[House Hearing, 105 Congress]
[From the U.S. Government Publishing 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:]
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[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.
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\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.
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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.
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\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'').
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\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).
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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\
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\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).
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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.
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\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.
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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.
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