in this country, or to increase 
competition. The U.S. is now compounding this failure by 
continuing to steer away from sensitive items.
    AAEI supported the concept of a ten-year phaseout of the 
Multifiber Arrangement during the Uruguay Round negotiations, 
because it understood the necessity of preparing the domestic 
industry for complete elimination of quotas by a gradual 
reduction. Textile and apparel exporting nations agreed to the 
phaseout in good faith, with the same understanding of its 
nature. U.S. action in scheduling the phaseout has not shown 
the same good faith. By effecting a reasoned, gradual approach 
to integration, CITA will be able to fulfill its commitments to 
our association, to other members of the importing community, 
to signatories to the GATT Agreement and, ultimately, to the 
American consumer, who bears the brunt of the burden of 
restrictive quotas.
      

                                

Statement of W. Henson Moore, President and Chief Executive Officer, 
American Forest & Paper Association

    My name is W. Henson Moore. I am President and CEO of the 
American Forest & Paper Association (AF&PA). AF&PA, the 
national trade association of the forest, pulp, paper, 
paperboard, and wood products industry, represents more than 
200 companies. The vital national industry which AF&PA 
represents accounts for 8% of total U.S. manufacturing output. 
The industry employs approximately 1.6 million people and ranks 
among the top 10 manufacturing employers in 46 states. Its 
annual payroll is about $50 billion, and sales of forest and 
paper products top $200 billion annually in the U.S. and 
abroad.
    We very much appreciate this opportunity to share with the 
Subcommittee our views regarding the role U.S. trade policy 
must play in promoting economic growth and maintaining 
manufacturing employment here in the U.S.
    Like Hippocrates, we believe the first principle of U.S. 
trade policy must be to do no harm. When management, workers 
and resources combine to give the U.S. a competitive edge in an 
industry, the minimum standard for U.S. trade policy 
effectiveness would appear to be to do nothing which undermines 
our ability to sell our products in overseas markets.
    Unfortunately, in the trade offs that are typical of trade 
negotiations, this does not always happen. During the course of 
past trade negotiations, U.S. tariffs on paper and wood 
products were reduced almost to zero, while our principal 
trading partners--in Europe and Japan--were allowed to keep 
their tariffs on these products at high levels. (I am 
submitting for the record charts which graphically demonstrate 
the gap which separates our virtually tariff free market from 
both Europe and Japan.)
    During the Uruguay Round, we tried to remedy this situation 
with our zero for zero proposal. While we did get agreement to 
eliminate paper tariffs, the Europeans would not agree to do so 
until the year 2004. And due to the objections of Japan, our 
trading partners will only cut tariffs on wood products by an 
average of 28%.
    The result is that an industry which is globally 
competitive in terms of its resource base, manufacturing costs, 
product quality and environmental stewardship cannot translate 
that advantage into sales in world markets because our trading 
partners have been allowed to maintain crippling tariff 
barriers. At the same time, the fact that we no longer have any 
meaningful tariffs on these products here in the U.S., and that 
European markets are so well protected, has encouraged our 
competitors to build capacity--which translates into jobs added 
overseas and jobs foregone here in the U.S.
    We are particularly frustrated because our efforts to 
improve on the Uruguay Round results have been resisted by our 
competitors, who frankly admit that they are very comfortable 
to be able to hide behind a tariff wall at home and sell in our 
market at will. As recently as the Singapore Ministerial 
meetings last December, the efforts of Ambassador Barshefsky 
and several members of this Subcommittee to rectify this 
situation were rebuffed by our competitors in Europe (such as 
Finland) and Japan. Unfortunately, the views of consumers of 
paper and wood products, who recognize that earlier tariff cuts 
would mean lower costs to them, apparently were not represented 
in Singapore.
    To return to my opening premise, the American forest 
products industry urges the Administration to focus on the 
damage which an unbalanced global playing field has done to 
capacity, employment, and earnings in our industry and to make 
the restoration of equity and balance in forest products trade 
a top priority item on the 1997 Trade Policy Agenda. We urge 
Ambassador Barshefsky to spearhead an integrated effort with 
the explicit goal of achieving global free trade in forest 
products before the end of the century.
    There are several elements of the Administration's 1997 
Trade Policy Agenda which we wholeheartedly support and which 
would form vital links in an integrated forest products 
initiative:
     The APEC forum must be used to eliminate Japanese 
resistance to the early elimination of both paper and wood 
products tariffs. At the same time, APEC must focus on the role 
of regional producers, such as Indonesia, Malaysia and 
Thailand, which maintain very high tariffs on forest products 
and yet benefit from duty free access to the U.S. and other 
developed country markets through GSP (Generalized System of 
Preferences). Agreement on the part of these producers to 
immediate duty free treatment for wood and paper products must 
be a precondition for continuing U.S. GSP status.
    Indonesia in particular is building a world class, 
competitive paper industry, with substantial support from its 
government. The U.S. must take account of such sector specific 
competitive situations, and use sector comparability as its 
yardstick for assessing APEC tariff offers.
     In the FTAA process, the Administration must 
intensify its efforts to focus on tariff cutting, for wood and 
paper products in particular. The elimination of regional 
tariffs in these products must be included in any definition of 
``concrete progress'' in the year 2000.
     In WTO accession negotiations with China and 
Russia, as well as other candidates, the immediate elimination 
of wood and paper tariffs must be established as a precondition 
of membership from the beginning. In addition, extensive non-
tariff barriers exist in China which, if not addressed prior to 
China's accession to the WTO, will lock U.S. producers into a 
position of long-term competitive disadvantage. Our experience 
painfully demonstrates that U.S. toleration of an unequal 
bargain does not work. It only institutionalizes protectionism, 
and robs the U.S. of the leverage it needs to negotiate tariff 
cuts in future. We should not make this mistake again.
    To the extent that fast track authority will be needed to 
accomplish these objectives, the forest products industry has 
already indicated it would be strongly supportive.
    The Government of Canada, which shares our concern for the 
extent to which its forest products sector has been 
disadvantaged by this tariff inequity, has proposed the 
elimination of all tariffs on paper products by January 1, 
1998. The upcoming Quad meeting in Toronto would appear to be a 
most appropriate occasion for the U.S. to identify free trade 
in forest products as a priority U.S. objective for 1997. We 
urge USTR to immediately seek the support of the Canadian host 
government for a special focus on forest products trade at this 
Quad, with the objective of getting a commitment by the Quad 
member states to reach agreement on the immediate elimination 
of wood and paper tariffs by the end of the year. Among the 
other occasions on which we would expect to see progress on 
tariff elimination would be the U.S.-EU Summit in the Hague in 
May and the meeting of APEC Trade Ministers, again hosted by 
the Government of Canada, in May.
    Ours is a strongly competitive industry. In 1993, Fortune 
Magazine identified us as one of only two U.S. industries which 
had the overall competitive strength to retain a dominant 
position in world markets through the decade of the 90's. This 
position is eroding everyday on which we continue to compete 
with one hand tied behind our backs, while our competitors take 
profits from our open market and their protected markets, and 
use them to build new capacity, forcing us in turn to take 
downtime to try to balance global supply and demand. We believe 
that it cannot be acceptable U.S. trade policy that we--or any 
other U.S. industry--should be required to do so.
    Thank you, Mr. Chairman.

Attachments
      

                                
[GRAPHIC] [TIFF OMITTED] T1072.058

[GRAPHIC] [TIFF OMITTED] T1072.059

      

                                

Statement of Andrew Howell, Executive Director, Association of American 
Chambers of Commerce in Latin America

    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 Andrew Howell and I serve as a executive director 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.
    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 market.

                        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 one of the most ambitious multilateral trade pacts in 
the history, and the largest tax cut in the world.
    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 actively bring about the 
elimination of the many 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 every sector of the Latin American economy. 
Over the last several years, this hard work has helped boost 
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 set 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 the 
promise of the Latin American market. And 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, US leadership might have 
mean 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'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.
    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 must 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 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. 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.

                               Conclusion

    Mr. Chairman, 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 and that spells out our vision for the 
creation of a Free Trade Area of the Americas. 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 essential to a prosperous United 
States.
      

                                

Statement of Bethlehem Steel Corp., U.S. Steel Group (a Unit of USX 
Corp.), LTV Steel Co., Inland Steel Industries, Inc., National Steel 
Corp., and AK Steel Co.

    This statement describes the views of the six major 
integrated U.S. producers of carbon steel products--Bethlehem 
Steel Corp., U.S. Steel Group (a Unit of USX Corp.), LTV Steel 
Co., Inland Steel Industries, Inc., National Steel Corp. and AK 
Steel Co.--on U.S. trade policy objectives and initiatives. We 
appreciate the opportunity to submit this statement for 
inclusion in the record of the hearing held by the Subcommittee 
on Trade on March 18, 1997.

I. Introduction: The Need for Strong International Rules Against Unfair 
                            Trade Practices

    World trade in steel has been more distorted by government 
intervention than in any other manufacturing sector. These 
distortions have seriously damaged a highly competitive and 
strategically important U.S. industry, and these unfair trade 
practices continue.
     Dumping. Comprehensive import protection and 
cartels have restrained competition, diminished market pressure 
on producers to cut back excess capacity, and given rise to 
dumping. Dumping occurs when producers can practice price 
discrimination between markets, by selling at a higher price in 
the home market than in export markets. They can do this when 
they are able to limit imports into their own market and 
restrict internal competition.
     Subsidies. Over $100 billion in subsidies were 
given to foreign steelmakers between 1980 and 1992. The Member 
States of the European Union spent more on steel subsidies 
between 1980 and 1985 ($37 billion) than the United States 
spent to put a man on the moon ($25 billion).
    After exhaustive investigation and analysis, the U.S. 
Government has confirmed the enormity of unfair trade in the 
steel industry. In its 1993 investigation of flat-rolled steel 
products from 22 different countries, the Department of 
Commerce found weighted-average subsidy and dumping margins of 
37 percent. The Department's 1995 investigations dealing with 
steel pipe confirmed widespread dumping of those products by 
producers in 9 different countries. Last year, the Department 
of Commerce initiated yet another round of investigations, this 
time relating to steel plate products, based on petitions once 
again documenting massive dumping in the steel sector.
    During the Uruguay Round negotiations, efforts were made at 
the behest of the Congress to strengthen international 
disciplines against foreign unfair trade practices. 
Unfortunately, the final Uruguay Round agreements concluded in 
Geneva in 1993 and implemented by the Congress in 1994, while 
positive in some respects, did not eliminate dumping and the 
market barriers that make it possible, nor did they prohibit 
harmful subsidies. Therefore, continued U.S. Government 
attention to foreign unfair trade practices in future 
negotiations is needed.

 II. Past U.S. Negotiating Objectives Concerning Unfair Trade Practices

    In the past, official U.S. negotiating goals have 
consistently stressed the importance of strengthening subsidy 
discipline and improving anti-subsidy and antidumping remedies. 
The Omnibus Trade and Competitiveness Act of 1988 included in 
the negotiating objectives tied to its grant of fast track 
authority the following ``principal trade negotiating 
objectives'' directly addressing these matters:

        The principal negotiating objectives of the United States with 
        respect to unfair trade practices are . . . to improve the 
        provisions of the GATT and nontariff measure agreements in 
        order to define, deter, discourage the persistent use of, and 
        otherwise discipline unfair trade practices having adverse 
        trade effects, including forms of subsidy and dumping and other 
        practices not adequately covered such as resource input 
        subsidies, diversionary dumping, dumped or subsidized inputs, 
        and export targeting practices . . . .

Section 1101(b)(8) of the Omnibus Trade and Competitiveness Act 
of 1988 (19 U.S.C. Sec.  2901(b)(8)).

    Such clearly defined goals have ensured that U.S. 
negotiators pursued stronger trade remedies as a priority 
objective and have alerted foreign governments that agreements 
weakening U.S. trade laws were unlikely to be approved at the 
implementing stage by Congress. A shift to ambiguous 
negotiating goals in this area would seriously undermine the 
ability of U.S. negotiators to protect, let alone enhance, U.S. 
trade remedies. Accordingly, language similar to that contained 
in prior enactments is essential in any new fast track bill.

      III. Specific Issues To Be Addressed in Future Negotiations

    Any new negotiating authority granted by the Congress to 
the President should include specific negotiating objectives 
regarding the improvement of disciplines against foreign unfair 
trade practices along the lines of the provisions from the 
Omnibus Trade and Competitiveness Act of 1988 cited above. 
Among the specific issues which should be addressed are the 
following:

A. Repeat Dumping

    Nothing in the WTO Antidumping Agreement deals with the 
problem of repeat offenders. The antidumping law provides only 
a limited mechanism for relief to industries injured by 
dumping: a prospective remedy against unfair trade. For those 
foreign companies that repeatedly engage in dumping, existing 
antidumping procedures and remedies are clearly not sufficient 
to deter repeated dumping. For these repeat offenders, the 
antidumping law is simply another cost to be absorbed in the 
course of capturing market share.
    Uruguay Round Developments. Establishing disciplines 
against repeat dumping was one initiative urged by the United 
States during the Uruguay Round. However, in the face of the 
strong efforts of certain other GATT members to weaken the 
international rules against dumping, the United States was 
unable to make any progress on this issue.
    Recommended U.S. Trade Policy Objective. The U.S. 
negotiating objectives should state that a goal of future 
negotiations should be international rules to discipline and 
deter repeat dumping. There are a variety of steps that could 
be taken to respond to this problem in the context of revisions 
to international antidumping rules. Accelerated investigation 
procedures might be established for petitions against repeat 
offenders. Earlier imposition of preliminary duties might be 
ordered. Another possibility would be to impose retroactive 
antidumping duties to offset some of the earlier injury caused 
to domestic industries by repeated dumping.

B. Circumvention of Antidumping and Countervailing Duty Orders

    Another problem facing U.S. industries repeatedly injured 
by dumped or subsidized imports is the problem of 
circumvention. Through small changes in the character of a 
product, or by moving the point of final assembly to another 
country, foreign companies are often able to evade antidumping 
and countervailing duty orders imposed by the Department of 
Commerce. The result is continued imports of dumped or 
subsidized goods in the U.S. market and continued injury to 
U.S. producers, despite clear provisions in the GATT and WTO 
agreements for a remedy against dumping and injurious 
subsidies.
    Uruguay Round Developments. As with repeat dumping, the 
United States put forward proposals to deal with the problem of 
circumvention of antidumping and countervailing duty orders 
during the Uruguay Round negotiations. Unfortunately, the final 
Uruguay Round agreements did not directly address the question 
of rules against circumvention of antidumping and 
countervailing duty orders, although a Ministerial Decision was 
reached referring the question to the WTO Committee on 
Antidumping for review. The U.S. implementing legislation did 
put in place new U.S. procedures to combat circumvention of 
antidumping and countervailing duty orders, although they were 
not particularly aggressive, given the absence of clear 
international rules.
    Recommended U.S. Trade Policy Objective. The U.S. 
negotiating objectives should state that the United States 
should therefore seek to negotiate international rules on 
circumvention and the related issue of diversionary dumping as 
soon as possible.

C. Subsidies

    The volume of subsidies given to the steel sector worldwide 
has been greater than those given to any other industrial 
sector. Much of the expansion of foreign steelmaking capacity 
since the early 1960s was funded either by governments directly 
(through equity infusions and soft loans) or indirectly (by 
manipulating the financial system to channel abundant capital 
to expanding steel industries).
    Uruguay Round Developments. The Uruguay Round made a number 
of substantial changes to the GATT rules governing subsidies. 
Article 8 of the Subsidies Agreement ``greenlights'' certain 
categories of subsidies--research and development, regional, 
and environmental--rendering them non-actionable both with 
respect to U.S. countervailing duty law and with regard to WTO 
dispute settlement, even if the subsidized goods cause injury. 
However, Article 31 of the Subsidies Agreement provides that 
Article 8 and certain other new Subsidies Agreement provisions 
will expire after five years unless renewed by decision of WTO 
member countries.
    Section 282 of the Uruguay Round Agreements Act implements 
Article 8 of the WTO Subsidies Agreement by making certain 
categories of otherwise countervailable subsidies non-
countervailable. However, section 282 of the Act further 
provides that these new, non-countervailable categories will 
not apply on or after July 1, 2000, unless extended by 
subsequent legislation considered under ``fast track'' rules.
    Arguments Against Greenlighting of Subsidies. Greenlighting 
provides few benefits at all--and certainly no net benefit--to 
the United States. Under WTO rules, no countervailing duty or 
other action can be taken against most subsidies unless the 
subsidy in question is found to cause injury to the domestic 
industry of another country. U.S. goods benefitting from 
general research and development subsidies are not likely to 
raise a question of injury to foreign industries, and U.S. 
firms do not benefit significantly from the other categories of 
greenlighted measures. Meanwhile, the other new provisions 
added to the Subsidies Agreement along with greenlighting in 
the Uruguay Round--updated subsidy notification requirements 
and ``serious prejudice'' rules--have not measurably benefitted 
the United States or curbed foreign subsidization. Nor is it 
clear that in order to extend these provisions, which at least 
in principle enhance subsidy discipline, it would be necessary 
to also extend greenlighting, which in principle detracts from 
it.
    If subsidized goods cause no injury, the subsidies involved 
are already non-actionable, without regard to greenlighting. If 
they do cause injury, the rationalization for the subsidies is 
largely irrelevant, and offsetting measures should be 
available. Subsidies, after all, represent an intrusion by 
governments seeking to alter normal market outcomes. Subsidies 
associated with trade harm--whether that harm goes by the label 
of ``adverse effects,'' ``serious prejudice,'' or ``material 
injury''--should be actionable under international and national 
law. Since all subsidies have a monetary equivalent, and since 
money is fungible, there is no basis for singling out certain 
types of subsidies as presumptively less harmful than other 
types.
    Article 31 of the WTO Subsidies Agreement provides that 
greenlighting will terminate after an initial 5-year trial 
period unless extended by a Ministerial decision (which must be 
unanimous). Nothing in the GATT 1994 or the WTO Subsidies 
Agreement prejudges the position that any WTO Member will take 
with respect to the extension of greenlighting.
    Recommended U.S. Trade Policy Objective. The U.S. 
negotiating objectives should state that the greenlighting of 
subsidies does not serve U.S. interests and should be 
terminated at the end of the initial 5-year trial period. 
Ending greenlighting is important to the continuing U.S. effort 
to curb trade-distorting foreign subsidies. Therefore, the 
Congress should direct the Administration to oppose renewal of 
the greenlighting provisions of the WTO Subsidies Agreement 
when they expire in 2000.

D. Anticompetitive Business Practices

    World steel trade is highly restricted by national and 
international cartels. Outside the United States, most national 
steel markets are monopolized by one producer or regulated by 
cartels, and trade between national markets is subject to a 
wide range of anticompetitive arrangements and restrictions. 
These arrangements have contributed to the creation and 
perpetuation of an enormous capacity surplus by shielding 
producers from competition and have fostered endemic dumping on 
world markets.
    Effect of Cartels. Cartels have prevented market forces 
from eliminating excess capacity in restricted markets which in 
turn has led to dumping. A typical steel cartel functions by 
limiting the availability of steel in the home market through 
restraints on production and deliveries. Because of their high 
fixed costs, however, producers confront severe economic 
pressure to operate their facilities at as high a capacity as 
possible. The solution generally has been to export surpluses, 
dumping them outside the home market at whatever prices can be 
obtained.
    The international cartel arrangements restrict steel trade 
flows between virtually all of the major western industrialized 
and newly-industrializing nations. They do not, however, 
include the United States and other open markets. As a result, 
the pressure on the more open markets is dramatically 
increased. The U.S. market, as the largest open market in the 
world, is the natural target for foreign producers with excess 
capacity.
    Known Steel Cartels. The so-called East of Burma Agreement 
(also known as the London Agreement) between several foreign 
steelmakers came to light during the U.S. Government's 1993 
antidumping investigations against a number of foreign 
exporters. Importers of steel in foreign countries subject to 
the Agreement informed the U.S. steel industry of the 
restrictions imposed upon them by the cartel. The Agreement 
restricts direct trade in steel between certain ``spheres of 
influence'' in the Eastern Hemisphere, with Burma serving as 
the demarcation point of those spheres. Under the Agreement, 
shipments of steel are subject to quotas and price restraints 
and punishment for breach of the agreement is dumping of twice 
the tonnage into the market of the violator.
    The European steel market has been cartelized since the 
1880s. Since the mid-1970s, the European Commission has 
regularly intervened in the market to reduce price competition 
and stabilize the market. In 1980, the European Commission 
established a system of mandatory production quotas and minimum 
prices that was administered in close coordination with 
Eurofer, the integrated steel producers' association. This 
system was phased out in 1988, but cartel activity by the 
producers was widely reported to have continued in a 
clandestine manner. In 1993, with a price war raging in a 
depressed market, the European Commission reinstituted a system 
of ``voluntary'' production guidelines designed to raise prices 
and stabilize the market. In addition to these internal 
measures, since 1978 the EU has also negotiated bilateral 
import restraint agreements with the major foreign suppliers of 
steel to the European market.
    Recommended U.S. Trade Policy Objective. At the Singapore 
Ministerial, the WTO agreed to establish a Working Party on 
trade and competition policy. However, the exact agenda of this 
new Working Party remains very much in doubt. The Congress 
should therefore give direction to these discussions by laying 
out as a long term negotiating objective the development of 
international rules to prohibit government toleration of 
private anticompetitive practices such as the formation of 
cartels, price-fixing agreements, and other anticompetitive 
arrangements which can distort international trade.
    However, in defining our trade policy objectives in this 
area, the United States should be sure to move forward at a 
modest, careful pace. In the near term, multilateral efforts in 
this area should focus on fact-gathering rather than rule-
making. The goal should be to identify barriers to market 
access for goods, services and investment that are not 
adequately covered by international commitments, and that may 
not be reachable under current rules and dispute settlement. 
This is the proper focus for OECD discussions and for any near 
term consideration of this issue within the WTO. Rule-oriented 
negotiations will need to await further preparatory work by 
both the private sector and the U.S. Government. In the 
meanwhile, the United States must continue to address 
bilaterally (through Section 301) foreign government toleration 
of private restraints that block U.S. exports to, or investment 
in, foreign markets. As with intellectual property rights, such 
an approach will enhance our government's ability to bring this 
important issue into the multilateral system with appropriate 
rules at a later date.
    The negotiating objective also should make it clear that 
the Congress expects the WTO Working Party on Trade and 
Competition Policy established at the Singapore Ministerial to 
reject proposals to renegotiate the WTO Antidumping Agreement, 
consistent with the statements made by Ambassador Barshefsky 
and EU Trade Commissioner Sir Leon Brittan in Singapore last 
December.

E. Export Targeting

    Numerous U.S. industries have been injured by export 
targeting by foreign governments, chiefly Japan and Korea 
(although China has launched several industrial targeting plans 
in recent years and could become a threat in the future).
    U.S. Law on Export Targeting. Section 301 of the Trade Act 
of 1974 provides for U.S. Government action against export 
targeting, which it defines as ``any government plan or scheme 
consisting of a combination of coordinated actions (whether 
carried out severally or jointly) that are bestowed on a 
specific enterprise, industry or group to become more 
competitive in the export of a class or kind of merchandise.'' 
However, it will be difficult for the United States to act 
against foreign targeting so long as there are no 
internationally agreed upon rules in this area.
    Recommended U.S. Trade Policy Objective. The U.S. 
negotiating objectives should include as a goal the development 
of international rules against export targeting. Such an 
objective was part of the negotiating objectives adopted by the 
Congress in the Omnibus Trade and Competitiveness Act of 1988. 
As no progress has yet been made on this objective, it is 
appropriate for the Congress to renew it as a goal in any new 
fast track legislation.

                             IV. Conclusion

    Unfair trade practices continue to present serious threats 
to many U.S. industries and their workers, including the U.S. 
steel industry. Until international rules clearly prohibit all 
forms of unfair trade, U.S. industry will be left at a 
disadvantage in world competition. It is incumbent upon the 
Congress and the Administration to work together to fashion a 
trade policy for the United States that will deal decisively 
with these issues.
    Moreover, until such time as more effective agreements 
against unfair trade practices are implemented, existing U.S. 
trade remedy laws such as the antidumping and countervailing 
duty laws provide the only effective and internationally-
recognized remedies against many forms of foreign unfair trade 
practices. These laws are essential to ensuring that 
international economic competition is based on free market 
principles, and that government intervention and tolerance of 
private anticompetitive practices are not allowed to distort 
market forces. They should be vigorously enforced and, wherever 
possible, strengthened.
    Thank you for the opportunity to present our views on this 
most important subject.
      

                                

                        Flashlight Tariff Coalition        
                Suite 1200, 818 Connecticut Avenue, NW.    
                                       Washington, DC 20006
                                                      April 1, 1997

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

RE: U.S. Trade Policy Objectives and Initiatives

    Dear Mr. Singleton:

    We are submitting this statement on behalf of the Flashlight Tariff 
Coalition to the House Ways and Means Committee, Subcommittee on Trade 
in response to its Advisory of February 25, 1997, No. TR-3, requesting 
comments on the above captioned subject.
    The goal of the Flashlight Tariff Coalition is to eliminate tariffs 
on flashlights and flashlight parts around the globe. The elimination 
of tariffs would enhance the competitiveness of the firms that 
manufacture flashlights on a worldwide basis and create a level playing 
field for all producers. In addition, the elimination of duties would 
increase U.S. exports of flashlights and would directly benefit 
consumers through both short and long term cost savings.
    Specifically, U.S. exports of flashlights have more than doubled in 
the last five years. Exports of domestically produced flashlights would 
increase even more if duties, often as high as from 20% ad valorem to 
57% ad valorem, were eliminated in key export markets in Europe, Asia 
and Latin America. In addition, the U.S. MFN tariff on flashlights is 
also relatively high--17.5%.
    In order to achieve this goal and receive the anticipated benefits, 
the Coalition supports the following two efforts underway abroad and in 
Congress--regional and multilateral trade initiatives, and the 
enactment of Fast Track legislation:
    (1) The Coalition strongly supports the pursuit by the 
Administration of regional and multilateral agreements which could 
result in the elimination at the earliest possible date of tariffs on 
flashlights and flashlight parts. The Coalition is now working with the 
Clinton Administration to achieve this end in both the Asian Pacific 
Economic Cooperation Forum (APEC) and the Summit of the America 
negotiations for a Free Trade Area of the Americas (FTAA). At the 
appropriate time, the Coalition will seek to have flashlights 
considered in a possibly expanded Information Technology Agreement and 
in the Transatlantic Business Dialogue (TABD) market access 
discussions.In addition, the Coalition is working to gain support for 
this goal in countries in Asia, Latin America and Europe.
    (2) The Coalition strongly supports early enactment by this 
Congress of Fast Track legislation to provide the Administration with 
the broad negotiating authority it needs to participate in the regional 
and multilateral trade initiatives it is now pursuing. Fast Track 
authority is crucial to the achievement of the Coalition's goals. 
Without Fast Track, the U.S. will not be able to participate fully in 
regional and multilateral efforts to improve market access through the 
reduction of tariffs. Other countries will benefit from these 
negotiations, that will continue regardless of U.S. participation.
    The following U.S. companies, which represent a majority of 
American flashlight companies, support the goals of the Coalition:
    --Black and Decker Corporation, Towson, Maryland;
    --The Coleman Company, Inc., Golden, Colorado;
    --Dorcy International, Inc., Columbus, Ohio;
    --Eveready Battery Company, Inc., St. Louis, Missouri;
    --Garrity Industries, Madison, Connecticut;
    --Lumilite Products Co., Portland, Oregon;
    --Mag Instrument Company, Ontario, California;
    --Panasonic Industrial Company, Secaucus, New Jersey; and
    --Tandy Corporation, Fort Worth, Texas.
    In addition, the Coalition has been working with manufacturers and 
government officials in key countries in Asia and Europe to gain their 
support.
    In conclusion, we thank the Subcommittee for this opportunity to 
provide these comments and urge the full Committee to move swiftly on 
broad Fast Track negotiating legislation to provide the Administration 
with the tools it needs to implement its trade policy initiatives. We 
would be happy to provide any further information the Subcommittee may 
require.

            Sincerely,
                                           James B. Clawson
                                                 Executive Director
      

                                
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                                Stewart and Stewart        
                                     2100 M Street, NW.    
                                       Washington, DC 20515
                                                      April 1, 1997

Mr. A. L. Singleton
Chief of Staff
Ways and Means Committee
1102 Longworth House Office Building
Washington, DC 20515

Re: U.S. Trade Policy Objectives and Initiatives (TR-3)

    Dear Mr. Singleton:

    In accordance with the Committee on Ways and Means' Trade 
Subcommittee Advisory, I herewith submit the following written 
statement for the printed record in the above referenced matter.
    These written comments in response to the February 25, 1997, 
Subcommittee notice are submitted in my personal capacity and not on 
behalf of the firm's clients or my firm.
    In reviewing the written submissions of government and private 
sector witnesses at the hearing on March 18, there was general 
agreement--with several notable exceptions--that there is a pressing 
need for fast track legislation this year. NAFTA expansion, APEC and/or 
FTAA programs being certain examples. Most witnesses appear to want a 
broadbased grant of authority. The private sector also raised concerns 
for the costs to U.S. communities, companies and workers of unilateral 
trade restrictions. The saga of Westinghouse's nuclear power plant 
operations should be a matter of concern for members of the 
Subcommittee and the Congress generally. Other issues receiving support 
from the business sector included permanent MFN treatment for China, 
renewal of GSP and others items. Public Citizen's Global Trade Watch 
was the major participant to ask for a thorough examination of the 
costs/benefits of liberalized trade.
    I believe that the Committee and Subcommittee should support on a 
bipartisan basis the renewal of fast track. However, I believe the 
Congress should identify a range of negotiating objectives for fast 
track at the unilateral, regional and sectoral level to assure that 
future agreements continue to attack the hurdles which reduce the 
proper functioning of the market or which necessarily influence trade 
flows. In that regard, I would encourage the Subcommittee to include in 
any list of negotiating objectives, not only objectives needed to 
permit progress in APEC, the FTAA and the built-in-agenda of the WTO 
but also, objectives outlined in the Omnibus Trade & Competitiveness 
Act of 1988 that were not accomplished in the Uruguay Round 
negotiations. In testimony before this Subcommittee on November 10, 
1993, I presented a scorecard before the conclusion of the Uruguay 
Round on how statutory objectives identified in the 1988 Omnibus Trade 
and Competitiveness Act were fulfilled or not. Uruguay Round of 
Multilateral Trade Negotiations: Hearing Before the Senate Comm. on 
Finance, 103d Cong. 151 (1993). Several critical issues not addressed 
remain important to U.S. industry, workers and communities.
    Congress set out the negotiating objectives for the Uruguay Round 
in the Omnibus Trade and Competitiveness Act of 1988, 19 U.S.C. Section 
2901 et seq.
    One such objective in the 1988 Act not addressed in the Uruguay 
Round Agreement was the elimination of the bias in the trade system 
from the differential treatment provided to rebates of ``direct'' v. 
``indirect'' taxes (objective 16). While this issue has been less 
pressing during a period when the U.S. dollar was more properly valued, 
it creates a major disincentive for U.S. companies producing and 
exporting from the U.S. Introductory Statement the Honorable Sam M. 
Gibbons (D-FLA) for H.R. 4050, Value-Added Tax Proposal, Sept. 11, 
1996, 104th Cong. 2d Sess. (1996).
    Another negotiating objective in the 1988 Act (item 5) deals with 
current account surpluses. While the U.S. has pursued many bilateral 
agreements with countries who have big current account surpluses, 
significant progress has not been made with some countries, 
particularly Japan or China. This objective should be repeated in any 
grant of fast track authority and should be monitored for results in 
fact.
    Another objective Congress set out in the 1988 Act addressed unfair 
trade practices-including: forms of subsidy and dumping and other 
practices having adverse trade effects, including forms of resource 
input subsidies, diversionary dumping, dumped or subsidized inputs and 
export targeting practices. These objectives were only partially 
achieved in the Uruguay Round agreements. Yet the problems of unfair 
trade continue to distort trade flows and resource allocation. Some 
problems today are essentially unaddressable. One of these would be 
third country dumping, particularly if dumping is occurring in many 
countries simultaneously. This is a growing problem in many sectors--
irrational pricing in many third country markets, whether due to multi-
country dumping, targeting, cross-product subsidization or otherwise. 
The Congress should either include negotiation objectives 
multilaterally, regionally or bilaterally or encourage sectoral 
negotiations to go beyond existing rules (a ``WTO plus'' approach).
    The WTO built-in-agenda and the program for further negotiations 
agreed to in Singapore at the WTO Ministerial meeting should be part of 
the U.S. trade agenda for 1997 and beyond. In particular the 
environmental program and the negotiations on transparency in 
government procurement should be given significant attention.
    Similarly, at the Singapore Ministerial there was agreement to 
explore anticompetitive issues in a Working Group to determine if 
negotiations should proceed. The Working Group should focus on issues 
not presently covered by existing WTO agreements. That focus was 
identified by both the U.S. and the EU in Singapore. See joint press 
statement of Ambassador Barshefsky and Sir Leon Brittan of 13 December 
1996 [``As this is a new area of work for the WTO, complementing the 
Organization's existing activities, the group's work should not be 
extended into matters already dealt with by the WTO and its various 
committees. We expect the group to focus on the international dimension 
of competition (antitrust) rules.'' Statement on Competition Policy in 
the World Trade Organization, USTR 96-95, 13 Dec. 1996].
    A major issue in 1988 and today is foreign direct investment. 
Because of the failure to obtain desired results in the TRIMs 
Agreement, an MAI has been being negotiated as part of the OECD, 
although completion has now been postponed to later this year. It is 
important that a negotiating objective of the Congress be inclusion of 
investment liberalization requirements in any new agreements. Such 
liberalization should either equal or go beyond NAFTA investment rules 
regardless of the size of the agreement (i.e., multilateral, regional, 
bilateral or sectoral).
    While much was accomplished in terms of framework and at least some 
initial liberalization in agriculture occurred during the Uruguay 
Round, much remains to be tackled. Experience under NAFTA has uncovered 
problems in some sectors (e.g., fruits and vegetables), the numbers of 
TBT and SPS challenges in the WTO suggest a long battle to obtain 
improved liberalization and the nature of the WTO negotiations leave a 
very uneven field for many U.S. agricultural products. The Congress 
should include as negotiating objectives the harmonization of export 
subsidy regimes and their control reduction/elimination. Large 
differences in export subsidy amounts will continue to inflict harm on 
many U.S. agricultural industries preventing sustainable pricing from 
being achieved. Some sectors of agriculture might be consolidated for 
WTO Plus Agreements as discussed below.
    With regard to sectoral negotiations, Congress should include 
sectoral objectives within any fast track renewal. Such objectives can 
include ``0-for-0'' tariff levels where the industry supports sectoral 
agreements that go beyond the WTO (``WTO Plus''). The continued current 
account deficit \1\ in the U.S. reflects a number of continuing 
problems that are not easily quantified. Anticompetitive practices of 
foreign competitors-customers, regulations, distribution access and 
many other issues can drive trade flows. There have been concerns that 
construction trade--whether for government contracts or private work--
is easily distorted. Similarly, bilateral agreements in areas like 
automobiles, automobile parts, semiconductors and others show the 
complex set of issues that must be addressed if trade flows are to 
reflect underlying competitive forces. As the issues that must be 
addressed may vary by sector, it would seem appropriate to encourage 
sectoral negotiations that are ``WTO Plus'' where the domestic industry 
supports the initiative. Congress and the Administration must recognize 
that sectoral agreements are not possible where leverage cannot be 
brought to bear. Thus harmonization can include many things including, 
importantly, 301 actions.
---------------------------------------------------------------------------
    \1\ Over time, many economists and others have argued that the 
federal budget deficit was the primary cause of our current account 
deficit. As noted in Amb. Barshefsky's statement on March 18, 1997, the 
U.S. budget deficit is currently the lowest of any of the G-7 
countries, including Japan. Yet in 1996, the U.S. account deficit hit 
an all-time record.
    Some speakers have suggested other causes drive bilateral and 
current account deficits (e.g., Westinghouse Exec. re: unilateral 
sanctions). Some of these causes may in fact affect the deficit. Others 
may or may not be relevant. The Congress should work with the private 
sector and the administration for developing a better understanding of 
the continuing causes of our trade deficit. Too many of the alleged 
causes of the trade deficit appear implausible. As Congress has 
repeatedly attempted to reduce the deficit over the years, it should be 
sure it has the best current thinking on the causes. Any such causes 
should be added to the negotiating objectives. Exhibit 1 to this letter 
shows the budget deficits and current account surpluses/deficits for 
the G-7 countries in recent years.
---------------------------------------------------------------------------
    Intellectual property and services are important areas for improved 
protections and liberalization. IP agreements going beyond TRIPS, 
incorporating recent agreements within WIPO, or providing earlier 
protection are obviously very important to many sectors of the American 
industry as exemplified by the statement of Mr. Holmer on behalf of 
pharmaceutical companies. The Congress and Administration should not 
only make as an objective for various fast track negotiations the 
obtaining of ``TRIPS Plus'' rights and obligations, but should also 
consider whether sectoral negotiations for major IP industries could 
help leverage IP protection by addressing other issues peculiar to 
particular sectors that may affect IP protection as well. IP and 
service issues can obviously also be addressed for some countries 
through the WTO accession process that is ongoing. Finally, Congress 
should examine ways of supplementing the training programs made 
available to certain countries (e.g., China) for a broader IP education 
and upgrade of enforcement.
    On services, the WTO's ongoing and built-in agenda requires 
negotiations now and in the years ahead to both establish rules and 
liberalize trade in the area. The Congress should identify negotiating 
objectives for both liberalization priorities and standards/outcomes of 
the rules negotiations. For example, government procurement should be 
covered in services, should be universal and subject to mandatory 
phase-outs of any claimed exceptions or exemptions. The U.S. should 
want subsidy disciplines on services, their definition should be 
stricter than those applied in goods, particularly considering some of 
the historic concerns in financial services (e.g., cross-subsidization 
by the Japanese financial institutions). Finally, the U.S. should want 
a safeguard claim included, along the lines established for goods.
    Moreover, as the recent ITA and Basic Telecommunications Services 
Agreements suggest, for some critical service sectors, there may be 
synergies in pursuing service liberalization in tandem with ``WTO 
Plus'' agreements in goods or IP issues.
    There should be included as well much more ambitious objectives in 
government procurement and state trading liberalization than has 
existed in the past. With the rapid growth of trade by countries like 
China with substantial government-owned/controlled segments of the 
economy, there is an urgent need to improved transparency, due process 
and standards of behavior for state-owned companies. Similarly, while 
the Singapore Ministerial declaration starts the process of 
multilateralizing our Government Procurement Agreement by focusing on 
transparency issues, too much of the world's GDP falls under Government 
Procurement not to make this a high priority in all fora. The Draft 
Protocol of Accession for China to the WTO is disappointing in that 
there are no specific references to the Government Procurement 
Agreement in the draft Protocol.
    Another important issue that needs to be addressed, is better 
disciplines on exchange rate movements. While most speakers on March 18 
referenced the strong export growth since 1985, none of the speakers 
referenced the fact that exports started growing following the Plaza 
Accord 1985 agreement to devalue the dollar. As the Subcommittee is 
aware, since April 1995, the value of the dollar has appreciated 47% 
against the Japanese Yen, and more than 21% against the German 
Deutschmark.
    These dramatic changes in exchange values reflect greater changes 
in competitiveness than elimination of tariffs in the Kennedy, Tokyo, 
and Uruguay Round agreements together for most products. The U.S. and 
its trading partners must develop mechanisms to keep current exchange 
rates close to the underlying value of a currency (i.e., reflecting 
relative changes in inflation roles).
    At the same time, Congress should require the Administration to 
negotiate bilaterally with major trading partners whose currencies are 
significantly out of line with underlying value. While existing U.S. 
law empowers/requires the U.S. Treasury to pursue currency valuation 
under certain conditions [Exchange Rates and International Economic 
Policy Coordination Act of 1988, codified at 22 U.S.C. Section 5301 et 
seq.], this authority has not been used with respect to certain 
countries, particularly China. Id. at 5304(b). A review of trade 
statistics with China shows that Chinese imports underprice imports 
from all/most other countries by huge margins on hundreds of HTS 
categories. Such systematic underpricing is a strong indication of an 
undervalued currency. The same conclusion can be drawn from World Bank 
PPI data which suggest a purchasing power in China substantially 
greater than the nominal currency (close to 5-to-1 in 1994; The World 
Bank Atlas 1996 at 18). It is important that trade flows reflect 
underlying commercial realities. A negotiating objective for the 
Administration should be assuring such rationality whether through 
multilateral, regional or bilateral negotiations.
    There is much through trade policy objectives that can and should 
be done that can be helpful for U.S. companies, their workers and their 
communities. Congress in the past has helped obtain completion of 
negotiations by providing time limits to accomplish certain objectives. 
Any fast track legislation should include time limits and should 
require periodic evaluation against the objectives identified. 
Similarly, regional agreements should not depart from NAFTA on issues 
like maintenance of strong trade laws against unfair trade practices, 
preferential Rules of Origin, improved investment and IP protection. At 
the same time, aggressive use of Section 301 proved useful during the 
Uruguay Round to get TRIPs and service negotiations moving. The U.S. 
should remain vigilant in using its trade remedies to bring reluctant 
trading parters to the table for liberalization of issues not part of 
the existing WTO or that are subject to plurilateral rights and 
obligations only.
    At the same time, review of actions under national laws other than 
through national courts, should not be further pursued. Regional 
dispute settlement should be limited to those areas where the 
governments involved have an interest--whether laws of others conform 
to regional agreement obligations. Chapter 19 NAFTA-type reviews should 
be eliminated.
    On issues such as TBT and SPS, the U.S. must continue to pursue at 
all levels barriers that are not scientifically based or otherwise 
violate our rights under the WTO. This should not prevent the 
establishment of higher standards where science supports or where the 
potential cost of an error dramatically extends the benefit of expanded 
trade. Time will tell whether the NAFTA and WTO agreements will meet 
these objectives.
    Mutual recognition agreements, such as those pursued between the 
U.S. and EU are potentially very beneficial and should be encouraged, 
although some challenge mechanism should be maintained to permit the 
establishment that a foreign standard accepted under the MRAs do not 
meet relevant U.S. standards.
    On transparency, the Congress should include a requirement making 
regional agreement negotiating history documents and all documents 
post-agreement releasable to the public. Moreover, it should require 
the U.S. to expand access--historical and current--to WTO and GATT 
documents. Particularly, laws, regulations, written decisions under 
particular articles should be made available to the public (typically 
only one copy of such documents are filed with the WTO and are 
available to member governments to review if wanted).
    On labor rights and environmental issues, Congress should create 
objectives of forward movement on enforcement of core labor standards 
in countries through regional or multilateral review and encourage 
establishment of improved environmental standards on a multilateral or 
regional basis.
    Most of the comments to date have not dealt with particular 
geographical regions. However, the marginalization of least developed 
countries generally and the plight of many countries in subsaharan 
Africa in particular have been of increasing concern both within the 
WTO and within the United States. In 1996 a bill was introduced in the 
Congress to expand trade between the U.S. and subsaharan Africa 
[African Growth and Opportunity: The End of Dependency Act of 1996]. 
This Subcommittee is holding hearings in the near future on an African 
trade policy. I will forward more detailed comments on that subject at 
the later time. Although trade and investment with Africa should be 
important components in the overall U.S. trade and investment policy, 
the objectives of any such policy should be clear from the beginning 
and take into account the diverse economies involved. For least 
developed countries, infrastructure, institutions building and 
technical assistance in modification of laws may be more important than 
additional preferential tariff treatment, although preferential tariff 
treatment should not be ignored.
    Finally, as Congress considers the trade policy objectives for the 
future, I would encourage this Subcommittee to create a policy which 
takes into account the needs of all citizens. With welfare reform, 
entry level positions in manufacturing and service industries may be of 
increasing importance. It is critical that Congress assure that our 
trade policy does not eliminate the hope of those who must find a place 
in the workplace in the months and years ahead. Education, training and 
other issues can help many and can certainly be used over the long 
haul. There are, however, people who must find work now. Surely, our 
trade policy objectives can reflect the needs of all citizens.

            Sincerely,
                                                 Terence P. Stewart
      

                                

Exhibit 1

                             Current Account Balance Excluding Exceptional Financing
                                          [In Billions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
                                                   1990       1991       1192       993        994        1995
----------------------------------------------------------------------------------------------------------------
United States.................................     (92.9)      (7.7)     (62.0)     (99.7)    (150.9)    (153.0)
Canada........................................     (22.6)     (24.6)     (22.6)     (23.4)     (17.3)       (8.7
Japan.........................................       35.9       68.4      112.3      132.0      130.6      111.2
France........................................      (9.9)      (6.5)        3.9        9.0        8.1       17.5
Germany.......................................       48.3     (18.8)     (21.5)     (15.1)     (21.4)     (19.8)
Italy.........................................     (17.6)     (24.6)     (29.5)        9.4       14.9      25.71
United Kingdom................................     (33.5)     (15.3)     (17.2)     (16.6)       93.0     (10.6)
----------------------------------------------------------------------------------------------------------------
Source: International Financial Statistics 1996 Yearbook at page 134.


                                                 Budget Deficits
                                          [In Billions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
                                                   1990       1991       1192       993        994        1995
----------------------------------------------------------------------------------------------------------------
United States.................................      (218)      (273)      (289)      (254)      (202)      (160)
Canada........................................       (18)       (21)         na         na         na         na
Japan.........................................       (47)         58         12       (66)         na         na
France........................................       (25)       (15)       (52)       (68)       (73)       17.5
Germany.......................................       (24)       (38)       (47)       (47)         na         na
Italy.........................................      (121)      (123)         na         na         na         na
United Kingdom................................          7       (10)       (53)       (62)         na         na
----------------------------------------------------------------------------------------------------------------
na=Not available.
 
Source: International Financial Statistics 1996 Yearbook.


                              Budget Deficits as a Percent of Gross Dometic Product
----------------------------------------------------------------------------------------------------------------
                                                   1990       1991       1192       993        994        1995
----------------------------------------------------------------------------------------------------------------
United States.................................        -4%        -5%        -5%        -4%        -3%        -2%
Canada........................................        -3%        -4%         na         na         na         na
Japan.........................................        -2%         2%         0%        -2%         na         na
France........................................        -2%        -1%        -4%        -5%        -5%         na
Germany.......................................        -2%        -2%        -2%        -2%         na         na
Italy.........................................       -11%       -11%         na         na         na         na
United Kingdom................................         1%        -1%        -5%        -7%         na         na
----------------------------------------------------------------------------------------------------------------
na=Not available.
 
Source: Computed from information shown above.

                                   -