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



 
                    FREE TRADE AREA OF THE AMERICAS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 31, 1998

                               __________

                             Serial 105-71

                               __________

         Printed for the use of the Committee on Ways and Means

                               ----------

                    U.S. GOVERNMENT PRINTING OFFICE
56-186 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 March 17, 1998, announcing the hearing...............     2

                               WITNESSES

Office of the U.S. Trade Representative, Hon. Richard W. Fisher, 
  Deputy U.S. Trade Representative...............................    16

                                 ______

American Farm Bureau Federation, Al Christopherson...............    38
Coalition of Service Industries, Robert Vastine..................    42
Council of the Americas, Hon. William T. Pryce...................    34
Farr, Hon. Sam, a Representative in Congress from the State of 
  California.....................................................     8
Industry Functional Advisory Committee on Customs, JBC 
  International, and Joint Industry Council, James B. Clawson....    57
Minnesota Farm Bureau Federation, Al Christopherson..............    38
National Wildlife Federation, John J. Audley.....................    60
Semiconductor Industry Association, George Scalise...............    52
Southdown, Inc., and Southern Tier Cement Committee, Dennis M. 
  Thies..........................................................    76

                       SUBMISSIONS FOR THE RECORD

Air Courier Conference of America International, Falls Church, 
  VA, statement..................................................    91
American Electronics Association, statement......................    93
American Sugar Alliance, and Sugar Cane Growers Cooperative of 
  Florida, Carolyn Cheney, joint statement and attachments.......    98
Bernal, His Excellency Richard L., Ambassador, Government of 
  Jamaica, statement.............................................   140
Brown, Reginald L., Florida Fruit & Vegetable Association, 
  Orlando, FL, statement and attachment..........................   128
Center for the Study of Economics, Columbia, MD, Steven Cord, 
  statement and attachments......................................   111
Chapter 19 Coalition et al., joint statement.....................
Chemical Manufacturers Association, Arlington, VA, statement.....   113
Cheney, Carolyn, American Sugar Alliance, and Sugar Cane Growers 
  Cooperative of Florida, joint statement and attachments........    98
Cord, Steven, Center for the Study of Economics, Columbia, MD, 
  statement and attachments......................................   111
Customs and International Trade Bar Association, New York, NY, 
  Rufus E. Jarman, Jr., and Patrick C. Reed, statement...........   115
Dresser-Rand Co., Corning, NY, statement and attachment..........   119
Floral Trade Council, Haslett, MI, statement.....................   123
Florida Fruit & Vegetable Association, Orlando, FL:
    Reginald L. Brown, statement and attachment..................   128
    Michael J. Stuart, statement.................................   134
International Trademark Association, David C. Stimson, letter....   137
Jamaica, Government of, His Excellency Richard L. Bernal, 
  Ambassador, statement..........................................   140
Jarman, Rufus E., Jr., and Patrick C. Reed, Customs and 
  International Trade Bar Association, New York, NY, statement...   115
National Association of Manufacturers, statement.................   148
Reed, Patrick C., and Rufus E. Jarman, Customs and International 
  Trade Bar Association, New York, NY, statement.................   115
Rubber and Plastic Footwear Manufacturers Association, Mitchell 
  J. Cooper, statement and attachment............................   152
Stimson, David C., International Trademark Association, letter...   137
Stuart, Michael J., Florida Fruit & Vegetable Association, 
  Orlando, FL, statement.........................................   134
Sugar Cane Growers Cooperative of Florida, Carolyn Cheney, joint 
  statement and attachment (see listing under American Sugar 
  Alliance)......................................................    98
U.S. Express Integrated Transportation Services Sector et al., 
  joint statement................................................   154
U.S. Integrated Carbon Steel Producers et al., joint statement...   161
West Indies Rum and Spirits Producers Association, statement.....   162


                    FREE TRADE AREA OF THE AMERICAS

                              ----------                              


                        TUESDAY, MARCH 31, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m. in 
room B-318, Rayburn 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

March 17, 1998

No. TR-22

                       Crane Announces Hearing on

                    Free Trade Area of the Americas

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the status and outlook for 
negotiations aimed at achieving a Free Trade Area of the Americas 
(FTAA). The hearing will take place on Tuesday, March 31, 1998, in room 
B-318 Rayburn House Office Building, beginning at 2:30 p.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Deputy U.S. Trade Representative Richard W. Fisher will 
represent the Administration. Also, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    The goal of free trade in the Western Hemisphere was first put 
forward by President Bush in June 1990 when he proposed the Enterprise 
of the Americas Initiative. At the December 1994 Summit of the Americas 
in Miami, leaders of 34 Western Hemisphere democracies agreed to 
establish the FTAA in which barriers to trade and investment will be 
progressively eliminated. They committed to begin the process 
immediately, make concrete progress by the year 2000, and to conclude 
negotiations by no later than 2005. The Summit Declaration signed on 
December 11, 1994, identified 11 major areas that will be covered in 
the negotiations: market access, customs procedures and rules of 
origin, investment, sanitary and phytosanitary measures, standards and 
technical barriers to trade, subsidies, antidumping and countervailing 
duties, smaller economies, competition policy, government procurement, 
intellectual property rights, and services. Subsequent ministerial 
meetings held in 1995, 1996, and 1997 have established working groups, 
and laid other groundwork for these negotiations.
      
    Since 1990, four sub-regional groups in particular have made 
considerable progress in breaking down intra-regional trade barriers. 
Mercado Comun del Sur--``The Common Market of the South'' (also called 
MERCOSUR) consists of Argentina, Brazil, Paraguay, and Uruguay and is 
the second largest preferential trading group in the Americas, after 
the North American Free Trade Agreement (NAFTA). The Andean Pact, 
consisting of Bolivia, Colombia, Ecuador, Peru, and Venezuela, ranks 
third. The Caribbean Community and Common Market, consisting of 13 
English speaking Caribbean nations, has agreed to implement a common 
external tariff over a period of six years, although members will be 
able to maintain their own non-tariff barriers. The Central American 
Common Market, originally established in 1961, was reinvigorated in 
1990.
      
    In addition to work in these sub-regional groups, Latin American 
countries have participated in other trade negotiations, several of 
which fall outside the FTAA framework. MERCOSUR, as well as some of the 
other Latin American groups are engaged in ongoing negotiations with 
the European Union. Also, Canada and Chile recently concluded a 
bilateral trade agreement which does not involve the other two NAFTA 
members. This occurred when Chile's accession to NAFTA, a key priority 
of the United States, was temporarily forestalled by delay in passing 
legislation to extend fast-track trade negotiating authority for 
President Clinton. As a result of the 1997 pact between Canada and 
Chile, U.S. exporters are at an 11 percent disadvantage in the Chilean 
market vis a vis their Canadian competitors.
      
    Western Hemisphere Trade Ministers held their first meeting under 
the FTAA process in June 1995 in Denver, Colorado. At the third 
ministerial meeting in Belo Horizonte, Brazil, in May 1997, Ministers 
agreed that ``FTAA negotiations should be initiated in Santiago, Chile, 
in April 1998'' when President Clinton will join other Western 
Hemisphere leaders at the Second Summit of the Americas.
      
    In announcing the hearing, Chairman Crane stated: ``The Santiago 
Summit marks an important juncture in the path the United States has 
chosen towards reaching a FTAA agreement by 2005. Challenges to 
progress include the lack of fast track negotiating authority, and 
concern that exclusive sub-regional negotiations, which do not include 
the United States, may be detrimental to our interests. American 
leadership in the region is particularly critical now. As the Santiago 
Summit approaches, we must work to ensure that U.S. aims are adequately 
represented in these historic talks which have the potential to affirm 
and advance the expansion of freedom and prosperity in our 
hemisphere.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to examine: (1) progress in the 
FTAA negotiations and how these talks affect the national economic and 
security interest of the United States, (2) prospects for the upcoming 
Santiago Summit meeting, and (3) the status of existing sub-regional 
trade arrangements in the Western Hemisphere. Testimony will be 
received on specific objectives for the FTAA negotiations, the results 
of the recent ministerial held in Costa Rica on March 19, 1998, and the 
anticipated impact of expanding trade in the hemisphere on United 
States workers, industries, and other affected parties.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bradley Schreiber at (202)225-1721 no later than the 
close of business, Wednesday, March 25, 1998. The telephone request 
should be followed by a formal written request to A.L.Singleton, Chief 
of Staff, Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515. The staff 
of the Subcommittee on Trade will notify by telephone those scheduled 
to appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202)225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies of their 
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS 
Text or WordPerfect 5.1 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 5:00 p.m., 
Friday, March 27, 1998. 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) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Tuesday, April 14, 1998, to A.L. 
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of 
Representatives, 1102 Longworth House Office Building, Washington, D.C. 
20515. If those filing written statements wish to have their statements 
distributed to the press and interested public at the hearing, they may 
deliver 200 additional copies for this purpose to the Subcommittee on 
Trade office, room 1104 Longworth House Office Building, at least one 
hour before the hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS or 
WordPerfect 5.1 format. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    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 releaes are available on 
the world Wide Web at ``http://www.house.gov/ways__means/''.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Crane. The Subcommittee will come to order. And on 
our schedule our witness was to be our colleague, Mr. Farr from 
California, but we cannot find Mr. Farr. Wait 1 second. Oh, 
here he is. All right, well. Then we will start with our 
colleague, Mr. Farr. And, Mr. Farr, please take a seat, and try 
to keep and your oral testimony, if you can, within the general 
range of 5 minutes. All written material will be made a 
permanent part of the record. And you may proceed.
    [The opening statements follow:]
    [GRAPHIC] [TIFF OMITTED] T6186.025
    
    [GRAPHIC] [TIFF OMITTED] T6186.002
    
    [GRAPHIC] [TIFF OMITTED] T6186.003
    
      

                                


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

    Mr. Chairman, thank you for calling today's hearing to 
discuss U.S. trade with Latin America and the Free Trade Area 
of the Americas.
    There exists a special relationship between the U.S. and 
our fellow nations in the Western Hemisphere. While trade with 
Latin America, excluding Mexico, currently accounts for only 7% 
of total U.S. merchandise trade, we know the potential for 
growth in this trade relationship is tremendous. Trade with 
Latin America rose by 20% in 1997, making it the fastest 
growing region for U.S. exports. When you include Mexico, trade 
with the region is expected to surpass trade with Europe and 
Japan combined by 2010.
    Of course, this is our potential growth rate--and we must 
take the appropriate steps to realize this goal, which will 
contribute mightily to the U.S. economy and create more and 
better paying jobs for U.S. workers.
    We have been watching closely the many regional trade 
agreements being negotiated in the region over the past few 
years, most of which do not involve the U.S. While these 
regional agreements certainly help the participating nations' 
economies, I am worried about the lack of U.S. involvement. Of 
course, many initiatives we would like to be negotiating are on 
hold because we have not yet renewed fast track Authority.
    fast track Authority is not only key to allowing our 
participation in regional agreements, but it is crucial for the 
success of the FTAA overall. The U.S. is, and should continue 
to be, the leader in our Hemisphere. Without the authority the 
administration needs to guide the direction of the 
negotiations, I fear the agreements will not be as aggressive 
as they could be to open markets for U.S. exports.
    Yet, I have been told that the fourth ministerial meeting 
held in San Jose earlier this month set the stage for a 
successful launch of substantive negotiations at the upcoming 
Santiago Summit. I am certainly interested in learning more 
from Ambassador Fisher, Al Christopherson of the Minnesota Farm 
Bureau Federation and others about the progress made at that 
ministerial meeting, as well as what we can expect to happen at 
the Santiago Summit.
    Thank you again, Mr. Chairman, for calling this hearing. I 
look forward to hearing from today's witnesses about the 
importance and implications of U.S.--Latin American trade and 
the FTAA.
      

                                


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

    Mr. Farr. Thank you very much, Mr. Chairman. I'm sorry I'm 
late, I ended up looking for B-318 in the Capitol, so it shows 
how new I am to this place. [Laughter.]
    I think the best way to try to bring this issue up is to 
show you how twisted I think our policy is regarding Colombia. 
Yesterday, on the floor, under the suspense calendar, there was 
a short discussion about an appropriation that we were making 
to Colombia of $36 million to buy three Black Hawk helicopters 
to assist their military in drug eradication. That all comes 
about because Colombia is still the largest grower and exporter 
of drugs to the United States.
    Our policy regarding Colombia probably started back in 1991 
when we gave preferential tariff treatment under the Andean 
Trade Pact Agreement, in which we intended Andean countries to 
develop legal alternatives to drug crop cultivation. This 
legislation that we adopted gave tariff-free status to a range 
of goods, including cut flowers. Since 1991, however, the 
number of hectares devoted to coca cultivation in Colombia has 
steadily increased. Therefore, we've had to appropriate money 
to assist them with helicopter purchases. We have, moreover--
the President of this country, for the third consecutive year, 
has found Colombia uncooperative in its narcotic control 
efforts, and failed to fully certify it. They gave a waiver of 
national interest. This year, primarily, because it's an 
election year in Colombia, and they wanted to be able to 
maintain dialog with the Colombian Government.
    How does this relate to what we're doing here today? Well, 
since 1991, the Colombian flower growers, where we gave them 
free entry of their product into the United States, and I might 
add that we don't do this for any other country. Holland is the 
second largest exporter of flowers to the United States and we 
do charge them a tariff. The Colombians now have 70 percent of 
the cut flower business in America. They have a $300 million 
business.
    What I'm asking for is essentially a little bit of fair 
play. I'm for free trade. I voted for GATT. I voted for NAFTA. 
But I'm also a supporter of fair trade. Tariffs should be equal 
for everyone. We need a level playingfield. We charge tariffs 
when we have products in this country that we make, and we try 
to level the playingfield. They charge tariffs for products 
they make. And, in fact, everything we export to Colombia, we 
pay tariffs on: the machinery, the produce, the chemicals, the 
oil, all pay a tariff of between 5 and 15 percent. Yet, we 
allow Colombians to export flowers to the United States for 
free.
    I think trade agreements should also recognize and address 
potential impact on domestic industries. And this is one where 
we've failed. We're still involved in this drug problem with 
Colombia, but we failed to analyze what the impacts have been 
on our domestic products, and particularly, on our growers. 
With regard to the Andean Trade Pact--no one has taken a look 
at it until you, Mr. Chairman. We are beginning to ask these 
questions that have gotten us to the table.
    The number of American flower growers has fallen 60 percent 
since 1989. California flower growers go out of the business at 
a rate of 10 percent a year. Cut flowers are now Colombia's 
fifth largest export. The dollar value in Colombian cut flowers 
imports has increased from $88 million in 1992, as I said, to 
$442 million in 1997, a fivefold increase. The Colombian cut 
flower industry currently controls 65 to 70 percent of the 
United States import market. The next largest importer, as I 
said, is Holland which only has 12 percent.
    So we have to fix something that's broken here. It just 
isn't working, and I urge the Subcommittee to end this unfair 
flower trade by passing H.R. 54, and to consider the effect of 
the ATPA, the Andean Trade Pact Agreement, when it considers 
future trade agreements, like Free Trade Area of the Americas.
    And let's just try to make some sense out of the kind of 
chaos of what's going on here between 1 day allowing all of 
these flowers in free. I was a Peace Corps volunteer in 
Columbia, so nobody loves Colombia more than I do. I think it's 
a great country, love the people there, and a lot of the people 
I know are in the flower business. They have a mature business 
now. This isn't 1991. This is 1998, and they have 70 percent of 
the American market. Is a tariff going to kill the market? 
Absolutely not. Are they still going to be competitive in 
America? Absolutely. But it makes no sense that they have this 
unfair advantage just so that when we go to Colombia, we have a 
business interest that we can talk to about the internal 
politics.
    That's what's happening, the external foreign affairs of 
this country are being heard by the White House, and the 
internal economic devastation by that foreign policy is being 
ignored. The only way we can correct it is for Congress to act. 
We have the ability to level the playingfield. I think by our 
actions of yesterday, and this hearing today, we have the 
opportunity to do that. I urge this Subcommittee to do it--take 
a look at the legislation--it has bipartisan cosponsors, it 
affects many parts of America, and all the States that you 
gentleman represent.
    Thank you very much. I would be glad to answer any 
questions you might have.
    [The prepared statement follows:]

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

    Mr. Chairman, Members of the Subcommittee, thank you for 
holding this hearing on the progress of Free Trade Area of the 
Americas, the prospects of the Santiago Summit meeting, and 
existing trade agreements in the Western Hemisphere. I 
appreciate you giving me the opportunity to testify before you 
today on a failed foreign policy, the Andean Trade Preference 
Act.
    I would like to reiterate, as I did when I testified last 
year, that I support free trade. I come from a state that 
remains the nation's largest producer of agricultural products 
and the nation's leader in exports, so I understand the need 
for free and open markets. The 17th District of California, 
which I represent, has proven itself innovative and 
resourceful, becoming one of the fastest growing exporters in 
the country. It is within this context of innovation and 
resourcefulness that I support free trade. In addition to good 
economic sense, it strengthens ties between countries and 
encourages the flow of information, knowledge, and 
understanding.
    As a Peace Corps volunteer in Colombia I learned that Latin 
America was a strong and diverse region, and its economic 
potential was only just beginning to make itself felt. I look 
forward to a positive outcome from the upcoming Summit in 
Santiago. Properly structured, the Free Trade Area of the 
Americas (FTAA) could have tremendous economic, social, and 
political benefits. However, we are at a crossroads for trade 
between North, Central, and South America. Now is the time when 
we need to examine problems with other trade policies in the 
region, and that is why I am here today.
    As I mentioned, I support free trade. I also support fair 
trade. As the Subcommittee considers the issue of trade in the 
Americas, and specifically the FTAA, it should review the 
impact of a trade agreement already on the books--the Andean 
Trade Preference Act. The ATPA has given one-sided trade 
benefits to several South American countries and has caused 
considerable hardship to at least one domestic American 
industry: cut flowers. The ATPA simply provides Colombian 
flower growers an unnecessary edge in a market they already 
dominate to the detriment of domestic flowers growers. The 
International Trade Commission acknowledged in 1995 and 1996 
that the ATPA has had a greater impact on the U.S. fresh cut 
flower industry than any other market examined.
    Since enactment in 1991, the Andean Trade Preference Act 
(ATPA) has provided duty-free access to the U.S. market for 
flower exporters in four Latin American countries: Colombia, 
Bolivia, Ecuador, and Peru. For seven years it has allowed 
flower growers in these four countries to avoid tariffs 
normally imposed on their product, tariffs ranging from 3.6% to 
7.4%.
    The purpose of this preferential treatment was intended to 
encourage Andean countries to develop legal alternatives to 
drug crop cultivation and production. However, coca eradication 
efforts to date in Colombia have been less than anticipated. 
This policy has failed. For the third consecutive year Colombia 
has failed in its efforts to be fully certified or reduce the 
production of illegal drugs. In order to maintain an open 
dialogue the Administration recently made the determination to 
put forward a national interest waiver with respect to 
Colombia. The results in Colombia are particularly 
disheartening, given that eradication is generally a bilateral 
effort in which the United States supplies the funding, fuel, 
and herbicides with the host government providing the 
personnel.
    Cultivation of coca, the raw material used to make cocaine, 
has dropped significantly in all of the Andean region except 
Colombia. The Colombian coca crop expanded more than 30% from 
1996 to 1997, from almost 51,000 hectares to over 67,000 
hectares. Colombia now has the distinction of producing 80% of 
world's cocaine and over 70% of the cut-flower imports into the 
United States.
    The latter has resulted in a steady weakening of the 
American flower industry. Since the enactment of ATPA, the 
number of American chrysanthemum growers has fallen by 25%, the 
number of carnation growers has fallen as by much as one-third 
and the remaining major commercial types have fallen in the 
double-figure range as well.
    Last session, Congressman Tom Campbell and I introduced 
legislation, which has now garnered the support of 42 
cosponsors, to repeal the preferential tariff treatment 
provided by the ATPA. H.R. 54 would restore tariff levels to 
the pre-ATPA levels of 3.6% to 7.4%. This will help to level 
the playing field that our growers are currently forced to 
compete on. Colombia growers will still have many advantages 
over their American counterparts. This legislation would end an 
ineffective drug control policy and restore a level playing 
field for the American cut-flower industry.
    An additional concern that was not addressed is of an 
environmental and health nature. Imported flowers have a large 
advantage over domestic producers because they can use a much 
broader range of chemicals than those that are allowed in the 
United States, yet still compete in the same markets. In other 
countries flower growers have no rules, no registration 
requirements, and no enforcements on the chemicals they use.
    When flowers arrive from other nations there is little or 
no screening for pesticide residue. Out of sight means out of 
mind. This unchecked practice on imports could have significant 
implications for our planet. By not imposing the same chemical 
restrictions on imports, the United States is making domestic 
flower producers non-competitive, allowing global pollution, 
and possibly endangering public health and safety.
    The following is just a partial list of chemicals used by 
foreign growers that are unavailable to domestic growers: 
Pyramore, Afugan, Nomolt, Nack, Methanil, Lanate, Oxanil, 
Vidate, DDDP, Actellic, Qinalphos, Applaud, Azodrin, Kartap, 
Hostathion, Sulprofos, Curacron, Carzol, Plictran, Bendiocarb.
    There are many other chemicals with no scrutiny, no 
restrictions, no enforcement, and no residue testing. Imported 
growers could even use DDT and get away with it. With the 
upcoming implementation of the Food Quality Protection Act 
(FQPA) the inequity will grow even more extreme.
    In closing, the American flower growers are in a unique 
situation. They are the economic poster child for a failed 
trade policy and the sacrificial lamb in a failed foreign 
policy war to end drug trafficking.
      

                                


    Chairman Crane. Thank you, Sam. And I was going to say we 
have a stacked deck up here, but I see there are some that are 
not from California. [Laughter.]
    And I would like to yield first to our distinguished 
Ranking Minority Member, Mr. Matsui.
    Mr. Farr. All the flower growers in Florida are affected by 
this policy. [Laughter.]
    Mr. Matsui. I want to thank the Chairman for yielding. Sam, 
do we have any statistics? I was just talking to staff, and I 
want to refresh my memory. In 1991 when this agreement was 
reached by the administration, the idea was to reduce the 
acreage of drugs and increase the acreage of flowers, and over 
time it was supposed to reduce significantly the drug 
production. It may be difficult to get statistics on illegal 
activities from Colombia, but do we have statistics in that 
particular area?
    Mr. Farr. Yes, we do.
    Mr. Matsui. Can you recite them, if you have them?
    Mr. Farr. The reason for this trade pact, remember, the 
underlying reason was to support drug eradication by moving 
from an elicit crop to a legal crop, and allowing the legal 
crop to come in. Drug cultivation in Colombia has grown by 55 
percent since 1991. The amount of coca that escapes eradication 
has grown by 35 percent since the ATPA became law in 1991. So, 
we're missing on both sides. They are not eradicating the crop 
internally, and the number of hectares in production has grown 
by 55 percent--doubled.
    Mr. Matsui. I understand that our domestic industries have 
initiated some antidumping actions. And, of course, they 
haven't been successful. And I don't know if that's necessarily 
the appropriate approach because I think the original purpose 
was to trade off one type of production for another. And if 
it's not working, we obviously need to reexamine that policy, 
and it would be my hope that we do that, put a little 
pressure----
    Mr. Farr. We have done antidumping suits, and, as you know, 
they're very expensive. They're essentially very costly to a 
small business industry that we have of flower growers. We have 
won those suits but that doesn't really give you much remedy. 
The other problem we're going to be facing soon is this country 
has dealt very stiff tolerance levels for herbicides and 
pesticides that are on imported fruits and vegetables. And we 
do a lot of testing of that because we don't allow those 
commodities to come into the United States in violation of our 
excepted tolerance levels. We don't have any kind of testing 
for flowers, and they'd use some of the stuff that we outlaw in 
this country.
    Mr. Matsui. I think your comments are well taken, and 
certainly I'd like to work with the Chair in order to see if 
any further action should and can be taken, and I appreciate 
this.
    Mr. Farr. I appreciate this Subcommittee's tough situation. 
A lot of people come here and sort of do this, you know, 
protectionism. I don't think it's protectionism. This is where 
we made some policy on the assumptions. And that's why I wish 
Tom Campbell were here, because he's very good--he was here and 
voted for that bill. And he voted at the time, and he's changed 
his position on it, because he thinks the intent of that bill 
has been totally thwarted.
    Mr. Matsui. Let me say this, I agree with you that this 
isn't protectionism you're seeking. What I'm suggesting is that 
if we made this original decision on foreign policy--for a 
foreign policy reason, and that foreign policy isn't working, 
then we have to reexamine this. So, I thank the Chairman. I 
thank you for your testimony.
    Mr. Farr. Thank you.
    Chairman Crane. Mr. Thomas.
    Mr. Thomas. Very briefly, Sam, the fact that you're back in 
front of us again, I think, underscores the naivety that we 
have in terms of economics and dealing with our Western 
Hemisphere. I know it's important to you. I know it's important 
to a couple of congressional districts, cut flowers. Obviously, 
we come from a State in which specialty agriculture is affected 
in a number of different ways. This, and I don't mean to 
belittle it, pales in relationship to some of the other 
specialty crops in other parts of the world; almonds, for 
example, with the Europeans, raisins, as well as cut flowers.
    The point I'm trying to make is that if you're still a 
victim of someone thinking that by knocking down a tariff on 
cut flowers, we could stem the cocaine trade to the United 
States, we're pretty naive. In the way in which we're trying to 
build a foreign policy, and a trade package, your leaving off 
the discussion on South American, Central American, Latin 
American trade. I do want to put it in perspective. It's 
important to you, and therefore, it should be focused on. But 
when we're looking at the larger trade practices, what has 
occurred to you has more often than not been passed off as our 
policy, which is unfortunate. And that we ought to look at a 
far more sensible, comprehensive program than to pick and 
choose these kinds of areas to punish or reward. Because I 
think at this date, we should have learned that when we try to 
mess with fundamental economic relationships as a punishment or 
a reward, after you've done it for some really good reason, 
several years later no one can remember why it was that we did 
it.
    So you've been helpful in reminding us of why we did it, 
and more importantly, why we shouldn't do this sort of thing 
again. My hope is that you won't appear before us again, 
because we will have solved your problem in the larger solution 
of a rational policy within the hemisphere.
    Thank you very much.
    Mr. Farr. Thank you, and you remember that with the 
commodities that you're interested in, there are other 
criteria, there's truth in labeling.
    Mr. Thomas. Surely.
    Mr. Farr. We don't label flowers, where they come from. 
There are tolerance levels which we test for on edible 
commodities. There's no testing on flowers. So this is a 
specialty crop that has been given this incredible special 
privilege. If you just made sense, and said well, let's charge 
a tariff on these flowers, and let's earmark that money to turn 
around and use it for drug eradication. At least it would go 
back to Colombia, or assistance to Colombia. But here they've 
got both. They're getting the flowers in, putting our guys out 
of business----
    Mr. Thomas. Yes.
    Mr. Farr [continuing]. And then we turn around and buy them 
helicopters.
    Mr. Thomas. But I would tell the gentleman that his 
solution is a compounding of the problem if we were to run the 
tariff, and then give it back. The solution is in the larger 
context, and your continuing to remind us of mistakes that 
we've made in the past hopefully will speed up the eradication 
of this and other attempts to link policy with trade.
    Thank you.
    Chairman Crane. Mr. Camp. Mr. Ramstad. Mr. McDermott. Well, 
if not, we thank you again, Sam. And the comments that were 
made by Mr. Matsui and Mr. Thomas, I think, hit responsive 
chords with Members of the Subcommittee. And the question I was 
just putting to Mr. Matsui is, How, when its food products are 
coming in here, we're so paranoid about the use of chemicals in 
raising food crops that can be injurious upon consumption, and 
yet we don't apply the same standards with other products? You 
have a list on the back of your last page of testimony that's 
illustrative of this. We hope we can address that.
    Mr. Farr. Thank you very much, Mr. Chairman. I appreciate 
the patience of the Subcommittee, and for my Florida 
colleagues, who receive most of the business from the imports, 
their flower growers are in support of this bill.
    Chairman Crane. Very good. Thank you, Sam.
    I want to now warmly welcome our new Deputy U.S. Trade 
Representative, Richard Fisher, to the Subcommittee for the 
first time. On behalf of my colleagues, we are impressed with 
your background and appreciate your willingness to serve in 
this important capacity as USTR.
    You are joining the U.S. negotiating team at a critical 
time for the FTAA negotiations. The recent trade ministerial 
meeting in San Jose set the stage for an official launch of the 
negotiations on April 18 in Santiago, Chile, where President 
Clinton will join 33 Western Hemisphere heads of state.
    I cannot overstate my frustration and disappointment that 
the President will attend this summit without the authority 
that his counterparts have to negotiate trade agreements. All 
Americans need to consider the costs involved in having our 
head of state participate in an important international meeting 
without the fundamental tools he needs to strike the best deal 
possible for U.S. interests. There is no doubt the recent delay 
in passing fast track trade negotiating authority lessens the 
strength of U.S. leadership in the FTAA process. It opens doors 
for other countries to exert additional influence in these 
historic negotiations.
    In order to recover from the setback we suffered, it's 
essential that the USTR get back in the game with an ambitious 
trade agenda that refuses to abdicate the traditional U.S. role 
of world leader. While the recently announced Transatlantic 
Initiative with Europe has interesting possibilities, I must 
confess I'm struck with how the United States is beginning to 
fall into a reactive posture. We are positioning ourselves so 
that we are only able to respond to trade agendas developed in 
Brussels, or in the case of the FTAA, in Brazil. This is not 
the role we have played historically in trade negotiations, and 
it's not a role with which any of us, Republicans or Democrats, 
should be comfortable.
    Sadly, there is the danger that the agenda of our MERCOSUR 
trading partners to go slow in the FTAA talks in order to 
consolidate their own regional trade organization, may win the 
day in Santiago.
    I urge you, Mr. Fisher, to do everything possible to ensure 
that the FTAA talks are launched with enough momentum to 
achieve real tangible trade liberalization by the turn of the 
century. In my view, this should include an airtight stand-
still commitment not to increase levels of trade protection in 
the region. I also challenge you to bring back an accord from 
Santiago that will pave the way for concrete progress in the 
areas of transparency, harmonization of standards, and tariff 
reductions before the year 2000.
    It's clear to me that interim agreements are necessary to 
maintain momentum in the FTAA process. Absent an ambitious 
agenda, I'm afraid that the interests of the private sector in 
the FTAA negotiations will fade, making it much more difficult 
to garner the votes necessary to pass fast track.
    I look forward, Mr. Ambassador, to hearing your plans for 
the FTAA summit, and to the testimony of the private sector 
witnesses on the two panels that will follow.
    And now I'd like to yield to our distinguished Ranking 
Minority Member of the Trade Subcommittee, Mr. Matsui.
    Mr. Matsui. Mr. Chairman, I happen to agree with everything 
you're saying and as a result of that, I'll just submit my 
statement for the record.
    Thank you.
    [The prepared statement follows:]
    [GRAPHIC] [TIFF OMITTED] T6186.004
    
    [GRAPHIC] [TIFF OMITTED] T6186.005
    
      

                                


    Chairman Crane. Thank you. You may proceed, Mr. Secretary.

    STATEMENT OF HON. RICHARD W. FISHER, DEPUTY U.S. TRADE 
      REPRESENTATIVE, OFFICE OF U.S. TRADE REPRESENTATIVE

    Mr. Fisher. Thank you, Mr. Chairman. Mr. Chairman, Members 
of this Subcommittee, I'm honored today to discuss the progress 
with you that we have made toward constructing a Free Trade 
Area of the Americas.
    As you mentioned, this is my first appearance before this 
Subcommittee as Deputy U.S. Trade Representative. I want to 
tell you at the outset here that I consider it a privilege to 
be here before you, and I greatly appreciate this invitation to 
discuss this important initiative with you.
    Chairman Crane. Well, we recognize, Mr. Ambassador, that 
you may be appearing here for the first time, but you have 
strong, powerful input from back home.
    Mr. Fisher. Well, thank you, Congressman, I appreciate 
that. [Laughter.]
    Chairman Crane. For those of you that aren't aware, his 
better half is the daughter of Jim Collins, a former colleague 
from Dallas that we served with for a number of years.
    Mr. Fisher. You're right, ``better half'' by more than 
half. [Laughter.]
    We'll see how much I learned, Congressman.
    As you know, Mr. Chairman, this administration, the Clinton 
administration, is committed to opening up markets in the 
Western Hemisphere, and our objective is to create a free trade 
area that stretches from Nova Scotia to Tierra del Fuego. And 
our aim is to raise the standard of living and improve the 
working conditions of all the people of our hemisphere.
    I think it's important to take note that the Western 
Hemisphere is now the largest destination for U.S. exports of 
goods. Over 40 percent of total U.S. merchandise exports went 
to this region in 1997. U.S. exports to the region grew three 
times faster last year than exports to the rest of the world. 
And these export increases in 1997 accounted for two-thirds of 
the export growth of the United States worldwide. This warrants 
repeating, Mr. Chairman. U.S. exports to our Western Hemisphere 
partners grew by $42 billion last year. That accounted for 63 
percent of U.S. export growth worldwide.
    United States exports to Latin America, Mexico, and the 
Caribbean in the second half of 1997 exceeded our exports to 
the European Union countries. And Mexico has now surpassed 
Japan to become our second largest export market, behind 
Canada, which is our largest market to the north, as you well 
know.
    These impressive trade statistics are driven by a dramatic 
reorientation of trade policy in Latin America. In some 
instances, the changes in policy that have occurred in the 
southern half of the hemisphere, I believe, are as 
revolutionary as those which have occurred in Eastern and 
Central Europe at the beginning of this decade.
    As democracy has spread through the Americas, so has a 
growing confidence in marketplace economics. Market-driven 
policies, open trade, greater transparency, as you referred to 
earlier, in rulemaking and regulation, increased privatization, 
sound fiscal and monetary policies, and efforts by the private 
sector to increase competitiveness have led to faster economic 
growth, lower inflation, and expanded opportunities.
    This administration believes it is in the interest of the 
United States to maintain this momentum toward economic 
prosperity in Latin America, and we believe that the FTAA is an 
essential and vital tool for doing so.
    Since the Miami Summit of the Americas 3 years ago, trade 
ministers of the 34 countries of the hemisphere have been hard 
at work laying the groundwork for the FTAA, or ALCA, as it is 
known in its Spanish acronym.
    This work of building a foundation for the FTAA reached its 
culmination a week and a half ago in San Jose, Costa Rica. In 
San Jose, the ministers, the trade ministers of the 34 
countries involved, unanimously approved a structure and a plan 
to have their heads of state initiate negotiation of the FTAA 
during the upcoming summit meeting in Santiago, Chile, on April 
18 and 19. They provided recommendations on the initial 
structure of the FTAA, its objectives, its principles, and the 
venues for negotiations.
    It was agreed that the United States will provide the venue 
for negotiating groups and the administrative secretariat of 
the FTAA for the first 3 years in Miami, Florida. There will be 
nine initial negotiating groups. These groups will cover market 
access, investment services, government procurement, dispute 
settlement, agriculture, intellectual property rights, 
competition policy, and subsidies antidumping and 
countervailing duties. Each of these nine groups will be 
chaired by a different country, and they will rotate the 
chairmanship of these groups every 18 months. The United 
States, by the way, initially will chair the government 
procurement group.
    The negotiating group structure, incidentally, Mr. 
Chairman, is flexible so that it can be modified as required to 
ensure continued progress in the negotiations. The overall 
leadership for the FTAA was also established in San Jose with 
Canada in the chair for the first 18-month period, and the 
United States cochairing with Brazil, the final 2 years of the 
negotiations.
    The Chairman will head the ministerial meetings, in what is 
known as the Trade Negotiating Committee, which is comprised of 
34 vice ministers of trade, including the witness sitting 
before you, who will have the responsibility for oversight of 
the nine negotiating groups I referred to earlier. Thus, the 
negotiating groups will report to the vice ministers of the 
Trade Negotiating Committee who will, in turn, report to their 
ministers.
    It was decided in San Jose that, subject to approval by the 
heads of state in Santiago, the Trade Negotiating Committee--
this group of vice ministers--will begin its work by June 30, 
1998. And the negotiating groups, the nine groups that I 
mentioned, will meet by no later than September 30 of this 
year.
    There are other aspects of the San Jose declaration that I 
think are important and I'd like to bring to your attention 
here. The first is an establishment of a Committee on Civil 
Society. One of the greatest threats to hemispheric trade 
integration is not the difficulty of the negotiations per se, 
but the apprehension of our respective civil societies--that is 
our nongovernmental private sectors--about the negotiating 
process. And, thus, for the first time in any large trade 
negotiation, we have created a Committee reporting directly to 
the ministers to receive input from business, labor, and 
environmental groups, academics, consumer, and other noncentral 
government interests.
    The second aspect I'd like to bring to your attention is 
the establishment of a Committee on Electronic Commerce. This 
Committee will be composed not just of government officials, 
but also of private sector experts, to develop the rules of 
electronic commerce in the hemisphere. I hasten to add, Mr. 
Chairman, that the electronic medium is not a new subject for 
the FTAA, and we have throughout this process used the 
Internet. We even have a home page, www.ac-la-ftaa.org, which 
includes all the products of the FTAA working groups, in all 
four languages of the hemisphere, so it will be transparent to 
the various cultures of our hemisphere.
    In addition to securing transparency for the negotiations, 
another key objective, which we achieved in San Jose, is that 
the FTAA would not simply add yet another set of rules for 
business to contend with. We reached consensus that the 
bilateral and the subregional agreements, such as MERCOSUR, and 
the Andean Community Pact, can coexist with the FTAA only to 
the extent that the rights and obligations under those 
agreements are not covered by, or go beyond those, of the FTAA. 
We agreed that the FTAA should improve upon WTO rules and 
disciplines, and in this way, we seek to ensure that we will 
reach a final comprehensive deal that breaks down the most 
serious trade barriers in the regions, and does not merely 
reiterate the accomplishments obtained at the end of the 
Uruguay round.
    Let me summarize, Mr. Chairman, the most important 
objectives for the United States in the FTAA. They are as 
follows: To progressively eliminate tariffs, which I wish to 
remind you, are four times higher in the hemisphere than they 
are here in the United States; to progressively eliminate 
nontariff barriers, as well as other measures with equivalent 
effects which restrict trade; to bring under great discipline 
trade distorting practices for agricultural products, including 
those that have effects equivalent to agricultural export 
subsidies; to promote customs mechanisms and measures that 
ensure operations are conducted with transparency, efficiency, 
integrity, and accountability; to develop an efficient and 
transparent system of rules of origin, including nomenclature 
and certificates of origin; to eliminate and prevent 
unnecessary technical barriers to trade; to liberalize trade in 
services; to ensure adequate and effective protection of 
intellectual property rights; to guarantee that the benefits of 
the FTAA liberalization process are not undermined by 
anticompetitive business practices; to establish a fair and 
transparent legal framework for investment and related flows; 
to make our trade liberalization and environmental policies 
mutually supportive; and to further secure the observation and 
promotion of workers' rights by renewing the FTAA countries' 
commitments to the observance of internationally recognized 
core labor standards.
    Mr. Chairman, let me conclude by saying that achieving a 
successful FTAA is very much in the interest of the United 
States. As you know, and you have been a champion of this 
cause, trade drives this economy. There is no greater trading 
nation than the United States of America. Thirty-eight percent 
of our GDP growth in the last 5 years has come from exports. 
Trade was a source of a significant portion of the 14 million 
jobs that our economy has created in the last 5 years.
    Today, we have the strongest economy in the world, and the 
best balanced economy in the world. As you know, it's the best 
balanced in decades. We're enjoying growth without inflation, 
we have the lowest unemployment we've had in 30 years, and yet, 
even in these prosperous times, Mr. Chairman and Members of the 
Subcommittee, the people of America have one overriding 
concern, which is their financial security.
    Yesterday, Mr. Chairman, I received from the Investment Co. 
Institute data that show that 65 million Americans, 65 million 
Americans, have now tied their financial security to their 
ownership of America's companies through their equity mutual 
fund investments. These investors are blue collar workers, 
they're farmers, they're white collar computer experts. They're 
women, as well as men, and they are of all races and creeds. 
These are your constituents, and the constituents of this 
Congress. The growth and security of employer-sponsored 
retirement funds, Individual Retirement Accounts, 401(k) 
accounts, and all the other mutual fund holdings of some 37 
million American households, over 65 million individuals depend 
on the growth of earnings of U.S. companies competing in the 
global marketplace. To generate these earnings, companies have 
to grow. In order to grow, they need to expand their 
businesses, and expand their sales. And that requires expanding 
markets, expanding the volume of exports of goods and services, 
to maintain and increase the prosperity and financial 
securities of our citizens.
    Latin America is the premier growth area in the world 
today, and it is important that we continue to open up markets 
to U.S. goods and services in our own hemisphere. As our 
economy grows, as our neighbor's economies grow, the expansion 
of trade on both sides will help to perpetuate the growing 
prosperity that benefits all of our peoples.
    To this end, we believe the FTAA is an important 
undertaking worthy of your congressional support.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Richard W. Fisher, Deputy U.S. Trade Representative, 
Office of the U.S. Trade Representative

    Thank you, Mr. Chairman and Members of the Committee. It is 
a great honor for me to be here to share with you the progress 
that we have made in constructing the Free Trade Area of the 
Americas (FTAA) and to discuss reasons that it makes so much 
sense for us to negotiate the FTAA.

                    Free Trade Area of the Americas

    When President Clinton and his counterparts in the 33 
democratic countries in the Hemisphere met just a little over 
three years ago in Miami, they recognized that the prosperity 
of the 750 million people in our hemisphere depends on 
continued growth in trade among us. They also understood that 
trade would expand only if we continue to build upon the market 
opening measures that already were being undertaken in the 
Western Hemisphere. They agreed, therefore, to move forward 
from the Uruguay Round and to go beyond the existing bilateral 
and sub-regional free trade agreements. They committed our 
countries to a revolutionary vision of open markets across the 
continents of North and South America--creating a free trade 
area that would raise our standards of living, improve the 
working conditions of our peoples and better protect the 
environment in the Americas.

The Dynamism of the Western Hemisphere

    The Miami vision of an entire hemisphere moving 
cooperatively toward greater prosperity is being realized. The 
Western Hemisphere has been a truly dynamic region over the 
last three years. It has become the largest regional 
destination for U.S. exports of goods--over 40 percent of total 
U.S. merchandise exports went to the region in 1997.
    U.S. exports to the region grew 17.4 percent last year, 
compared to 5.65 percent growth to the rest of the world. These 
export increases accounted for two-thirds of U.S. export growth 
worldwide in 1997. This warrants repeating, Mr. Chairman: U.S. 
exports increased by $42 billion to our trading partners in the 
Western Hemisphere, and accounted for 63 percent of U.S. export 
growth world-wide last year. U.S. exports to Latin America 
(including Mexico) and the Caribbean in the second half of 1997 
exceeded our exports to the European Union. And Mexico 
surpassed Japan to become our second largest export market.
    One of the principal reasons that we are experiencing this 
expansion of trade with Latin America is their dramatic 
reorientation in trade policy. In some instances the changes in 
policy are as revolutionary as those which occurred in Eastern 
and Central Europe at the beginning of this decade.
    Even as countries in our region have been tested by 
economic and political pressures and even as countries in other 
regions have experienced serious economic setbacks, the overall 
course in the Western Hemisphere has been one of faster 
economic growth, lower inflation, expanded opportunities, and 
growing confidence in facing the global marketplace. A major 
reason for this positive record has been our countries' 
steadfast and cooperative efforts, striving for more open 
trade, greater transparency in economic regulations, increased 
privatization, sound macroeconomic policies, and efforts by the 
private sector to increase its competitiveness. It is important 
to continue the forward momentum that has distinguished this 
Hemisphere. There is a consensus among the 34 countries that 
the FTAA is an essential ingredient in maintaining that 
momentum.

Americans' Stake in Trade Expansion

    Even with this positive outlook in the Americas, however, 
there continues to be apprehension among our peoples about the 
road forward, and there is a lack of clarity about the benefits 
that will result from the monumental undertaking that was 
envisioned by President Clinton and the other 33 leaders in 
Miami. It's ironic because our economy today is one of the most 
prosperous in decades. Unemployment has fallen to the lowest 
levels in nearly 25 years. Our economy created over 14 million 
jobs in the last five years, over 1.7 million alone in the past 
six months. And yet our citizens as ``Free Trade.'' The idea of 
``opening other markets'' is too nebulous. To simply say that 
tariffs are four times higher in the rest of the Americas 
compared to the United States does not somehow resonate. The 
essential question is: what does this all mean to your 
constituents? How do we make clear that international trade has 
played an enormous role in our economic expansion? We know that 
economists tell us thirty-eight percent of our GDP growth in 
the last five years has come from exports. If we had given up 
on trade five years ago, how much of that thirty-eight percent 
would we have given up? How many of these 14 million jobs would 
we have failed to create? When times are good, these questions 
seem too academic.
    Yet, even in these prosperous times, the people of America 
have one overriding concern: their financial security. 
Yesterday, Mr. Chairman, I received from the Investment Company 
Institute data that shows that 65 million Americans have now 
tied their financial security to their ownership of America's 
companies through equity mutual fund investments. These 
investors are blue-collar workers and farmers as well as white-
collar computer experts. They are women as well as men, and 
people of all races. These are your constituents. The growth 
and security of employer-sponsored retirement funds, Individual 
Retirement Accounts, 401K accounts, and the other mutual fund 
holdings of some 37 million American households all depend upon 
the growth of earnings of U.S. companies competing in the 
global marketplace. To generate those earnings, companies have 
to grow. In order to grow, they need to expand their businesses 
and increase their sales. And that requires expanding markets 
and expanding the volume of exports of goods and services into 
the future to maintain and increase the prosperity we know 
today.
    Latin America is the premier growth area in the world 
today. It is important that we continue to open up markets to 
U.S. goods and services in our own Hemisphere. As our economy 
grows and as our neighbors' economies grow, the expansion of 
trade on both sides will help to perpetuate the growing 
prosperity that benefits all our peoples. The greatest threat 
to this progress comes from a loss of public confidence in 
trade liberalization and market opening negotiations. We must 
reconcile public expectations with the economic necessity of 
moving forward.
    The decisions taken at the San Jose Trade Ministerial just 
a week and a half ago bode well for continued progress. The 34 
countries in the Western Hemisphere have built the foundation 
of this ambitious undertaking called the Free Trade Area of the 
Americas during the course of the last three years. The 
governments have completed the preparatory work that is needed 
in advance of any negotiation, namely, developing information 
on each other's international trade regulations and practices; 
identifying the range of interests among the 34 participants; 
and developing a sense of common purpose about the construction 
of the FTAA. The Ministers refined that work to ensure that, by 
their meeting earlier this month, they would be in a position 
to recommend the initiation of those negotiations by the 
Leaders at the upcoming Summit of the Americas in Santiago, 
Chile, in April. A Free Trade Area of the Americas among the 34 
Western Hemisphere countries was unthinkable even a mere ten 
years ago. But we and the other 33 countries have kept faith 
with the vision of Miami and now are ready to move into the 
negotiating phase of the FTAA.

Initiation of Negotiations

    In keeping with the cooperative effort of the last three 
years, the 34 Ministers responsible for Trade in the Hemisphere 
met a week and a half ago in Costa Rica to formulate the 
initial framework for the FTAA negotiations. The Ministers 
unanimously recommend that the Leaders initiate negotiations of 
the FTAA during the Summit meeting in Santiago. They provided 
recommendations on the initial structure, objectives, 
principles, and venues of the negotiations. This unanimous 
decision is as important as the Leaders' mandate three years 
ago to begin this undertaking. For the 34 Leaders to get 
together again within a few short years and have a unanimous 
plan presented to them, with not only a structure, but 
leadership shared among countries from all regions in the 
Hemisphere is a phenomenal achievement.
    The United States achieved its key objectives at that 
meeting: ensuring a comprehensive and successful launch of 
substantive negotiations could be made at the Santiago Summit, 
making important progress on labor and environmental issues 
within the FTAA, and playing a central leadership role in the 
FTAA. As a result of the San Jose Ministerial, there will be a 
credible negotiation launched by the Leaders in Santiago on 
April 18-19.
    The San Jose Declaration is comparable to the 1986 Punta 
del Este Declaration that initiated the Uruguay Round 
negotiations. The United States will provide the venue for the 
negotiating groups and the administrative secretariat 
supporting those meetings for the first three years in Miami. A 
structure with leadership determined through end of 
negotiations in 2005 was established, with the United States 
serving as one of the co-chairs during the endgame of the 
negotiations. Canada, our neighbor, will be the Chair of the 
overall process for the first 18 months. The Chairman of the 
overall FTAA process will head both the Ministerial and the 
Trade Negotiations Committee (TNC), which will provide the 
overall direction and management to the negotiations. The 
Ministers, confident that their Leaders will approve the 
negotiating plan forthwith at their Summit meeting, set the 
date for the TNC's first meeting for no later than June 30, 
1998. The TNC will be comprised of the 34 Vice Ministers for 
Trade.
    The Ministers decided to start with nine negotiating 
groups, which cover all the areas identified by the Leaders at 
their Miami meeting in 1994, thus beginning negotiations 
simultaneously in all these substantive areas. They also 
recognized that this structure will be changed over time; they 
indicated that the negotiating structure would be flexible so 
that it could be modified as required to ensure continued 
positive progress in the negotiations. Again, we were able to 
reach consensus on setting a date for the initial meetings of 
the Negotiating Groups--no later than September 30, 1998.
    We also were able to achieve the establishment of a 
Committee on Electronic Commerce, comprised of both government 
and private sector experts, to make recommendations on how to 
increase and broaden the benefits to be derived from the 
electronic marketplace. For the first time in the FTAA process, 
we have a created a joint government-industry group. This is in 
keeping with one of President Clinton's main principles in this 
area, having the private sector lead in developing the rules of 
global electronic commerce. This expert committee will look at 
the range of issues in this area and then report back to 
Ministers with recommendations on the approach that should be 
taken.
    Of course, the electronic medium is not a new subject for 
the FTAA. Throughout the preparatory stage of the FTAA, we have 
used the Internet to provide greater transparency to the 
process. The FTAA Homepage (www.alca-ftaa.org) includes all of 
the final products of the FTAA Working Groups--in all four 
official languages of the hemisphere.
    One of the greatest threats to hemispheric integration is 
not the difficulty of the negotiations but the apprehension of 
our respective civil societies about the negotiating process. 
The 34 Ministers were highly cognizant of this fact at the 
meeting last week. Thus, for the first time in any large trade 
negotiation, we have created a Committee on Civil Society. This 
is a major step forward in the FTAA process. The Committee will 
receive input at the hemispheric level directly from business 
and labor and environmental groups, and academic, consumer, and 
other nongovernmental interests. The Committee will analyze 
that advice, and then provide recommendations directly to the 
Ministers. We expect the organizational details of this 
committee to be worked out at the first meeting of the TNC this 
June. Establishing such a committee ensures that all 
stakeholders will have direct access to the FTAA process, with 
Ministerial consideration of their views. There is now a 
recognition in the Hemisphere that there has to be a process 
related to labor and environmental issues that ensures 
transparency in the FTAA negotiations and that allows for the 
views of all members of civil society to be considered in those 
negotiations.

Principles and Objectives of the Negotiations

    In addition to transparency during the negotiations, 
another key objective which we achieved is that the FTAA would 
not simply add yet another set of rules for business to contend 
with. We reached consensus that the bilateral and sub-regional 
agreements (such as MERCOSUR and the Andean Community) can 
coexist with the FTAA only to the extent that the rights and 
obligations under those agreements are not covered by or go 
beyond those of the FTAA. The FTAA seeks to provide a single 
set of rules throughout the hemisphere.
    In addition, we agreed that the FTAA should improve upon 
the WTO rules and disciplines, wherever possible and 
appropriate. In this way, we will ensure that we reach a final 
comprehensive deal that breaks down the most serious trade 
barriers in the region and does not merely reiterate the 
accomplishments attained at the end of the Uruguay Round. We 
aim for the FTAA Agreement to be a balanced, comprehensive, 
state-of-the-art Agreement. The outcome of the negotiations 
will be a ``single undertaking'' in the sense that signatories 
to the final FTAA Agreement will have to accept all parts of it 
and cannot pick and choose among the obligations to which they 
will adhere.
    Among the most important objectives from the standpoint of 
the United States are:
     To progressively eliminate tariffs, which are four 
times higher in the Hemisphere than those of the U.S.
     To progressively eliminate non-tariff barriers, as 
well as other measures with equivalent effects, which restrict 
trade.
     To bring under greater discipline trade-distorting 
practices for agricultural products, including those that have 
effects equivalent to agricultural export subsidies.
     To promote customs mechanisms and measures that 
ensure operations are conducted with transparency, efficiency, 
integrity, and accountability.
     To develop an efficient and transparent system of 
rules of origin, including nomenclature and certificates of 
origin.
     To eliminate and prevent unnecessary technical 
barriers to trade.
     To liberalize trade in services to achieve a 
hemispheric free trade area under conditions of certainty and 
transparency.
     To ensure adequate and effective protection of 
intellectual property rights, taking into account changes in 
technology.
     To guarantee that the benefits of the FTAA 
liberalization process are not undermined by anti-competitive 
business practices.
     To establish a fair and transparent legal 
framework for investment and related flows.
     To make our trade liberalization and environmental 
policies mutually supportive.
     To further secure the observance and promotion of 
worker rights, renewing the FTAA countries' commitments to the 
observance of internationally recognized core labor standards.

Santiago Summit

    There is within Latin America a golden opportunity to build 
upon this progress and to make clear that the entire hemisphere 
is committed to free and open markets. The Santiago Summit is a 
perfect forum for doing so.
    The Leaders will give impulse to the negotiations, which 
will conclude by December 31, 2004, with concrete progress by 
the end of the century. We expect them to approve the San Jose 
negotiating plan, which includes a mandate that the Negotiating 
Groups achieve considerable progress by the year 2000, 
including agreeing on measures for adoption before the end of 
the century.

                               Conclusion

    It is with great determination, optimism and excitement 
that we and our 33 trading partners in this Hemisphere have 
recommended the commencement of negotiations on the Free Trade 
Area of the Americas at the Santiago Summit this April 18-19. 
We have come a long way together. Taken as a whole, the 
progress toward the FTAA is dramatic and significant. Small 
countries, large countries, island countries, countries of 
varied languages and backgrounds have come together to work 
toward an agreement that will ultimately bring the benefits of 
trade to all the people of the Hemisphere. We have learned more 
about each other--our economies, our aspirations, our fears, 
and, most important, our mutual commitment to improving the 
lives of our citizens. This commitment is what brought the 
Leaders of the Hemisphere to Miami in December 1994. It is the 
reason that they will announce the initiation of the 
negotiations in Santiago in two and a half weeks, and it is 
what will bring us to completion of the negotiations by 2005.
    We certainly are grateful to you, Mr. Chairman, and to the 
members of this sub-committee for the support that you have 
given us during this process. We look forward to consulting 
closely and frequently with you and your colleagues in the 
Congress as we move forward with the FTAA. Once again, I 
appreciate this opportunity to report to you on the progress 
that we have made to date and on the steps that we plan to take 
in the immediate future.
    Thank you, Mr. Chairman. I am willing to answer any 
question you or the distinguished members on this Committee may 
have of me with regard to the FTAA.
      

                                


    Chairman Crane. Thank you, Mr. Ambassador, and I want to 
congratulate you on a good meeting in San Jose. My 
understanding is that we can continue to have talks absent fast 
track renewal, and I'm curious though as to how much of the 
FTAA you believe can get done without fast track?
    Mr. Fisher. Well, Mr. Chairman, first, we deeply appreciate 
your support on fast track. As you know, the President is a 
believer in fast track. He has asked for fast track. We will 
continue to pursue fast track.
    The reality is that the Tokyo round and the Uruguay rounds 
were launched, that is, the negotiations began, without a 
similar fast track authority. And we believe it is in our 
interest to proceed with the launching of the FTAA discussion 
of these negotiations. Obviously, we would like to have that 
fast track authority. Not having it does not prevent us from 
initiating these negotiations. It's my personal hope that, by 
putting together a very good trade agreement, it'll enhance our 
ability to secure a fast track. But the point is, in summary, 
that we can begin the process, as we did twice before, with the 
Tokyo round and with the Uruguay round, to lay the foundation 
for this architecture and begin putting it in place without 
this authority. That having been said, we will continue to 
pursue this authority.
    Chairman Crane. Well, the President certainly made a firm 
commitment in his State of the Union Message to fast track 
renewal, but since that time, there's been basically silence 
from the administration. And I'm not saying that you hear a lot 
of clamor here, although behind the scenes we're still talking 
about it, and conspiring full time to figure out how we pick up 
that necessary handful of additional votes that we need.
    And I still think it's doable. I think we could get fast 
track renewed this year, but we need a good working 
relationship with you folks in the administration to come up 
with innovative, creative ideas. Of course, our distinguished 
minority here has been firmly committed to it, including Mr. 
McDermott. And so we will continue to conspire, but we would 
like to talk to you more about involvement from the executive 
branch.
    What can we do between now and 2005 in the negotiations 
that will sustain interest and momentum in achieving our long-
term goals?
    Mr. Fisher. Well, first of all, we can, and we will, work 
on business facilitation measures, concrete aspects that are 
visible, such as, customs procedures. There's nothing that 
prevents us, under the FTAA, from bringing these to fruition 
before the year 2005. One of the directives that the ministers 
have asked for, from the heads of state in Santiago, is that we 
make concrete progress before the year 2000. And I think it's a 
matter of staging the negotiations, activating the Trade 
Negotiating Committee that I mentioned before, the group of 
vice ministers, engaging the ministers, and making sure that 
they relay that information back to you, and back to our 
citizens in our country, and the other countries of the 
hemisphere. And that we aggressively pursue this matter.
    And I think the aspect of transparency, that you mentioned 
at the outset, is very important here. We have to engage our 
country. I happen to believe, as I mentioned to you in my oral 
statement, that increasingly there is an interest of every 
size, shape, race, creed of American, in this whole process of 
how do our companies do abroad. They now have direct ownership 
claims. We have atomized capitalism in this country to a degree 
that has never been attempted in the history of the world. And 
I think by getting this message across, by making it clear that 
all of us, whether we are blue collar workers or white collars 
or whatever, have an interest in seeing America and American 
companies prosper, that we will engage their interest. And I 
will leave no stone unturned, Mr. Chairman, to get that done.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman. I would only like to 
reiterate what you said in your opening comments about Mr. 
Fisher. I appreciate the fact that he's here working for the 
administration now.
    And also I was a friend of Representative Jim Collins when 
he was in the House. I was on the Energy and Commerce Committee 
at that time. We served together. He was much more senior than 
I. It's interesting because somebody who was generationally 
different than me, and obviously the geographic issue, Texas 
and California, and from different parties. He was a wonderful 
person and certainly somebody we fondly miss, and I just want 
to mention that to you, and obviously convey that to your wife 
as well.
    Mr. Crane talked about fast track. It seems to me, and 
obviously you're involved in these negotiations, that 
eventually the negotiations will reach an impasse because the 
countries that might be interested in working with us, 
negotiating with us, will finally come to the realization at 
some time that they can't show their whole card, or even get 
close to their whole card.
    And Mr. Crane and I, and Chairman Archer, and others have 
been talking over the last couple of years about if we don't 
get it this year, we may not get it until beyond the year 2000, 
2001, and, of course, by that time, much will have been done, 
and much will have been lost, I should say, in terms of the 
Free Trade Areas of the Americas.
    When do you think these negotiations will reach a point 
where, just in terms of a timeline, that fast track becomes 
rather critical? Maybe you can't even say it, because 
obviously, it may stop tomorrow, but given the fact that 
Brazil, for its own reasons, will be somewhat reluctant to move 
forward. I think 5 years ago, we might have had an opportunity, 
but today it may be more difficult because they are obviously 
the big counterweight in MERCOSUR at this time.
    What's your thoughts on all this? I think it's good to be 
optimistic, but eventually we're going to reach a point where 
optimism may not be enough.
    And one of my concerns has been, and continues to be, that 
the defeat of fast track last year will go almost unnoticed and 
no one will be held responsible nor accountable for it because 
the impact on the U.S. economy will be slow and incremental, 
almost imperceptible, and it won't be for 3 years, or 4 years, 
or 5 years down the road when all of sudden it will be felt, 
and at that time we'll blame it on something else. And I think 
we need to keep a focus on it. And I don't think we should be 
reluctant to talk about it in terms of what this impact will be 
doing in the next 3, 4 years, into the 21st century on the U.S. 
economy.
    Mr. Fisher. Well, as you know, Congressman, with your 
support and encouragement, we at USTR have not been reluctant 
to talk about this matter, and we will continue to pursue it 
vigorously.
    You ask a very tough question, which is, at what point does 
this have to kick into the process? Again, at my level, we will 
start our meetings this June. The nine negotiating groups, I 
mentioned, will have to pull themselves together at our 
direction before the end of September. We have laid a great 
deal of groundwork just in the working groups that went into 
the San Jose ministerial.
    But this is, when you think about it, a very revolutionary 
concept. When I was a graduate student--I met Jim Collins 
daughter at Oxford University 25 years ago--26 years ago, to 
even think about a trade agreement with Latin America, it was 
unthinkable. We were dealing with cold war paradigms. We had 
terrible leadership in that region of the world. We were not 
interested. We never saw it as the great market that it is 
today.
    And so I'm reluctant to, as you say, be over optimistic. I 
want to be realistic about this. It will take us a couple of 
years to put this thing together and have it to a point where I 
think we will feel comfortable with the overall package. But I, 
personally, would like to get fast track secured as soon as 
possible, and we look forward to consulting with you on this 
matter. We defer to your views here. You have been a leader on 
this front. But I'm hesitant to pin down a specific date, 
Congressman, because I'm just not comfortable in doing so.
    Obviously, again, as you know better than I, the fast track 
process really deals with how we vote up or down a trade 
agreement. Our job, until we can secure fast track, is to get 
the best trade agreement possible.
    Mr. Matsui. Yes, I think it's much more difficult given 
MERCOSUR because, for those that know this, it's obviously 
information that is redundant, but, for those who don't, any 
agreement we reach with the MERCOSUR countries will have to be 
with each of the countries individually. They all have to sign 
off, and it just makes it more and more difficult as MERCOSUR 
becomes stronger and stronger. And, you know, here we're losing 
an opportunity of 800 million people in terms of a free trade 
region which obviously would be one of the largest trade zones 
in the world.
    Mr. Fisher. It's interesting to look at the statistics. The 
combined current purchasing power of Brazil and Argentina 
together is equal to that of the current purchasing power of 
all of China.
    Mr. Matsui. That's right.
    Mr. Fisher. If you take the population and multiply it by 
the current income, and we do, and have argued, feel at a 
competitive disadvantage vis-a-vis MERCOSUR because we have not 
been able to reach agreement, and use a fast track authority to 
negotiate with them.
    Now, there is an interesting dynamic here, which is, we 
will cochair with Brazil the end of this negotiation, and I 
welcome that because it engages them at a level which I think 
will, obviously, help us determine the terms for the finality 
of this product. And I think that dynamic is something I hope 
to discuss with you over time, but I think it adds an 
interesting perspective to this overall discussion. They can't 
hide from us by being a cochairperson with us.
    Mr. Matsui. If I could just make one other observation. 
What I'm also hearing is that the lack of fast track and the 
inability to have this free trade agreement with the MERCOSUR 
countries may result in more United States companies going 
offshore--perhaps into Latin America--because you get lower 
tariffs by having your production company in these countries. 
So this really may be working against organized labor, and more 
importantly, against those that oppose fast track because they 
claim that it may lose jobs.
    In conclusion, let me ask you a little bit about the 
Committee on Civil Society because, obviously, that's kind of a 
counterweight to what held up, at least among some members, the 
fast track issue in terms of labor and the environment. How 
seriously are the Latin countries taking this? I hope they do 
take this seriously because this may be one way, if we can show 
outside of the trade sanctions area, of getting labor and the 
environment on the table, perhaps we could make some progress 
here.
    Mr. Fisher. Well, this is an initiative that we insisted 
upon, and was agreed to by the other 33 countries of the 
hemisphere. The purpose of the Subcommittee is to provide input 
at the ministerial level. Now this Subcommittee will pick its 
own chair at the right juncture. We assume that'll be done at 
the next meeting. And the purpose of it is to make sure that 
these views are heard.
    We have learned from our experience with other negotiations 
that if we don't bring people along and, as Congressman Crane 
said, ``make it more transparent up front,'' it makes it more 
difficult. We respect the views of labor, and the environmental 
groups, as well as consumers, and local governments, and 
others. I think the onus is on us to make this thing work. But 
I was very pleased to see the Latinos, as well as our Canadian 
partners, sign off on this. And our intention, having insisted 
upon, having negotiated for it, is to make it a working 
vehicle.
    And I appreciate very much your comments, Congressman 
Matsui, because I think this is an important part of the 
process. As I said in my oral statement, and in my written 
statement, this has never been done before in a large trade 
negotiation. But it's there, and we will make it work.
    Mr. Matsui. Thank you, appreciate it.
    Mr. Fisher. Thank you, sir.
    Chairman Crane. Thank you.
    Mr. Thomas.
    Mr. Thomas. Thank you very much, Mr. Chairman. Ambassador, 
welcome.
    Mr. Fisher. Thank you.
    Mr. Thomas. One of the things I think a number of us have 
enjoyed about working with U.S. Trade Representative, 
regardless of which party controls the White House, is that 
this has been one organization that's played down on politics 
and focused on policy. The thing I liked about Jim Collins, in 
the time I worked with him, was that he was one of those people 
who was really smart, but had a lot of common sense to go with 
it. And neither one got out ahead of the other.
    I cannot tell you how disappointed a number of us are about 
the failed opportunity on fast track. To argue that we didn't 
have it at the Tokyo round and we didn't have it at the Uruguay 
round, so, gee, it's OK now. There's supposed to be a learning 
curve in this business, and we're at a significant disadvantage 
going down to South America with the group of folks that we're 
going to have to deal with, principally Brazil and Argentina, 
thinking that we can get them to agree to any kind of a 
structure to which we cannot commit, but to assume we can be 
expected to deliver what it is that we negotiate.
    So I understand your attempt and need to put a positive 
face on this, but I think we need to be pretty realistic. The 
administration failed miserably in its timing. Had they brought 
fast track in April, rather than October, we had an excellent 
chance to pass it. I don't know who was focusing on it or why 
they ordered it in the direction that they did. It is something 
that happened, we missed the opportunity. And I have an 
extremely difficult time seeing how to do it now, although, 
obviously, we'll support you in any way possible so that we can 
move forward with the kind of leverage necessary to negotiate 
with a couple of key folk, which, obviously, are critical to 
putting South America together.
    But I have a question for you so I better understand what 
you meant by your statement on page 5, in which you said that 
you reached consensus--I don't know whether that was through a 
vote or nod of heads or agreement--that the bilateral and 
subregional agreements--and obviously MERCOSUR is the one that 
I'm looking at, principally the Brazilians and the Argentines--
can coexist with the Free Trade of the Americas free trade 
zone, only to the extent that the rights and obligations under 
those agreements are not covered by or go beyond those of the 
FTAA.
    I guess, conceptually, I have a difficult time 
understanding that we're dealing with a customs union versus a 
free trade area. What is there that is outside laying the one 
on top of the other, that would be outside the free trade or 
not covered by the free trade? Do you have any specific 
examples to illustrate how this is going to work?
    Mr. Fisher. The general point is that we want to improve 
upon existing regional arrangements, and obviously----
    Mr. Thomas. No, no. But that isn't what it says here. It's 
not ``improve upon.'' It said these agreements, the customs 
union and MERCOSUR can coexist only to the extent that the 
rights and obligations under those agreements are not covered 
by or go beyond the FTAA, not that we're going to improve upon 
them.
    Mr. Fisher. MERCOSUR has a common external tariff. We seek 
to eliminate that common external tariff. There's an example of 
improving upon and going beyond MERCOSUR.
    Mr. Thomas. And then I would come back to the fact that 
you're going to ask them to give up the common tariff without 
an understanding that whatever the agreement is would not be 
subject to the amendment process in the U.S. Congress because 
we don't have fast track. And if your argument is that by 
putting the agreement together we'll have a greater chance of 
passing fast track I guess is to miss the fight we had over 
fast track, which was less the historic economic union 
structure and more the environmental and labor agreements.
    And, if you're going to bring back to the Congress a 
package which includes very tough environmental and labor 
agreements, you're going to minimize your chances of getting 
fast track to put into place that kind of an agreement.
    And that's what's so frustrating to me about not getting 
the order correct, and that is, fast track out front. That's a 
very great concern of mine, and I hope we deal with the policy 
more and less than the politics. To the degree the policy is 
right, the politics will take care of themselves. If we try to 
put too much of the politics in, we're simply not going to get 
the policy.
    One last question: Can we put together a viable program, 
including the Caribbean, without Cuba?
    Mr. Fisher. Cuba is not part of the process now and will 
not be until it's a democratic country.
    Mr. Thomas. That wasn't my question. I'll try it again. Can 
we put together a reasonable Caribbean package, including 
Central and South America, without Cuba?
    Mr. Fisher. Within the process of FTAA, Yes, we can.
    Mr. Thomas. OK.
    Mr. Fisher. Congressman, if I may, you made some awfully 
good points there. I agree with you fully. I arrived here, 
actually, I was sworn in December 18. I'm an aggressive 
advocate of fast track; I want to work with you and your 
colleagues in my capacity at my level to achieve that goal. I 
want to be realistic, I'm not totally naive in terms of the 
expectation that we could secure FTAA without it, and I want 
it, and my administration wants it, and we're eager to work 
with you on that front.
    Mr. Thomas. I guess, just finally, to express my real 
frustration that trying to deliver a product today in an 
environment that's significantly different than the Tokyo round 
and the Uruguay round world that we're dealing in--and those 
are not examples that I think are very useful on how we can get 
fast track corrected. It was a timing problem; the window was 
missed.
    And we'll do everything we can to assist you but you've got 
to appreciate how frustrating not going in April versus October 
was.
    Mr. Fisher. Sir, may I make one other comment on another 
point you made which is this Committee on Civil Society. It's 
not a negotiating group, this is a group that is to receive 
input and help the transparency of the process. I want to make 
that clear.
    Mr. Thomas. I understand, but people will make linkages 
whether you like or not.
    Mr. Fisher. Well, we look forward to working with you to 
make this work, sir.
    Mr. Thomas. I'm here to help.
    Mr. Fisher. Thank you. [Laughter.]
    Chairman Crane. Mr. Camp. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman. I too, Mr. 
Ambassador, want to congratulate you on your appointment, and 
welcome you to the Subcommittee, and certainly, like the 
Chairman and others who have spoken, I appreciate your 
aggressive advocacy on behalf of fast track and look forward to 
working with you. And I certainly join in the comments of the 
Chairman and Mr. Matsui and Mr. Thomas with respect to fast 
track and the importance of that. And I like the way you 
redefined that in the terms that you did because everyone wins 
with fast track, and we have to do a better job of educating 
not only the Congress but the American people, as well.
    Let me, if I may, turn your attention to a matter that 
concerns the agricultural community in my home State, and I'm 
sure in other places, as well. This concerns a number of 
agricultural leaders in Minnesota, including one who's here 
today, probably the foremost leader in agriculture in our 
State, Al Christopherson, who is president of the Minnesota 
Farm Bureau and is testifying on behalf of the American Farm 
Bureau Federation.
    These people raise concerns about a separate negotiating 
group on agriculture. Mr. Christopherson is on the next panel, 
and hopefully you'll stay to hear his testimony, but in his 
prepared testimony he states that, ``Agriculture would be 
handicapped in later negotiations as we have already reduced 
our barriers and our market is open.'' He's also concerned like 
others that separating the group will tie U.S. agriculture to 
the agricultural negotiations under the WTO, and slow down the 
pace for improving access in this important area.
    I certainly share these concerns, and I have two questions. 
First of all, Is it true that the United States has already 
agreed with the Brazil request for a separate agriculture 
negotiating group? And, second, What would the reasons be for 
separating out agriculture if this is factually true?
    Mr. Fisher. Well, there is a working group, a negotiating 
group, on agriculture. It's one of the nine groups that I 
mentioned under the FTAA process.
    The purpose of that group, again, we--as you state--we are 
a very open market, we have a productive agriculture sector. 
From our standpoint, we want to open up those markets to the 
south, in particular, and we want to reduce all the barriers, 
tariff and nontariff barriers in the region.
    There's no conspiracy with Brazil on this. This was a 
negotiation that we had in San Jose, and this is one of the 
nine working groups that has come out of the process. It 
recognizes that agriculture, Congressman, is a critical portion 
of the whole trade agreement. And our purpose and our interest 
in securing an agriculture working group is to make sure we 
have a group that will contemplate how we need freer trade in 
agriculture in the hemisphere.
    Again, this reference to a Brazilian preagreement, I'm not 
aware of.
    Mr. Ramstad. But doesn't this put USA interests at a 
competitive disadvantage? Our barriers, as I said before, have 
already been knocked down for the most part. Our market is 
open. Aren't you concerned that this will hurt our agriculture 
community?
    Mr. Fisher. I'm always concerned about our agriculture 
community. Again, the purpose of our wanting this particular 
negotiating group is to achieve what we seek to achieve for all 
other goods and services in the hemisphere. That is, knocking 
down the tariff barriers that we see; knocking down technical 
restrictions; making more transparent the whole process, 
scientific and phytosanitary impediments that might exist 
throughout the hemisphere; making a more transparent process.
    I think, and I believe firmly, that U.S. agriculture can 
compete very effectively in these markets if we remove these 
barriers to our sales in the region. I don't believe it will 
put us at a disadvantage, and we will strive mightily to make 
sure it does not put us at a disadvantage.
    Mr. Ramstad. In your judgment, then----
    Mr. Fisher. It's pretty tough to compete with U.S. 
agriculture.
    Mr. Ramstad. Well----
    Mr. Fisher. And we want to secure additional markets for 
our agricultural products.
    Mr. Ramstad. Yes, I'll put up our farmers against farmers 
any where in the world, as long as one hand isn't tied behind 
their back. And I am concerned that separating the group will 
tie U.S. agriculture to the negotiations under the WTO, and as 
I said before, slow the pace for improving access in this area. 
I trust that with that caveat, you'll proceed and you'll keep 
that in mind.
    Mr. Fisher. May I just mention one other thing, 
Congressman?
    Mr. Ramstad. Please.
    Mr. Fisher. About 2 weeks before San Jose, we received from 
USDA a message encouraging us to advocate for a separate 
agriculture group. And, again, having run the traps on this, we 
know that there is concern; we're well aware of that. But, to 
summarize, the purpose of this exercise is to make for a Free 
Trade Area of the Americas in every sector, including 
agriculture. And if we're able to achieve that, which we seek 
to do, I think it will be good for U.S. agriculture.
    Mr. Ramstad. Thank you, Mr. Chairman, Mr. Ambassador.
    Chairman Crane. Mr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman. Welcome.
    Mr. Fisher. Thank you.
    Mr. McDermott. When I went down to South America with the 
President on his trade mission, and I sat at the state dinner 
in Brazil, there were people at the table, and they all said, 
We hope you fail on fast track. [Laughter.]
    It was pretty obvious where they were coming from and one 
of the things, as I sit and listen to this is, I am trying to 
put together in my own mind what all the interlocking pieces of 
this trade in the Americas is all about. And I'd like to hear 
you talk a little bit about how NAFTA and CBI and Cuba all 
interlock at the negotiating table.
    You've got everybody at the table, some people have got 
some agreements. We're down there trying now to put one 
together with Chile. The President is going down shortly, and 
there's a whole bunch of moving pieces--then you have this 
other exercise that you're involved in which almost looks like 
it involves the entire region, that you've already got pieces 
put together. And I'm sort of interested to hear how you think 
that's all going to get worked out.
    Mr. Fisher. Well, I'm glad you're not asking me about 
bananas, Congressman. [Laughter.]
    That's a separate----
    Mr. McDermott. I don't want to get specific yet.
    Mr. Fisher. It's a difficult subject.
    Well, first of all, we have learned from our own 
relationship with our two other trading partners within the 
NAFTA. United States merchandise exports to Mexico in 1997 
increased by 26 percent, actually, to be specific, 25.8 
percent. We're selling $71.4 billion in exports to Mexico now. 
We trade $1 billion a day across the Canadian border, two ways. 
And, by the way, if you take the exports and imports from 
Mexico, it's $1 billion every 2 days.
    And it's a bit of an esoteric discussion, but I could make 
a strong argument for the fact that without NAFTA, the last 
Mexican financial crisis would have been much more difficult 
and perhaps even fatal to that economy.
    So, we know from experience, and we know there are critics 
of NAFTA, but we know from experience that knocking down trade 
barriers is good, leads to more exports, and helps create jobs. 
And, obviously, we seek to extend that throughout the 
hemisphere. There are these subregional groupings. There is 
MERCOSUR, which Congressman Crane and Congressman Matsui had 
referred to. There's a Caribbean CARICOM group. There is the 
Andean Pact, and so on.
    I think the broader purpose of this exercise is to make 
sure that those groups don't become disruptive in their own 
little units, in and of themselves. In essence we create one 
large organic mechanism that accomplishes the objective of free 
trade, reduces barriers to the inner sales of goods and 
services throughout the hemisphere.
    And, again, as was discussed earlier with Congressman 
Thomas, the purpose of the FTAA is to go beyond what they have 
been able to achieve in each one of their regional subgroupings 
with an end goal of integrating the entire hemisphere.
    It's important to note that if we don't do that, we could 
be sort of cherrypicked, as it were, by the Europeans, which 
Congressman Matsui referred to earlier. The European Union is 
in the process of discussing integration with MERCOSUR. They 
have recently reached agreement with Mexico, and you have all 
the subefforts that I think could put and do put our United 
States exporters at a disadvantage.
    So, to tie it all together, leaving Cuba out of the 
equation, the purpose of the exercise is to, again, integrate 
these efforts into one large trading market, in the most 
dynamic and readily growing trade grouping of countries in the 
world.
    It's not any more complicated than that, it's just 
difficult to accomplish. But that's the purpose of the 
exercise.
    Mr. McDermott. Let me just go back to the Cuba issue 
because I think there's already a case which points to one of 
the problems. You read in the newspapers that Nelson Mandela 
says that he doesn't like the trade bill that we put together 
for Africa. But it turns out that if you look a little more 
closely at what the problem is, it has to do with an American 
company that bought a South African company that had a contract 
with Cuba, which they then upon buying this South African 
company suddenly found out they couldn't fulfill that contract 
with Cuba because of Helms-Burton. So, Mr. Mandela says: Ah, 
you see there, look at that, this Africa trade bill is a bad 
idea, not making the distinction between Helms-Burton.
    But the Helms-Burton law is sitting there, right in the 
middle of the table, and any of these countries that have 
anything to do with Cuba, one way or another, are, it seems to 
me, going to sort of put that card up on the table and say, 
Hey, what about this? How do you deal with that sort of sitting 
there in the middle of the table? Or is it such a small item, 
it's like in the Middle East negotiations, it's what we'll do 
with Jerusalem when we get to the end. Is that the view of the 
administration?
    Mr. Fisher. No, I haven't thought it through to the degree 
that you have asked me. Clearly, countries that we currently 
deal with within our trading relationships, have different 
levels of relationship with Cuba.
    Mexico, for example, which has been a difficult and sore 
subject with our Mexican southern neighbors. We still have a 
trade agreement with Mexico; we sell a lot of goods to Mexico 
as I mentioned earlier.
    Cuba will not be part of the FTAA process under its current 
regime. The one thing that I want to make sure of is that we 
don't have an FTAA with two countries absent, Cuba and the 
United States. That would be a rather awkward and, I think, 
embarrassing situation, and it wouldn't be good for America.
    Congressman, I will give that matter some thought and get 
back to you on it. I don't believe it presents a problem 
presently, but, to be honest with you, I haven't thought it 
through to the degree that I think would give you a 
satisfactory answer.
    Mr. McDermott. Thank you. Thanks, Mr. Chairman.
    Chairman Crane. Thank you, again, for your testimony, Mr. 
Ambassador, and again, congratulations on your new position 
with the office of the USTR, and we all look forward to working 
closely with you. And with you in your current position, we're 
confident that we will make steady, ongoing progress toward our 
mutually desired objectives of hemispheric free trade.
    Mr. Fisher. Thank you very much, Mr. Chairman.
    Chairman Crane. Thank you.
    I would now like to welcome our first panel which is 
comprised of Hon. William Pryce, former Ambassador to Honduras, 
currently vice president of Washington operations for the 
Council of the Americas. Al Christopherson, president of the 
Minnesota Farm Bureau, who is testifying on behalf of the 
American Farm Bureau Federation. And Robert Vastine, president 
of the Coalition of Service Industries. And we'll begin with 
Mr. Pryce, and I would like to remind all of our witnesses here 
today to try and keep your oral testimony to 5 minutes with the 
assurance that your printed statements will be made a part of 
the permanent record. All right, we will proceed with you, Mr. 
Ambassador, and if you could try and keep your oral testimony 
to 5 or less, all printed statements will be part of the 
permanent record. And the little light here: green light means 
go, the yellow light means get ready, the red light means stop, 
within some reasonable range. Fire away.

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

    Mr. Pryce. Good afternoon Mr. Chairman, Members of the 
Subcommittee. I'm Bill Pryce, vice president of the Council of 
the Americas, and I appreciate the opportunity to testify 
before you.
    The Council of the Americas is a business organization 
dedicated to promoting regional economic integration, free 
trade, open markets and investment, and the rule of the law 
throughout the Western Hemisphere. The Council supports these 
policies in the belief that they provide the most effective 
means of achieving the economic growth and prosperity on which 
the business interests of its members depend on, and on which 
the United States depends.
    Mr. Chairman, the FTAA represents a potential of 800 
million people to whom we can sell our goods and services. Our 
members look eagerly to Latin America and the Caribbean because 
of the enormous markets offered by the nations in this area.
    U.S. trade within the region is already growing faster than 
in any other part of the world. Total United States exports to 
the world increased just over 10 percent in 1997, but exports 
to Latin America and the Caribbean increased 23 percent in this 
same timeframe. In fact, 40 percent of our exports now go to 
the region.
    Latin America is one of the fastest growing regions in the 
world today and almost every government in the region has 
embarked on an economic program to encourage investment from 
abroad so the infrastructure needed to bring products to 
markets more efficiently can be built, so that services which 
bring down the cost of business are available, and so that 
formerly State-controlled industries can renew their capital 
base and modernize their production capacities in order to 
offer goods to consumers at less cost.
    This economic strategy has involved the privatization of 
oil and gas industries, telecommunications, railroads, ports, 
and numerous other industries. In these privatization processes 
that are open to foreign participation, U.S. companies ought to 
have the potential to be the primary suppliers. U.S. industries 
have been and should be well placed to succeed in a competitive 
environment offered by the emerging markets of the Western 
Hemisphere.
    However, countries like Canada are actually gaining an edge 
as they negotiate preferential trade agreements with the 
countries in the region and we in the United States continue to 
debate the benefits of free trade.
    Two weeks ago I was in San Jose, Costa Rica, where over 
1,300 business representatives from throughout the hemisphere 
gathered for the Fourth Business Forum and crafted 
recommendations regarding the FTAA framework, and these were 
submitted to the trade ministers. Mr. Chairman, the council is 
very pleased with many of the results of the Business Forum and 
the trade ministerial.
    For example, having the FTAA secretariat in Miami through 
February 2001, and having the United States cochair the talks 
from November 2002 until the end of regulations, are positive 
achievements, both from the negotiating perspective and from 
the greater visibility that will be afforded to the FTAA 
process here in the United States.
    Although there is a hemispheric interest in creating a Free 
Trade Areas in the Americas, it's clear that not all the 
countries agree on the timing and structure of this area. There 
are two significant items where there's no consensus. First, 
the U.S. business community and U.S. Government had sought a 
commitment that the FTAA nations would negotiate several 
interim agreements by the year 2000 in order to achieve the 
concrete progress referred to in the Miami declaration. 
However, fearing that the United States would push its agenda 
items and then abandon the negotiating process, some countries 
judge interim agreements incompatible with the single 
undertaking and argued against the interim agreements. 
Therefore, the Trade Negotiating Committee has now been tasked 
to meet in June and define business facilitation measures. It's 
a much less ambitious goal to be achieved by the year 2000.
    Second, there was no agreement that would commit counties 
not to impose any new trade restrictions during the course of 
the negotiations. The Business Forum reported to the trade 
ministers that no consensus was reached regarding the timing of 
the standstill agreement, but the trade ministers refused to 
take an outright commitment not to impose new trade barriers 
during the negotiations.
    The trade ministers stated in their final declaration that 
they'll continue to avoid to the greatest extent possible the 
adoption of policies that adversely affect trade in the 
hemisphere. That's not really progress.
    I mention these areas of disagreement to illustrate some of 
the challenges that our negotiators will face and to stress the 
importance of making sure our negotiators are able to establish 
a strong bargaining position which will enable them to push 
other hemispheric negotiators for trade liberalization. And 
right now, the government has to put the best face on it, but 
we're hurting without fast track. Although it does not directly 
hinder the launching of the FTAA negotiations, the lack of fast 
track negotiating authority did negatively affect the Business 
Forum and the Trade Ministerial.
    Those countries seeking to slow progress and refrain from 
early progress pointed to the United States as ambivalent and 
noncommittal on trade, and they were able to compete with the 
United States for leadership of the process. Mr. Chairman, the 
Council of the Americas and its members recognize your 
exceptional record on fast track, and the distinguished Ranking 
Member, Mr. Matsui, and all the Subcommittee, but we want to 
stress again, for the record, how important this authority is 
for our President. Our neighbors should view the United States 
as a country willing and eager to trade.
    In conclusion, I would like to mention the North American 
Free Trade Agreement. The latest figures confirm even more 
strongly than before that this trade agreement has been 
beneficial for the United States. In 1997, among NAFTA 
partners, the trade among NAFTA partners increased $55 billion 
to reach almost $500 billion. Moreover, since NAFTA's 
implementation, United States exports to Mexico have grown 69 
percent, and United States exports to Canada have grown 51 
percent.
    To sum up, as we look to the Second Summit of the Americas 
next month in Santiago, Chile, the Council of the Americas 
believes that the lack of a fast track is having a serious 
negative impact on the negotiations. Trade will not be as 
preeminent an issue as it would have been if we had this tool 
which is essential, absolutely essential, for tariff cutting 
negotiation.
    The administration is already making the best of a bad 
situation by downplaying the role of trade at the summit. We 
see a direct link between this circumstance and the lack of 
fast track and the ground lost by the President's lacking the 
ability to negotiate freely. As I stated earlier, not having 
fast track at this point does not prohibit the start of the 
negotiations, but it does give the perception that we're not 
serious about hemispheric free trade.
    The Council of the Americas, Mr. Chairman, will continue 
its efforts to educate the American people about the broad 
benefits of free trade, and we pledge our support to you, Mr. 
Chairman, and all the Members of the Subcommittee, in your 
continuing efforts to inform your colleagues and your 
constituents about the advantages of free trade of the 
Americas.
    Thank you.
    [The prepared statement follows:]

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

    Good afternoon, Mr. Chairman and Members of the Committee. 
I am Bill Pryce, Vice President of the Council of the Americas 
in charge of our Washington operations. The Council of the 
Americas appreciates the opportunity to testify before you 
today regarding the Free Trade Area of the Americas (FTAA) and 
how the United States stands to benefit from hemispheric trade 
liberalization.
    The Council of the Americas is a business organization 
dedicated to promoting regional economic integration, free 
trade, open markets and investment, and the rule of law 
throughout the Western Hemisphere.
    The Council supports these policies in the belief that they 
provide the most effective means of achieving the economic 
growth and prosperity on which the business interests of its 
members depend--and on which the United States depends.
    Mr. Chairman, the FTAA presents a potential market of 800 
million people to whom we can sell our goods and services. Our 
members look eagerly to Latin America and the Caribbean because 
of the enormous markets offered by the nations of this area. 
U.S. trade with the region is already growing faster than with 
any other part of the world. The numbers for 1997 show a 
continued expansion of exports to the region. Total U.S. 
exports to the world increased just over 10 percent in 1997, 
but exports to Latin America and the Caribbean increased 23 
percent for this same timeframe. In fact, 40 percent of our 
exports now go to the region.
    Latin America is one of the fastest growing regions in the 
world today. Almost every government in the region has embarked 
on an economic program to encourage investment from abroad so 
that the infrastructure needed to bring products to markets 
more efficiently can be built, so that services which bring 
down the cost of business are available, and so that formerly 
state-controlled industries can renew their capital base and 
modernize their production capacities in order to offer goods 
to consumers at less cost. This economic strategy has involved 
privatization of oil and gas industries, telecommunications, 
railroads, ports and numerous other industries. These 
privatization processes that are open to foreign participation 
encourage investment, as well as the sale of materials, 
equipment and high technology, for which U.S. companies ought 
to have the potential to be primary suppliers.
    Given the historic political and economic ties between the 
United States and our neighbors to the south, U.S. industries 
have been, and should be, well placed to succeed in the 
competitive environment offered by the emerging markets of the 
Western Hemisphere. However, countries like Canada are actually 
gaining an edge as they negotiate preferential trade agreements 
with countries in the region, and we in the United States 
continue to debate the benefits of free trade.
    Two weeks ago, I was in San Jose, Costa Rica, where over 
1,300 business representatives from throughout the hemisphere 
gathered for the Fourth Americas Business Forum. The U.S. 
delegation numbered over 260 people. The multinational business 
leaders crafted recommendations regarding the FTAA framework 
which were submitted to the trade ministers.
    Mr. Chairman, the Council was very pleased with many of the 
results of both the Business Forum and the Trade Ministerial. 
For example, having the FTAA Secretariat in Miami through 
February 2001, and having the United States co-chair talks from 
November 2002 until the end of negotiations are positive 
achievements both from a negotiating perspective and from the 
greater visibility that will be afforded the FTAA process here 
in the United States.
    Although there is hemispheric interest in creating a Free 
Trade Area of the Americas, it is clear that all the countries 
do not agree on the timing and structure of this free trade 
area. There were disagreements among both the trade ministers 
and the hemisphere's business community. There are two 
significant items on which there was no consensus. First, the 
U.S. business community and U.S. government negotiators had 
sought a commitment that FTAA nations would negotiate several 
interim agreements by 2000 in order to achieve the ``concrete 
progress'' referred to in the Miami Summit declaration. 
However, fearing the United States would push its agenda items 
and then abandon the negotiating process, some countries judged 
interim pacts ``incompatible'' with a single undertaking and 
argued against interim agreements by the year 2000. Therefore, 
the Trade Negotiating Committee has now been tasked to meet in 
June and define business facilitation measures--a much less 
ambitious goal--to be achieved by 2000.
    Second, there was not agreement that would commit countries 
not to impose any new trade restrictions during the course of 
the negotiations, referred to as a ``standstill agreement''. 
The Business Forum reported to the trade ministers that no 
consensus was reached regarding when the standstill clause 
should be applied. Likewise, the trade ministers refused to 
make an outright commitment not to impose new trade barriers 
during the negotiations. The trade ministers stated in their 
final declaration that they ``will continue to avoid to the 
greatest extent possible the adoption of policies that 
adversely affect trade in the hemisphere.'' This is not 
progress.
    I mention these areas of disagreement to illustrate some of 
the challenges our negotiators will face and to stress the 
importance of making sure our negotiators are able to establish 
a strong bargaining position, which will enable them to push 
other hemispheric negotiators for trade liberalization that 
favors U.S. interests. However, the U.S. government can only 
lead successfully in this process if it is given the tools 
necessary to bargain with strength.
    Although it does not directly hinder the launching of FTAA 
negotiations, the lack of fast track negotiating authority did 
negatively impact the Business Forum and Trade Ministerial. 
Those countries seeking to slow the process and refrain from 
early progress pointed to the United States as ambivalent and 
noncommittal on trade and were able to compete with the United 
States for leadership of the process. Mr. Chairman, the Council 
of the Americas and its members recognize your exceptional 
leadership on fast track, but, for the record, we want to 
stress again how important this authority is for our president. 
Our neighbors in the hemisphere should view the United States 
as a country willing and eager to trade. That would accelerate 
the FTAA process and open up these markets to U.S. products and 
services.
    In conclusion, I would like to mention briefly the North 
American Free Trade Agreement. The latest figures confirm even 
more strongly than before that this trade agreement has been 
beneficial for the United States. In 1997, trade among NAFTA 
partners increased $55 billion to reach approximately $500 
billion. Moreover, since NAFTA's implementation, U.S. exports 
to Mexico have grown 69 percent and U.S. exports to Canada have 
grown 51 percent.
    To sum up, as we look to the Second Summit of the Americas 
next month in Santiago, Chile, the Council of the Americas 
believes the lack of fast track is having a serious negative 
impact on the negotiations. Trade will not be as preeminent an 
issue as it would have been if we had this tool which is 
essential for tariff cutting negotiations. The administration 
is already making the best of a bad situation by down playing 
the role of trade at the Summit. We see a direct link of this 
circumstance to the lack of fast track and the ground lost by 
the President's lacking the ability to negotiate freely. As I 
stated earlier, not having fast track at this point does not 
prohibit the start of FTAA negotiations, but it does give the 
perception that we are not serious about hemispheric free 
trade. The Council of the Americas will continue its efforts to 
educate the American people about the broad benefits of freer 
trade and pledge our support to you, Mr. Chairman, in your 
continuing efforts to inform your colleagues and your 
constituents about the advantages of a Free Trade Area of the 
Americas. Thank you very much.
      

                                


    Chairman Crane. Thank you.
    Mr. Christopherson.

   STATEMENT OF AL CHRISTOPHERSON, PRESIDENT, MINNESOTA FARM 
BUREAU FEDERATION; ON BEHALF OF AMERICAN FARM BUREAU FEDERATION

    Mr. Christopherson. Thank you, Mr. Chairman and Members of 
the Subcommittee.
    Chairman Crane. Wait 1 minute, is it Christopher or 
Christopherson?
    Mr. Christopherson. Christopherson.
    Chairman Crane. Right, I just noticed they took the ``son'' 
off of your little plaque. [Laughter.]
    They said they ran out of space.
    All right, I just wanted to make sure I had it right.
    Mr. Christopherson. I recognize it's long. I was in eighth 
grade before I learned to spell it. [Laughter.]
    Thank you, Mr. Chairman and Members of the Subcommittee. On 
behalf of the American Farm Bureau Federation and the 4.8 
million member families in the 50 States and Puerto Rico, I 
thank you for the opportunity to share with you our concerns on 
the Free Trade Area of the Americas. This is a very timely and 
obviously a very important issue. I, too, participated in the 
Fourth Business Forum of the Americas that preceded the FTAA 
ministerial meetings in Costa Rica 2 weeks ago, and I will 
focus my comments on that experience.
    The need to expand our access into the Latin American 
market cannot be overstated especially now as we in agriculture 
continue to see reduced sales in Asia. Logistically, Latin 
America is a region that we should have been focusing on long 
before the FTAA negotiations began. The Asian crisis makes 
these markets more important and emphasizes how our 
negotiators' hands are tied without fast track negotiating 
authority.
    The International Monetary Fund obligations must be met to 
allow IMF to work with the Asian countries to stabilize their 
markets. We urge Congress to move quickly to fund the IMF and 
to provide the administration fast track negotiating authority. 
It was apparent that our trading partners, at least in the 
business sector, are leery of moving forward unless the United 
States has that negotiating authority.
    The U.S. Government officials indicated before the meetings 
that governments would take directions from the Business Forum 
in what measures to implement. This process is to be highly 
commended, but we believe it can only work if our negotiators 
work with us before and throughout the process.
    Although USDA's negotiators briefed the agricultural groups 
in Costa Rica just prior to the Business Forum, there was an 
apparent lack of industry-government interaction before the 
meetings. The United States position should have been 
determined with industry before going to Costa Rica.
    There was heated debate in the market access working group 
about creating a separate negotiating group on agriculture. The 
Farm Bureau and other U.S. groups urge against a separate 
agricultural negotiating group at this time. We remain 
concerned that as a separate agriculture negotiating group, we 
may be handicapped in later negotiations as we've already 
reduced our barriers, as has been stated earlier, and our 
market is open. We need other sectors at the same table.
    The ministers established nine separate issue areas for 
negotiation, as stated by Mr. Fisher. Agriculture is one of 
these. It was determined that the objectives of the negotiating 
group on market access shall apply to trade and agricultural 
products. Agricultural issues on rules of origin, customs 
procedures, and technical barriers to trade will also be 
addressed in the market access group. We are certainly hopeful 
that the administration will be able to provide the resources 
to fully participate in both of these negotiating groups on 
agricultural issues.
    There is also concern that as a separate group, there will 
be a tendency to have the negotiations move at a parallel speed 
with the upcoming World Trade Organization negotiations 
scheduled to begin in 1999. This, we feel, could slow down the 
pace of improving our access into this important region. The 
FTAA negotiations hold promise for moving the entire hemisphere 
forward in global trade. Although USDA's recently released 
outlook report on the FTAA does not indicate a big increase in 
sales to this region, we view the FTAA as an important link in 
opening new markets.
    For 1998, agricultural exports to the world are projected 
to reach $56 billion. This figure will be down $1.3 billion 
from last year due primarily to the slowdown in Asia. Still, 
agricultural exports will end this year 27.6 percent higher 
than just 4 years ago. Since the United States produces more 
commodities than we can consume, international trade is a 
necessity of economic life for farmers and ranchers.
    On a more personal note, of the exported commodities 
produced in the Midwest, approximately 50 percent go into the 
Southeast Asian market. Consequently, I, as a corn, soybean, 
and hog farmer in Minnesota have an interest in the Asian 
crisis in particular, but world trade in general. Increased 
access into world markets affects the color of the ink on my 
bottom line.
    The Farm Bureau continues to support fast track trade 
negotiating authority for the President that will address 
binding agreements to resolve sanitary and phytosanitary issues 
on the basis of sound, scientific principles in accordance with 
the Uruguay Round Agreement on agriculture.
    Tariff equalization and increasing market access by 
requiring U.S. trading partners to eliminate tariff barriers 
within specific timeframes, and changes in international 
agreements, and U.S. law and practices that would facilitate 
and shorten dispute resolution procedures and processes.
    While exports continue to rise, producers are concerned by 
potential impacts of the implementation of the Food Quality 
Protection Act by the EPA, a shortage of labor created by new 
immigration law and restrictions stemming from President 
Clinton's new food safety initiative designed to regulate 
microbiological hazards. Therefore, we urge that the U.S. 
Congress advocate effective trade policies that will expand 
U.S. exports to the rest of the world. Such policies will 
include funding the IMF, passage of fast track authority, and 
the signing of an FTAA that works for all industries.
    Thank you very much.
    [The prepared statement follows:]

Statement of Al Christopherson, President, Minnesota Farm Bureau 
Federation; on Behalf of American Farm Bureau Federation

    Mr. Chairman, members of the subcommittee, on behalf of the 
American Farm Bureau Federation and the 4.8 million member 
families in the 50 states and Puerto Rico, I thank you for the 
opportunity to share with you our concerns on the Free Trade 
Agreement of the Americas (FTAA). This is a very timely and 
important issue.
    I participated in the IV Business Forum of the Americas 
that preceeded the FTAA ministerial meetings in Costa Rica two 
weeks ago and will focus my comments on that experience. The 
importance of the FTAA and the outcome of the negotiations to 
agriculture was underscored by the size of the U.S. agriculture 
delegation in Costa Rica. Farm Bureau's seven representatives 
were joined by representatives from feed grains, dairy, sugar 
and fresh fruit and vegetable organizations.
    The first meeting of Ministers in 1994 set in motion the 
concept of the Business Forum. This was designed to be a 
parallel process by which the private sector, the ultimate 
protagonist in any flow of trade and investment, could debate 
its concerns and provide guidance to government counterparts 
who would be negotiating the agreement that traders will 
eventually have to abide by. We believe that this process, 
which includes industry, could and should be one of the most 
important steps in formulating any agreement. Governments 
should recognize that industry knows what will and will not 
work when it comes to the daily business of moving goods and 
services. The business forum presented 10 sets of 
recommendations to the ministers derived from 10 working 
groups. These working groups parallel the issue areas that 
shaped the substance of the work of the trade negotiators.
    The need to expand our access into the Latin American 
market cannot be overstated especially now as we in agriculture 
continue to see reduced sales in Asia. The Asian fiscal crisis 
highlights just how critical it is that we have a working 
global trading system. I believe that industry must be a full 
partner in the process of creating a viable trading system.
    The U.S. government officials indicated before the meetings 
that governments would take direction from the business forum 
on which measures to implement. This process is to be highly 
commended, but we believe that it can only work if our 
negotiators work with us before and throughout the process.
    USDA's negotiator met with the agriculture groups in Costa 
Rica just prior to the business forum. However, there was a 
glaring lack of industry--overnment interaction prior to the 
meetings when the U.S. position should have been determined. 
During the debriefing session between all U.S. industry groups 
and U.S. officials it became apparent that not only had there 
been a lack of prior consultation with agriculture but that 
other industry sectors were not briefed prior to going to Costa 
Rica.
    There was heated debate in the Market Access working group 
about creating a separate negotiating group on agriculture. 
Farm Bureau and other U.S. groups argued against a separate 
agriculture negotiating group at this time. We remain concerned 
that as a separate group we maybe handicapped in later 
negotiations as we have already reduced our barriers and our 
market is open. We need the other sectors at the same table.
    There is also concern that as a separate group there will 
be a tendency to have the negotiations move at a parallel speed 
with the upcoming World Trade Organization negotiations 
scheduled to begin in 1999. This could slow down the pace of 
improving our access into this important region.
    Brazil wanted a separate agriculture negotiating group and 
told us that the United States had agreed to this at an earlier 
meeting in Miami. If this is actually the case, USDA's 
negotiators did not know this decision had been made. The 
decision certainly had not been shared with the industry.
    The ministers established nine separate issue areas for 
negotiations. Agriculture is one of these. It was determined 
that the objectives of the negotiating group on Market Access 
shall apply to trade in agricultural products. Agricultural 
issues on rules of origin, customs procedures and technical 
barriers to trade will also be addressed in the Market Access 
group. We are hopeful that the administration will be able to 
provide the resources to fully participate in both of these 
negotiating groups on agricultural issues.
    The FTAA negotiations hold promise for moving the entire 
hemisphere forward in global trade. Although USDA's recently 
released outlook report on the FTAA does not indicate big 
increases in sales to this region, we view the FTAA as an 
important link in opening markets. A copy of the USDA report is 
included with my testimony as is the Ministerial Declaration of 
San Jose from the March 19 meeting.
    Following are some of the reasons Farm Bureau is committed 
to moving forward in an open global economy:
     Higher living standards throughout the world 
depend upon mutually beneficial trade among nations. As such, 
we urge that trade and other economic policies be developed 
that promote rather than retard the growth in world trade and 
the Free Trade Area of the Americas process can be an important 
and positive step in this direction.
     For 1998, agricultural exports to the world are 
projected to reach $56 billion. This figure will be down $1.3 
billion from last year, due primarily to the slowdown in Asia. 
This slowdown will be felt mainly in bulk commodities and 
especially in exports of corn. All other agricultural 
commodities will see either flat or slightly higher exports for 
the year.
     Still, agricultural exports will end this year 
27.6 percent higher than just four years ago. Since the United 
States produces more commodities than we can consume, 
international trade is a necessity of economic life for farmers 
and ranchers.
    Table I includes the details concerning U.S. agricultural 
trade for the past five years.

                                        TABLE 1.--U.S. Agricultural Trade
                                           Billions of $, Fiscal Years
----------------------------------------------------------------------------------------------------------------
                          Item                             1994      1995      1996      1997         1998
----------------------------------------------------------------------------------------------------------------
Exports................................................     43.4      54.6      59.8      57.3          56.0
Imports................................................     26.6      29.9      32.6      35.8          38.0
Trade Balance..........................................     17.3      24.7      37.2      21.5          18.0
----------------------------------------------------------------------------------------------------------------
Source: USDA, February 23, 1998


    The United States continues to run a trade surplus with the 
rest of the world in agricultural commodities.
    There are many goods that we buy from such areas as Mexico, 
Central America and South America that are very difficult to 
produce in the continental United States. Without trade with 
Latin America, it would be very difficult for U.S. consumers to 
purchase a cup of coffee or a cup of cocoa. Rubber tires on our 
automobiles would be in shorter supply, as well as tires for 
our tractors and combines. Supermarkets would have bananas in 
short supply as well.
    Conversely, Latin America is an excellent market for our 
bulk agricultural goods, including wheat, coarse grains (corn), 
soybeans and soybean meal, and cotton.
    If we define Latin America as Mexico, Central America, and 
South America, their trade with the United States since 1995 is 
impressive. Table II highlights both imports and exports 
between the U.S. and the Americas.

                    TABLE II--Trade with the Americas
                       Billion of $, Fiscal Years
------------------------------------------------------------------------
                                        1995     1996     1997     1998
------------------------------------------------------------------------
U.S. Ag Expots to Latin America.....      8.2      9.9     10.0     11.1
U.S. Ag Imports from Latin America..     10.2     10.9     11.0     12.7
Excluding Mexico--U.A. Ag Exports...      4.5      4.9      4.9      5.3
Excluding Mexico--U.S. Ag Imports...      6.5      7.2      8.0      8.5
------------------------------------------------------------------------
Source: USDA, December 1997


    Over this four-year period, U.S. exports to Latin America 
increased by 35 percent, while imports to the U.S. rose by 24 
percent. Trade to this region represents today about 20 percent 
of all U.S. agricultural exports. Excluding Mexico, U.S. ag 
exports to the rest of Latin America were still up by 18 
percent and represented about 10 percent of all our ag exports.
    Trade has been a two-way street with Latin America and 
should continue to be so. The signing of an FTAA will ensure 
that trade will continue with the least amount of barriers.
    It was apparent that our trading partners, at least in the 
business sector, are leery of moving forward unless the United 
States has fast track negotiating authority.
    Farm Bureau continues to support fast track trade 
negotiating authority for the president of the United States 
that will address: binding agreements to resolve sanitary and 
phytosanitary issues on the basis of sound scientific 
principles in accordance with the Uruguay Round Agreement on 
agriculture; tariff equalization and increasing market access 
by requiring U.S. trading partners to eliminate tariff barriers 
within specified time frames; and changes in international 
agreements and U.S. law and practices that would facilitate and 
shorten dispute resolution procedures and processes.
    Farm Bureau would encourage the signing of an FTAA that 
would be consistent with these principles. We will work closely 
with U.S. international trade negotiators in all negotiations 
on trade and maritime agreements to see that all U.S. 
agricultural producers are treated fairly. We will support the 
use of qualified trade negotiators. We will seek representation 
at all negotiations that involve government export policies and 
maritime agreements in an effort to assure farmers unfettered 
access to world markets. We urge continued use of private 
commodity and policy advisory groups for input into 
international trade negotiations.
    Passage of the North American Free Trade Agreement (NAFTA) 
was the starting point for greater and better trade relations 
with Canada, Mexico and other Latin American countries. Efforts 
should be made to build upon the principals in NAFTA to further 
enhance our trade relationships with these countries and 
enhance cooperative efforts on other important issues through 
the FTAA.
    Long-term agricultural exports continue to rise. According 
to USDA's Foreign Agricultural Service rising incomes in many 
countries, tariff reductions around the world resulting from 
the Uruguay Round Agreement, and ongoing Market Access Program 
activities have continued to propel demand for U.S. ag products 
and diversified the number of large export markets, including 
Latin America.
    While exports continue to rise, producers are concerned by 
potential impacts of the implementation of the Food Quality 
Protection Act by the EPA, a shortage of labor created by the 
new immigration law and restrictions stemming from President 
Clinton's new food safety initiative designed to regulate 
microbiological hazards.
    This is a very critical time for U.S. agriculture and the 
American economy as a whole. Agriculture is expecting to lose 
as much as eight percent of its export market in Southeast Asia 
due to the fiscal crisis. We are disadvantaged in Latin 
America, our closest potential outlet, because the 
administration does not have the authority to negotiate new 
market access using fast-track authority and FTAA completion is 
not scheduled until 2005. Last week, the Senate Budget 
Committee moved to take away all of our funds to create markets 
by eliminating all funding for the USDA Market Access Program. 
Coupled with this, we have closed important markets with 
unilateral sanctions because we object to other countries' 
policies.
    We urge that the U.S. Congress advocate effective trade 
policies that will expand U.S. exports to the rest of the 
world. Such policies should include funding the IMF, passage of 
fast track authority and the signing of an FTAA that works for 
all industries.
    Thank you.

    [The official Committee record contains additional material 
here.]
      

                                


    Chairman Crane. Thank you.
    Mr. Vastine.

 STATEMENT OF ROBERT VASTINE, PRESIDENT, COALITION OF SERVICE 
                           INDUSTRIES

    Mr. Vastine. Thank you, very much.
    Chairman Crane. Let me mention one thing to you. The bells 
have just gone off and we will recess subject to call of the 
Chair. And my understanding is we will have two votes and then 
a third one, so I think it will probably be close to 4:30 
before we get back. Mr. Vastine, you proceed, and you guys 
monitor, will you, the time on the clock.
    Thank you.
    Mr. Vastine. Now I'm really under the clock. Thank you very 
much, Mr. Chairman. I have a very simple message on behalf of 
the Coalition of Service Industries: The service sector is 
ready for the FTAA negotiations to start.
    We have developed specific lists of business facilitation 
measures. We have developed specific lists of barriers that 
will require legislative implementation as pursuant to 
negotiations. We've essentially given blueprints to our 
negotiators, the technical specifications, if you will, to 
guide them in undertaking negotiations. Moreover, the 
businessmen of the hemisphere have organized to provide 
political business support for the negotiations. I believe, in 
this, we're well in advance of any other sector.
    We came to this through a 10-month process of work with 
other service organizations in the hemisphere, beginning in 
Belo Horizonte last May in Brazil, where we passed in the work 
services workshop a work services declaration that was quite 
advanced. It called for the immediate beginning of the 
negotiations, it called for comprehensive negotiations, and it 
said they should be WTO-plus negotiations.
    With our negotiators, we then organized a major conference 
of service industry representatives from across the hemisphere 
in Santiago in October last year. We took an extremely 
important step and we got beyond the generalities in the 
services. We divided the service sector into seven subsectors: 
telecommunications, information technology, financial services, 
professional services, express cargo, construction and 
engineering, and tourism. And in each of these sectors, 
businessmen met from those sectors, and came forward with a 
published list of barriers to service trade in those specific 
seven sectors.
    Virtually 200 people from the hemisphere, businessmen from 
the hemisphere, participated in that, and we discussed those 
actually with the negotiators in the Free Trade Area of the 
Americas services working group. We actually met with 
government negotiators at that time in Santiago.
    In San Jose we took the process a step further. We used the 
same sectoral format of seven subsectors to reinforce the 
Santiago conclusions and to add a list of new barriers that 
could be removed to achieve business facilitation. For purposes 
of supporting this entire negotiation, we have joined with 
businessmen from throughout the hemisphere in creating the 
Services Businesses Network of the Hemisphere, which is, in 
Spanish, ``RedServ,'' in English, ``ServNet.''
    Secretary Daily inaugurated this at San Jose, Minister 
Salazar of Costa Rica and Mr. Valdez of Chile were there as 
well to provide support.
    In essence, we have concentrated in the service sector on 
getting into the nitty-gritty, on defining for negotiators what 
exactly the barriers are that need to be removed. These are 
long lists of barriers, and they're not organized by priority, 
so we need to do that part of it. But at least when the 
political will to begin this negotiation in earnest is there, 
the service sector from the hemisphere is ready to begin.
    I'd like to associate myself, as well, though, with the 
comments of my colleague Ambassador Pryce, and with you, Mr. 
Chairman, and with you, Mr. Thomas, and with Mr. Matsui. Fast 
track is really essential. It's a great pity that we couldn't 
have had that ready in time for these negotiations to begin 
and, Mr. Chairman, I very much hope that your feeling of 
optimism about possibly enacting it this year could come to 
pass.
    We are also very grateful, I must say, to our negotiators 
because we have developed an extremely good relationship with 
Peter Alguire who heads the USTR effort at the working level 
and to others, Peter Collins in the services area, and also 
with our colleagues in the Commerce Department. They've worked 
very, very closely with the service sector. We have extremely 
good relationships with them.
    Finally, Mr. Chairman, I'd like to associate myself and our 
association with your comments about the NTMP, the New 
Transatlantic Market Place, and the relative importance of that 
vis-a-vis the FTAA, at the outset, at your opening remarks. I 
think we share your view that the EU is now driving the 
international economic agenda, that we are in the process that, 
at least in the services, the transatlantic marketplace does 
not hold very much progress, really--promise, really. Nothing 
in comparison to what the FTAA could hold were it to be 
seriously prosecuted. So we support very much--the service 
sector supports very much the opening of markets to the south. 
Many of our companies are very committed to those markets for 
the long term, wish to exploit them, and wish to bring a very 
successful conclusion to these negotiations.
    Thank you.
    [The prepared statement follows:]

Statement of Robert Vastine, President, Coalition of Service Industries

    It is a pleasure to contribute the views of the Coalition 
of Service Industries (CSI) to this useful hearing on the Free 
Trade Area of the Americas (FTAA). CSI was founded in 1982 for 
the precise purpose of ensuring that liberalization of trade in 
services was made a major focus of international trade 
negotiations. It represents US companies in global financial, 
telecommunications, professional, transportation, and 
information technology services, among others. The service 
sector racked up a trade surplus of almost $86 billion last 
year, while over the first eight months of 1997 services 
exports reached $166.5 billion. To give you an idea of the pace 
of growth of services exports, and its potential for US 
business and US jobs, the services surplus in 1985 was only 
$300 million.

                Services Trade in the Western Hemisphere

    Trade in services within the Western Hemisphere is rapidly 
expanding. Between 1985 and 1995 hemispheric total trade in 
services grew by 247%. During this same period, total trade in 
services rose 247% in North America (excluding Mexico), 277% in 
Latin America, and 194% in the Caribbean.
    US-Latin America trade in services has also been growing. 
From 1993 to 1996, US services exports to Latin America 
increased 21% while US services imports from that region rose 
31%. During this same period, the average annual rate of US 
services exports to Latin America grew at 7%, while US services 
imports expanded at a rate of 10%.
    Despite this strong growth, the full potential of services 
trade in the Western Hemisphere is unrealized due to existing 
trade barriers. Generally, the most significant barriers faced 
by services suppliers in Latin America are barriers to 
establishment, and national treatment, though the 1997 World 
Trade Organization (WTO) agreements on financial services and 
basic telecommunications should bring improvements.

       Existing Western Hemisphere Trade Agreements and the FTAA

    There are a number of agreements among countries of the 
Western Hemisphere that provide some degree of liberalization 
of trade in services. According to the Trade Unit of the 
Organization of American States (OAS), a total of sixteen 
agreements contain provisions regarding trade in specific 
sectors.
    Of these regional and bi-lateral agreements, only five, 
namely NAFTA, the Group of Three, and the bi-lateral agreements 
between Mexico and Bolivia, Mexico and Costa Rica, and Canada 
and Chile, have substantial provisions affecting virtually all 
services sectors. The other major existing regional trade and 
integration agreements including the Central American Common 
Market, CARICOM, MERCOSUR, the Andean Group, and the bi-lateral 
agreement between Bolivia and Chile, among others do not 
contemplate rules and disciplines for trade in services, or 
have not yet finished elaborating these.
    In general, the regional agreements signed in the Western 
Hemisphere comply with WTO's General Agreement on Trade in 
Services (GATS). They provide new and more advanced elements 
that were not covered under the multilateral GATS framework.
    The FTAA is an opportunity to go beyond regional trade 
agreements, and GATS commitments, and create one general 
framework for trade in services in the region.

                     Progress in the Service Sector

    The service sector is well advanced in seeking 
liberalization of services trade in the Western Hemisphere, 
much more than any other sector.
    For the last year, CSI has worked hard to build consensus 
among its peers in Latin America and Canada on how the 
liberalization of services trade within the FTAA should take 
place.
    The Coalition of Service Industries approach to FTAA is 
based on several strategies.
    One of these strategies was the creation of an alliance 
with the Santiago Chamber of Commerce in Chile, the Unin de 
Entidades de Servicios of Argentina, and the Federacin de 
Servicios de Sao Paulo in Brazil. This alliance has given us a 
hemispheric perspective on our role within the FTAA process, 
and helped us to understand how we, representing the US 
services private sector, can help it move forward.
    The second strategy was to create and organize the First 
Services Business Forum of the Americas in Santiago, Chile last 
October. There, for the first time, the services private sector 
met with government negotiators, and provided them with 
concrete and specific liberalization recommendations. At this 
Santiago Services Forum, we divided the service sector in seven 
sub-sectors: telecommunications, information technology and 
electronic commerce, financial services, professional services, 
express cargo integrated transportation services, construction 
and engineering, and tourism.
    The third strategy was to launch the Services Business 
Network of the Americas, ``RedServ'' (or in English, 
``ServNet''), a network we helped to create to achieve our 
Hemisphere liberalization goals (see attachment A). ``RedServ'' 
was formally launched by Secretary of Commerce William Daley 
last week at the San Jose Forum, along with Jose Manuel 
Salazar, Trade Minister of Costa Rica, and Juan Gabriel Valdes, 
Trade Vice-Minister of Chile. ``RedServ'' is a permanent 
network whose main purpose is to provide continuing private 
sector support for liberalization of services trade in the 
region.
    These three strategies originated at the Third Business 
Forum of the Americas last May in Belo Horizonte, Brazil. At 
Belo Horizonte, representatives of financial, 
telecommunications, information technology, and other service 
sector companies, from a majority of countries of the Western 
Hemisphere, agreed in a joint declaration (see attachment B) 
``to start the negotiation process of the Free Trade Area of 
the Americas as soon as possible...'' It stated that the 
negotiations ``should cover all services...,'' that it ``should 
be consistent with, and move beyond, the General Agreement on 
Trade in Services.''
    This services declaration was considered one of the most 
progressive of any of the business sector resolutions to result 
from the III Business Forum of the Americas. Not surprisingly, 
the private sector is leading governments in spurring the 
negotiations process.
    At the next major event, the First Services Business Forum 
of the Americas in Santiago, Chile on October 6-7 last year, we 
laid the strongest foundations, so far, for the liberalization 
of trade in services in the region.
    Organized by the Santiago Chamber of Commerce, this forum 
of service industry leaders from the Americas recommended (see 
attachment C) that governments eliminate trade barriers in the 
seven specific sectors mentioned above.
    The more than 200 business leaders who participated during 
the Santiago Services Business Forum formulated precise 
recommendations facilitating future negotiations for the 
liberalization of services trade in the hemisphere, and 
discussed them in the presence of the FTAA Working Group on 
Services.
    In the sectors discussed business leaders agreed on 
applying the principles of national treatment, non-
discrimination, reciprocity, transparency, elimination of 
double taxation and of double benefits (social security, health 
care, etc.), freedom of mobility of personnel, and freedom of 
establishment or non-establishment. The elimination of 
unnecessary customs procedures, nuisance tariffs, non-tariff 
barriers and taxes was also requested. Requests were made for 
the harmonization of professional certification requirements, 
and facilitation of work visas.

           FTAA San Jose Business Forum Advances on Services

    At the Fourth Business Forum of the Americas last week in 
San Jose, Costa Rica, CSI helped make progress together with 
businesses of the Western Hemisphere towards the liberalization 
of trade in services in the future Free Trade Area of the 
Americas (FTAA).
    Again, the seven Services Workshops identified specific 
trade barriers for elimination. I would like to point out some 
of the more important conclusions that were agreed to by 
businesses of the hemisphere at the Services Workshop at the 
San Jose Business Forum (see attachment D).
    In Professional Services: governments should grant national 
treatment to foreign professionals, adopt international 
accounting standards, revoke existing laws or rules regarding 
quotas for professionals within services firms, and eliminate 
all types of subsidies, exceptions, special conditions or 
exemptions that cause distortions in the professional services 
market.
    In Information Technology and Electronic Commerce: 
governments should avoid the creation of monopolistic 
concessions, avoid restrictions imposed on the free flow of 
information through electronic networks, and avoid the adoption 
of legislation or regulations for privacy protection that would 
create unnecessary barriers to commerce.
    In Telecommunications: governments should base competition 
and tariffs on cost, eliminate cross-subsidies, facilitate the 
readjustment of telephone rates, separate regulators from 
services operators, establish autonomous regulatory 
authorities, agree on procedures to grant licenses (permits, 
registrations or notifications), adopt rules to allow multiple 
competitors, guarantee right of way to all operators, provide a 
legal framework to promote financing of alternative national 
networks, liberalize telecommunications services by the year 
2005, and request that those countries that have not signed the 
WTO agreement on Basic Telecommunication services, do so.
    In Financial Services: governments should liberalize 
capital accounts immediately and completely, eliminate currency 
exchange controls, eliminate restrictions on foreign 
investment, promote the delivery of ample financial 
information, facilitate registration processes for foreign 
mutual funds; and with respect to the insurance sector, provide 
national treatment and freedom of establishment, and promote a 
greater degree of liberalization in rendering cross-border 
insurance services, while protecting consumer rights.
    In Construction and Engineering: governments should grant 
uniform national treatment to foreign providers of engineering 
and construction services, and grant business and work travel 
visas allowing for free movement of professionals, goods, and 
services.
    In Tourism: governments should not tax travel services; 
eliminate requirements for visas and burdensome customs 
procedures; and make hotel classification self-regulatory.
    In Express Cargo Transportation: governments should abolish 
discriminatory measures, including application of postal rates 
and taxes to subsidize government agencies; and all 16 FTAA 
participating countries who signed the Cancun, Mexico, Charter 
of Commitments (signed June, 1996) relating to customs 
procedures should implement it before June 1999.
    I would like to take a moment to highlight the achievements 
of the Express Cargo Transportation sector, where businesses 
agreed on some of the most concrete business facilitation 
measures that can and should be implemented right away by 
governments. The Air Courier Conference of America (ACCA), 
together with other representatives of the sector, have 
achieved a consensus in their recommendations that should serve 
as a model to be followed by members of the private sector and 
by governments to further the pace of trade liberalization in 
the hemisphere.
    The service sector, as you have seen, has been able to 
achieve region-wide consensus on many aspects of liberalization 
of trade in services. The private sector has essentially given 
government negotiators the blueprints in the form of specific 
requests for liberalization. These are elaborated in the 
Santiago Recommendations from the First Services Business 
Forum, and in the San Jose Recommendations produced at the 
Services Workshop of the Fourth Business Forum.
    Despite all these efforts we still have a long way to go 
before we can achieve transparent, non-discriminatory, open 
trade in services in the Western Hemisphere. At the moment, 
there are two things we must focus on. First, we must achieve 
concrete progress, in the form of business facilitation 
measures by the year 2000, without losing sight of our larger 
liberalization goals by the year 2005. And second, we must 
obtain fast-track legislation authority for the President in 
the very near future, so that we can maintain the momentum on 
the FTAA. Without these, the private sector will have little 
incentive to focus its time and resources on the FTAA process.
    Thank you, Mr. Chairman, for giving the Coalition of 
Service Industries this opportunity to express its views.
      

                                


    Chairman Crane. Thank you very much. And we are now going 
to recess until, as I project, roughly 4:30. If anyone has time 
constraints, that's certainly understandable. Please let the 
staff here know about it if any of you can't wait until then. 
Otherwise, we'll get into the questioning process and our next 
panel at that time.
    Thank you.
    [Recess.]
    Chairman Crane. Folks, we will reconvene the Subcommittee.
    Mr. Matsui and I are both here, and we don't know entirely 
what the schedule is going to be like. I think we've got a 
little time off now, though.
    And I want to again express appreciation to you and 
apologies for these interruptions, but we don't control that. 
So if it were just a Committee meeting, then you would have 
been in and out of here with dispatch.
    Ambassador Pryce, the United States, in my estimation, 
needs to achieve interim agreements before the year 2005 to try 
to maintain interest in the FTAA process. What types of early 
agreements do you think might be doable?
    Mr. Pryce. Right now, Mr. Chairman, without fast track, 
it's going to be very difficult to do anything, very frankly, 
but one of the things, we might get something on customs 
facilitation. We might get something on intellectual property. 
We might get something on government procurement. But people 
who are go-slow people on trade don't want any of these 
agreements. We got a lot of things in San Jose, but early 
agreement is one of the things we were not able to get 
agreement on. Those are the kinds of things we might get, but 
we won't get it without fast track.
    Chairman Crane. Chile, intelligently, went ahead and 
negotiated a free trade agreement with Canada and with Mexico, 
so we're the only ones that are left out at this point. I'm 
concerned about whether there might be a proliferation of this 
kind of activity not only with our two North American free 
trading partners, Canada and Mexico, but other Latin American 
countries going forward with those kinds of separate 
negotiations and just leaving us out of the process. Do you 
think there's a bona fide fear of that?
    Mr. Pryce. Yes, sir, I do. I think we've seen that--we've 
already been hurt by the Chile-Canada agreement, and we can 
expect to be hurt in other agreements. We're missing a good 
opportunity. I think the Canadians and the Mexicans would have 
been happy to go forward with us, but they weren't willing to 
sit around and wait while we went nowhere. It's a clear and 
present danger which will not diminish.
    Chairman Crane. Mr. Christopherson, what are the most 
significant barriers to increased agriculture exports to Latin 
America, in your estimation? Incidentally--oh, we'll notify Mr. 
Ramstad that that plaque is incorrect. [Laughter.]
    Mr. Christopherson. If you would repeat your question 
again, I could try to address your----
    Chairman Crane. Yes. What are the most significant barriers 
to increased agriculture exports to Latin America, in your 
estimation?
    Mr. Christopherson. Certainly, I think the fact that we 
don't have the agreement; that's certainly part of it. I 
suppose some of the other items that make trade agreements a 
little more difficult is the amount of trading commodities 
which are similar to what we have. The more similar the 
product, the more difficult it is to reach trade agreements, in 
other words, between two countries. If you had countries that 
are producing the same items, obviously, there's protectionist 
or at least the feeling that you need to protect your own 
industry.
    But certainly the fact that we have not been a part of the 
trade agreements, I can only reiterate what the gentleman to my 
left said: We're losing out on them. Certainly, I, being part 
of the northern tier of States in the United States, very close 
to Canada, I'm very well aware of what Canada is doing, and I 
certainly don't blame them, but I'm somewhat jealous of what 
they have been able to do with some of those Latin American 
countries.
    Chairman Crane. Absolutely.
    And Mr. Vastine, what business facilitation measures are 
the top priorities of the services industry?
    Mr. Vastine. Well, it's very difficult to speak for the 
service industry as a whole because every sector has its 
different priorities. I would say that, one, in a couple of 
different areas--for example, in professional services, if we 
could grant national treatment to foreign professionals, in 
some fashion arrive at arrangements, so that U.S. accountants, 
lawyers, and so forth, engineers, and other professional 
practitioners could practice their business in Latin America 
free, that would be certainly to our national advantage.
    In the area of express cargo transportation, the 
harmonization of customs treatments, so that packages or 
letters being sent by Fed Ex, or whatever, can pass quickly 
through tariff barriers--through customs barriers. In all 
countries there ought to be harmonization of that.
    In telecommunications, well, it's a long-term goal. It's 
not exactly business facilitation, but the essential 
requirement is to begin to base competition on cost of 
telecommunication services as opposed to inflated cost to 
reflect other societal needs.
    So, Mr. Chairman, it's a complicated answer. It varies from 
sector to sector. I've summarized in my statement some of the 
precise areas in which we'd like to see progress made.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    I just want to make a general observation and get a comment 
from all three of you. It seems to me that all hearings lead to 
fast track. [Laughter.]
    About 1 month ago, the Chair called a hearing on the 
agricultural services in trade, and it came down again to fast 
track, and certainly this one is as well.
    It seems to me that you really can't go much further than 
you've gone. I've been particularly alarmed with what you said, 
Ambassador Pryce, in terms of the inability of the United 
States to offer to the negotiating countries interim 
agreements; in other words, kind of lock folks in on an interim 
basis as we proceed; and second, not to take any hostile 
actions in terms of increasing tariffs during this negotiating 
period. It seems to me at least those two should have been 
accepted by all the negotiating countries, and the fact that 
they're not would indicate many of the countries don't take 
this particularly seriously. Certainly, we have to. Obviously, 
Ambassador Fisher must maintain a very positive outlook on 
this. He has no reason not to, and he certainly must. But the 
fact is that we are somewhat constrained at this time.
    One of our problems--I think two of our problems, and this 
is nothing you can really do anything about, but maybe you can 
think about it and try to work on this, because I think we do 
have a window, if not this year, early next year; then we lose 
it probably until 2001. And we keep throwing this date further 
and further back--1999, in the spring of 1999--who knows when 
it might be.
    But I think, first of all, we need to begin to speak out 
when the opponents of NAFTA take NAFTA on. Right now I think 
the average citizen who is just aware of NAFTA thinks it was 
bad because of all the negative comments made, going 
unrebutted, essentially, and I take blame for that as well. We 
passed NAFTA, and all of a sudden now we're under something 
else, and the opponents are still fighting NAFTA.
    And the second area is that we really need to communicate 
the importance of fast track, and I think your testimonies and 
the testimony that will come in the next panel, Ambassador 
Fisher's comments and observations, all this will move in that 
direction.
    On the floor, as we were waiting for that second vote, I 
mentioned to one Member who is opposed to fast track--I said, 
we're just hearing some rather significant testimony of the 
impact of the lack of fast track on our Latin America 
opportunities, the fact that Europeans are moving in, and I 
don't know if that would change his vote, but at least it 
sensitized him a little bit that this isn't just a theoretical 
debate about labor and the environment.
    Somehow over the next few months, if many of you in your 
associations and with your groups can begin to find ways to 
communicate this to the Members, perhaps in Members' home 
districts, I think it's critical if we have any desire at all 
to move this legislation.
    I know last December and January and early February, the 
administration did make another quiet push for this. Obviously, 
they didn't want to be too public about it because they were 
talking to individual Members, Members that were opposed to 
fast track, and again, they hit a brick wall. It's just very 
difficult. Somehow we need to change this discussion somehow, 
change the kind of synergy of this debate. And what that is, I 
couldn't tell you. I'm kind of at a loss myself. But perhaps 
you may want to comment on that or make an observation.
    Ambassador Pryce.
    Mr. Pryce. Yes, sir. I think that a very good case in 
point, one of the things that we've sort of had some inward 
thoughts with our members and within the Council of the 
Americas is that we didn't really do as good a job as we might 
have in terms of education in the districts throughout the 
country. I mean, we did, I think, pretty well here, but there 
needs to be more support and we need to work more on that, and 
we're planning to do that.
    On the NAFTA, the Council is updating State studies that we 
did to show that not only was NAFTA good the first 3 years, 
we've commissioned a new study that shows even better results 
the fourth year. There's nothing to be ashamed of there.
    There are some people, frankly, within the administration 
who have said, Let's not talk about it. You can't not talk 
about it. It's the best free trade agreement we've had lately, 
and so we'll plan to do that.
    Also, if I could say, sir, if there's a window next year, I 
think the administration needs to lead and say, OK, this is 
what we're going to try to do, and do that fairly early on, so 
that business can do their part to help educate the public.
    Mr. Matsui. Anyone else want to comment?
    Mr. Christopherson. Just a short comment: I guess I share 
that opinion. We in our organization and other farm groups 
spent a lot of time waiting in the wings, waiting for another 
opportunity, and we recognize that the administration probably 
would have to take a lead on it, and we were waiting for early 
this year, and it never really came forward. We were somewhat 
frustrated by the fact that we lost it last year, and we've 
spent a lot of time second guessing what went wrong, but the 
long and the short of it was that education was part of it. 
Then certainly we probably didn't enter into the foray quite 
early enough--just a number of things that you can spend time 
second guessing about.
    Mr. Vastine. Mr. Matsui, I agree with my colleagues. 
There's no substitute for the private sector developing support 
at the grassroots, but neither, as the history of U.S. trade 
policy shows, is there any support, is there any substitute 
from strong Presidential leadership. In the end, public opinion 
is going to be swayed, I think, by leadership from the top on 
this issue, and that is really essential.
    Mr. Matsui. If I can just conclude, I think the President 
really did do a very good job on trying to move this. I think 
one of the problems--looking back on this now, I think all of 
us are doing this apology at what really happened, this may 
have been lost in the spring of 1997. It may have been too late 
by then.
    I remember some of the opponents coming by my district 
office and in Washington, visiting with me, saying that this is 
our number 1 issue. It may have been something where we may not 
have been able to mount any kind of a challenge in terms of 
picking up additional votes. I just don't know, but it just 
seems to me that we need now to move forward and see what we 
can possibly do. I do know you all are working at that 
grassroots level, which is so critical. I think we need to 
reexamine our whole strategy. Instead of assuming that Members 
are going to do the right thing in this area, we have to assume 
that they're probably not, and we have to start all over again 
and redebate the whole issue of comparative advantage and the 
benefits of trade, unfortunately.
    Thank you for your testimony. I appreciate it.
    Thank you.
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman.
    Gentlemen, I, too, want to thank you for your strong 
advocacy on behalf of fast track. All of us have to work harder 
and do a better job, and we do need that strong Presidential 
leadership. I hope at the right time--and I hope that time is 
sooner rather than later--we'll move forward and get it passed.
    Mr. Christopherson, I just want to focus my line of 
questioning, directed to Ambassador Fisher today and applying 
to your testimony as well--about a separate negotiating group 
on agriculture. I'm concerned about tying the FTAA to the WTO 
negotiations on agriculture. I'm just wondering if you could 
expand upon your concerns and elaborate a little bit.
    Mr. Christopherson. I think our biggest concern is the 
timing of it. As I indicated, we're concerned about the Asian 
crisis, economic crisis, and we had kind of hoped that we might 
have something that would fill in part of that void that we're 
seeing as a reduction in market sales to that part by the 
inclusion of trade agreements, and so forth, with Latin 
America. So that's probably our biggest concern, and then the 
other concern is, as we had stated, that we really don't have 
as much to trade, bargain with, from agriculture as what we 
would like to have maybe, and so therefore, we feel that we're 
at a disadvantage when we're standing there alone as a group, 
as opposed to being part of the total U.S. business sector.
    Mr. Ramstad. Please, Ambassador.
    Mr. Pryce. Congressman Ramstad, I'd like to add a little 
bit from a different perspective. I'm not sure what went on in 
the negotiating groups with the ministers after the business 
forum met, but in bold terms, on that question of a separate 
agricultural group, from the private industry side of view, we 
got beat. There was the resilience in the Argentines, who 
obviously had wanted a separate group, and certainly our 
private enterprise agricultural people and we as Council of the 
Americas were trying to help not have it separated. We felt 
that we were better off without it, and we didn't have the 
horses. Not having fast track was a psychological part of not 
having the horses.
    Mr. Ramstad. Yes, that was going to be my next question, 
Mr. Ambassador: What was the impact, if any, of not having fast 
track? And you've answered it.
    Let me ask you also, any of you on the panel, how do you 
think the lack of fast track will affect the FTAA negotiations 
overall?
    Mr. Pryce. I think it is going to affect them seriously. It 
won't make it impossible, but it will make it very difficult. 
Someone asked earlier, when do you need fast track? And I 
understand Ambassador Fisher didn't answer. I wouldn't have 
answered in his case, either. He can't answer, because we have 
to tell everybody we don't need it, and we have to remind 
everybody that, even though we don't have it, we represent 
close to 80 percent of the GNP of the hemisphere, and even if 
we have one hand tied, even if we're disadvantaged, we still 
are a tremendous market. But when it gets down to actual 
negotiations, nobody's going to negotiate with us, if we don't 
have fast track. Chile wouldn't do it; no country will do it. 
When you get down to actual tariff cutting. We can try to do 
business facilitation; we can try to do a common customs 
agreement, but the actual lowering of tariffs, nobody's going 
to do it, if we don't have fast track.
    Mr. Christopherson. If I can add just a little bit from 
agriculture's perspective, I'm not sure what kind of a signal 
it sends, but here we are, the biggest agricultural producer in 
the world, and yet we can't get our act together to trade with 
potential markets. I'm not sure what that says, but it doesn't 
make sense to me. So that frustrates us.
    Mr. Ramstad. Thank you again. Oh, excuse me.
    Mr. Vastine. Well, I think we can obsess about the absence 
of fast track. It's very important and it does color the 
atmosphere, but, on the other hand, we have no choice but to 
begin these negotiations and do the best we can, and make 
progress in areas where progress is possible. So I would hope 
that we would not focus on the hole, but focus on the donut.
    Mr. Ramstad. Certainly. And certainly nobody's obsessing, 
at least in a clinical sense, on the absence of fast track, 
albeit everyone recognizes its importance. I hope we do as you 
suggest, but at the same time try to push the ball forward with 
respect to getting fast track done.
    Thank you, Mr. Chairman.
    Chairman Crane. Well, I want to thank this panel. Again, we 
apologize for the interruption, but, as I noted, we cannot 
totally control all those things.
    With that, we will now invite our final panel, and we will 
hear from George Scalise, president of the Semiconductor 
Industry Association; James Clawson, president and chief 
executive officer of JBC International; John J. Audley, program 
coordinator for trade and the environment at the National 
Wildlife Federation; and Dennis Thies, executive vice president 
and chief financial officer for Southdown Inc., and vice 
chairman for the Southern Tier Cement Committee.
    And we'll begin with Mr. Scalise, who will make his opening 
statement.

  STATEMENT  OF  GEORGE  SCALISE,  PRESIDENT,  SEMICONDUCTOR  
         INDUSTRY  ASSOCIATION,  SAN  JOSE,  CALIFORNIA

    Mr. Scalise. Thank you, Mr. Chairman.
    First of all, I would like to express our appreciation to 
you for having us here today to talk about the Free Trade Area 
of the Americas, and to point out again that we at SIA are a 
big supporter of fast track. We hope we can get fast track 
moving again, and we'll do what we can to help.
    Let me just tell you a little bit about the semiconductor 
industry. It employs about 260,000 people here in the United 
States. It's also the enabling technology for the electronics 
world that we know today, particularly the information 
technology that we all hear about so much--an industry which 
employs about 4.2 million Americans.
    A recently released study on the economics of the industry 
shows that the semiconductor industry is now the largest 
manufacturing industry in terms of added value in the United 
States. We have gone from 17th to 1st in about the last 7 or 8 
years. We now contribute 20 percent more to the U.S. economy 
than the next leading manufacturing industry. The average wage 
in the industry is approximately $55,000, nearly twice the 
average of private industry overall. The industry continues to 
grow at about 17 percent compounded, and we now enjoy over 50 
percent of the worldwide market.
    Another important factor regarding the semiconductor 
industry is that its prices decline every year and have since 
the outset of the industry. As a result, the price of computers 
has been driven down to a point where a desktop computer, a 
laptop, is available to virtually anyone in this country today, 
and hopefully, around the world before too long.
    According to the Economic Report to the President, without 
the faster-than-average recent rate of decline of computer 
prices, overall inflation in the country would have risen 
steadily since 1994. So, I think one of the major contributors 
to controlling inflation has been the semiconductor industry 
and its technology and innovation.
    Roughly one-half of the industry's revenues come from 
outside the United States, and we have always been in support 
of the elimination of tariffs. We began by urging the 
elimination of United States tariffs back in 1985, and at that 
stage we encouraged Japan and Canada to go along with us. They 
did. That was certainly a major step forward. In 1993 Mexico 
also agreed to eliminate their tariffs as part of the NAFTA. In 
1994 the Uruguay round resulted in a commitment by South Korea 
to eliminate their tariffs as well. Overall, we're making 
progress on the elimination of tariffs, which we think is 
critical.
    In 1997 the USTR concluded the Information Technology 
Agreement, which eliminates tariffs on semiconductors and other 
information technology products in over 40 countries by the 
year 2000. This was a very successful agreement because the ITA 
member countries account for over 92 percent of the world 
information technology trade. Yet, the IT Agreement has one 
major weakness--only two countries in Latin America have 
joined, Costa Rica and Panama. Thus, elimination of Latin 
American tariffs on semiconductors remains important, 
unfinished business for United States trade policy.
    Currently, tariffs on semiconductors in key Latin American 
markets, such as Brazil and Argentina, remain very high. 
They're bound at about 35 percent. Now these high tariffs are a 
significant barrier to our exports, which is important, but 
they're also, perhaps even more important, an inhibitor to the 
development of the electronics industry in Latin America. We 
think this is a major consideration for Latin American 
countries to take into account during the FTAA negotiations.
    Elimination of Latin American tariffs on semiconductors 
would help the Latin American countries develop competitive 
high-tech industries. The benefits of eliminating tariffs can 
be illustrated by comparing what has taken place in Latin 
America to that in some of the Asian countries--Singapore, 
Taiwan, and others. These Asian countries have eliminated their 
tariffs and have seen an explosion in their growth in the 
electronics world, while the Latin American countries have 
lagged far, far behind.
    Expanding the ITA to include these Latin American countries 
would be the quickest way to accomplish this important reform. 
The FTAA provides another effective mechanism for reducing 
Latin American tariffs. While the FTAA is not scheduled to be 
concluded until 2005, the recent ministerial declaration in 
Costa Rica calls for concrete progress by the year 2000.
    One important way to demonstrate concrete progress would be 
for the countries of Latin America to join the ITA now and 
agree to eliminate their information technology tariffs by the 
year 2000, as the other ITA member countries have done. We 
believe that the United States should make near-term Latin 
American participation in the ITA a key element of its overall 
negotiating strategy for the FTAA.
    In addition, as the FTAA negotiations go forward, we urge 
you to press for strong provisions concerning the protection of 
intellectual property rights, removal of barriers to foreign 
direct investment, and maintenance of strong and effective 
antidumping remedies.
    Mr. Chairman, the SIA believes that the FTAA holds much 
promise for promoting the continued growth of U.S. high-tech 
exports. Expansion of the ITA to include Latin American 
countries is one important way to achieve concrete progress in 
these negotiations by the year 2000.
    Thank you.
    [The prepared statement follows:]

Statement of George Scalise, President, Semiconductor Industry 
Association, San Jose, California

    I appreciate this opportunity to appear before the 
Subcommittee on Trade of the Committee on Ways and Means to 
present the views of the Semiconductor Industry Association 
(SIA) on the Free Trade Area of the Americas.
    Before discussing the SIA's position on this important 
issue, I would like to take a minute to give some background on 
the U.S. semiconductor industry.

                    The U.S. Semiconductor Industry

    Semiconductors are an increasingly pervasive aspect of 
everyday life, enabling the creation of the information 
superhighway and the functioning of everything from automobiles 
to modern defense systems. A recently released economic study 
found that the semiconductor industry is now America's largest 
manufacturing industry in terms of value-added--contributing 20 
percent more to the U.S. economy than the next leading 
industry. The average wage in the semiconductor industry is 
approximately $55,000, nearly twice the average of private 
industry overall. Furthermore, semiconductor price declines 
drive computer price declines. According to the Economic Report 
of the President, without the faster than average recent rate 
of decline of computer prices, overall inflation would have 
risen steadily since early 1994.
    U.S. semiconductor makers employ about 260,000 people 
nationwide, and the presence of the industry is widespread--35 
states have direct semiconductor industry employment. 
Semiconductor products are the enabling technology behind the 
U.S. electronics industry, which provides employment for 4.2 
million Americans, in all 50 states.
    U.S. semiconductor producers are highly committed to 
maintaining their lead in both semiconductor manufacturing and 
technology. The U.S. semiconductor industry devotes on average 
20 percent of its revenues to capital spending and another 11 
percent to research and development--among the highest of any 
U.S. industry.
    While investing heavily in the industry's future 
competitiveness and technological capabilities, SIA members 
also have actively sought open markets around the world. 
Because the semiconductor industry is so global in nature--
roughly half of the U.S. industry's revenues are derived from 
overseas sales--the SIA has been dedicated since its inception 
to promoting free trade and opening world markets.

                  Elimination of Semiconductor Tariffs

    SIA has long advocated the elimination of tariffs on 
semiconductors and related products. At SIA's request, the 
United States, Canada, and Japan eliminated duties on 
semiconductors and computer parts in 1985 without waiting for 
the conclusion of the Uruguay Round negotiations. SIA supported 
the elimination of tariffs in its home market because it 
believes that the U.S. semiconductor industry's health depends 
on the health of its customers in the electronics and 
information industries, and that its customers can produce the 
best products if they do not have the costs and administrative 
burdens associated with import tariffs.
    In 1993, as part of the North American Free Trade Agreement 
(NAFTA), Mexico agreed to immediate elimination of its tariffs 
on semiconductors.
    In 1994, the Uruguay Round negotiations resulted in a 
commitment by the Republic of Korea to eliminate its 
semiconductor tariffs, as well as a commitment to reduce 
semiconductor duties in the European Union. In 1995, at the 
request of the European semiconductor industry, the European 
Union further reduced its semiconductor duties from as much as 
14 percent to a high of 7 percent.
    In 1997, the United States and 40 other countries concluded 
the Information Technology Agreement (ITA), which will 
eliminate tariffs on semiconductors and other information 
technology products in these countries by the year 2000. The 
ITA, which was negotiated under the auspices of the WTO, 
represents a landmark achievement in the development of global 
free trade. It has dramatically sped-up the process of 
eliminating tariffs on information technology products by 
scheduling complete elimination for about 92 percent of world 
information technology trade by 2000 and establishing 
procedures for eliminating tariffs on additional products.
    Despite its tremendous accomplishments, the ITA has one 
major weakness--only two countries in Latin America have signed 
onto this important agreement: Panama and Costa Rica. Thus, 
elimination of Latin American tariffs on semiconductors remains 
an important item of unfinished business for U.S. trade policy.

Semiconductor Tariffs in Latin America

    Currently, tariffs on semiconductors in such key markets as 
Brazil, Argentina, and Venezuela, remain very high--with bound 
rates generally around 35 percent. Such high tariffs pose a 
significant barrier to U.S. semiconductor exports and also 
inhibit the development of information technology industries in 
these countries.
    Elimination of these tariffs will spur development of 
competitive electronics industries in Latin America, as it has 
in other nations. It will allow U.S. producers to sell advanced 
semiconductors to their Latin American customers at the lowest 
possible price, thereby both increasing U.S. exports and 
strengthening developing Latin American electronics industries.
    The benefit to Latin American countries of semiconductor 
tariff elimination is aptly illustrated by comparing developing 
countries that have pursued a high tariff strategy with those 
that have pursued a low tariff strategy for electronics. 
Looking around the world, those developing areas with low or no 
duties on electronics components and systems over the past two 
decades (Hong Kong, Taiwan, Singapore) have been successful in 
developing strong, vibrant economies with dynamic information 
technology industries. Meanwhile, those developing areas with 
high duties (Latin America, India) have not been successful in 
developing their domestic electronics industries. A special 
case was Korea, which built a narrow semiconductor industry in 
spite of its 8 percent duty. Korea's growth was largely based 
on exports of a single commodity product, not in supplying the 
broad range of products to its domestic electronic systems 
producers. It however has recognized that a zero tariff 
environment will best foster its future growth, and has also 
signed onto the ITA. Moreover, Korea agreed to accelerate the 
phase-out of its semiconductor tariffs so that those duties 
would be fully eliminated by 1999.
    India has implicitly recognized the importance of open 
markets to the development of a competitive information 
technology industry and the failure of its earlier highly 
protectionist policies by signing onto the ITA.
    Unfortunately, Brazil to date continues to protect its 
information technology sector, even though that approach has 
not worked, and has left Brazil uncompetitive in world 
information technology markets. As reported in the Wall Street 
Journal, the negative effects of the Brazilian model have been 
recognized even by some of its own industry executives:
    ``We made PCs before the Taiwanese and the Koreans,'' says 
Touma Elias, President of Microtec [a Sao Paolo microcomputer 
company]. ``But instead of being a $1 billion company, like 
[Taiwan's] Acer or [the U.S.'s] AST or Dell, we're a $35 
million one hoping to be a $100 million one. Why? Because our 
market wasn't open, which made components more expensive.\1\
---------------------------------------------------------------------------
    \1\ Thomas Kamm, ``Brazil Set to Life Electronics Import Ban: 
Nationalsit Laws Backfire on Computer Industry,'' Wall Street Journal 
(August 8, 1991).
---------------------------------------------------------------------------
    Elimination of Latin American tariffs in semiconductors and 
other electronics goods would go a long way assisting the 
countries of Latin America in developing their own competitive 
industries. Joining the ITA would be the quickest way to 
accomplish this important reform.

                  The Free Trade Area of the Americas

    The FTAA provides another effective mechanism for reducing 
Latin American tariffs. While scheduled to be concluded no 
later than 2005, the FTAA calls for, among other things, the 
progressive elimination of tariffs and concrete progress toward 
achieving the agreement's objectives by 2000.
    The SIA believes that one important way to demonstrate 
``concrete progress'' in the information technology sector is 
for the countries of Latin America to join the ITA now, and 
agree to eliminate their information technology tariffs by 
2000. Joining the ITA would not only allow the countries of 
Latin America to demonstrate their commitment to the FTAA 
process and enjoy the benefits of free trade more quickly, but 
would also demonstrate how the FTAA can support the WTO system, 
ensuring that regional trade liberalization would not proceed 
at the expense of cooperation with the broader world trading 
system. In fact, the business forum that preceded the most 
recent FTAA Ministerial meeting in San Jose, Costa Rica, 
explicitly endorsed immediate adoption of the ITA by Latin 
American countries. In addition, APEC's adoption of the ITA 
provides a precedent for immediate adoption of the ITA as a 
means to build momentum for a larger free trade region.
    The SIA believes that the United States should make near-
term Latin American participation in the ITA a key element of 
its overall negotiating strategy for the FTAA. In addition, as 
the FTAA negotiations go forward, we urge that the United 
States press for strong provisions in the FTAA on protection of 
intellectual property rights, removal of barriers to foreign 
direct investment (including forced technology transfer 
requirements) and maintenance of strong and effective 
antidumping remedies.

                          Electronic Commerce

    Recently the hemispheric trade ministers met in San Jose, 
Costa Rica to agree on the principles and objectives that will 
guide the negotiations for the FTAA. The SIA is pleased that in 
their Ministerial Declaration, the trade ministers expressed 
interest in increasing and broadening the benefits to be 
derived from electronic commerce and called for a public-
private working group to review proposals in this regard.
    The SIA believes that the guarantee of tariff-free and tax-
free trade over the Internet is essential to realizing the 
benefits of the electronic market and the information society. 
We urge the Congress and the Administration to continue to 
press both in the FTAA and in the WTO for agreements to ensure 
that the Internet remains free of barriers to trade, including 
both tariffs and other taxes on electronic commerce.

                               Fast Track

    In addition, I would like to emphasize in the context of 
the FTAA that the SIA strongly believes that fast track 
negotiating authority is crucial to reducing trade barriers 
that impede the development and growth of high-value-added U.S. 
industries such as the semiconductor industry. In addition to 
reducing tariffs around the world, U.S. trade policy must 
continue to be focused on eliminating non-tariff barriers. Fast 
track legislation is essential to U.S. efforts to reduce 
complex non-tariff barriers that remain as significant 
obstacles to our exports in many countries around the world. We 
therefore urge the Congress to enact fast track legislation at 
the earliest possible opportunity.

                               Conclusion

    The SIA believes that the FTAA holds much promise for 
promoting the continued growth of the U.S. high technology 
sector. Expansion of the ITA is one important way to achieve 
concrete progress in the FTAA objectives by 2000 as envisioned 
in the recent FTAA Ministerial Declaration.
    I would be happy to answer any questions. Thank you.
      

                                


    Chairman Crane. Thank you.
    Mr. Clawson.

  STATEMENT OF JAMES B. CLAWSON, CHIEF EXECUTIVE OFFICER, JBC 
   INTERNATIONAL; ON BEHALF OF INDUSTRY FUNCTIONAL ADVISORY 
         COMMITTEE ON CUSTOMS, AND JOINT INDUSTRY GROUP

    Mr. Clawson. Thank you, Mr. Chairman, Mr. Matsui, Mr. Neal. 
It's a pleasure to be here again before this Subcommittee. You 
have my written remarks. I would like to just take a few 
moments to talk to the Subcommittee.
    Particularly, I want to thank you, and all of you, for 
being the champions of expanded trade and for what you're 
doing. I particularly want to thank you from my perspective, as 
you can see from my written testimony, about the customs 
issues, for the interest you have shown over the years, and 
particularly now, on these very technical issues that, as many 
people say, your eyes glaze over and people wonder about rules 
of origin and how we do them, and the like. And that's really 
why I'm here today.
    When we start talking about free trade, and we go about the 
importance of reducing the tariffs in all of these countries, 
my message to the Subcommittee, and I guess for the record, is 
that that is only the tip of the iceberg. What is really 
critical here for the businessman, and what we are finding, is 
to look at all of those backroom requirements and all of the 
issues with regard to clearance of the goods. You'll see in my 
written testimony that a number of years ago, not too long ago, 
the United Nations did a study that somewhere between 15 and 17 
percent of the cost of goods traded today are related to the 
documentation requirements. That's an enormous cost. And of 
those, somewhere between 4 and 8 percent are related 
specifically to the customs clearance requirements.
    We have, particularly in Latin America, still enormous 
problems with getting clearance through customs, the delays. 
We're living in an environment with just-in-time inventories, 
with supply chain management, with cycle times that are 
critical to us to get our goods into those countries and to our 
plants and to the consumers. I think it's really important that 
we have these customs administrations in these countries being 
ready for the next century and what is required of them.
    Now what does that mean? I have in my testimony a list of a 
number of things we don't really need fast track authority to 
accomplish. By the way, I associate myself with everybody; 
we're very much in favor of it, and we need it, and there's no 
question that we do, to negotiate these things. But there's an 
awful lot that can be done, and you've heard it already 
mentioned, short of having fast track to do it.
    And some of those are to encourage these countries to adopt 
fully the harmonized system, to use the GATT value, to the use 
the ATA carnet system, which allows for the import and export 
of samples, and things for professional goods, and the like; to 
use the World Trade Organization's free shipment inspection 
agreement, the various other agreements that are available to 
them.
    For example, Chile had a new Director General of Customs, 
and in 3 years has really modernized. It has automated. It's 
done wonderful things. They have not adopted, though, the 
valuations system for the appraisement of goods. The reason is 
that they don't have people who can manage it. They don't know 
how to do it. Because, up until recently, the Central Bank set 
all prices for imports. So they didn't have to do appraisement 
of goods. So now he's looking at the reason he can't do it. He 
says, I don't have anybody here that knows how to do 
appraisement of goods.
    So one of the things that we're looking at through the WTO, 
and I think through the United States, and this Subcommittee 
could be helpful in your oversight, particularly of the trade 
agencies, is we need to provide some technical assistance and 
training to these folks in Latin America. I don't mean in a 
condescending way or a Big Brother way at all. What I'm talking 
about is there are a lot of things they just don't know how to 
do, and if we take a very constructive approach and do it in a 
partnership approach with them, there are some things that we 
can help them with, and they want it, and they want to do that.
    So we do have working groups. It is one of the nine 
negotiating areas of the FTAA. We've had folks in the most 
recent business forum in San Jose. Customs is a major issue. 
Customs facilitation is going very well in the APEC forum, 
where we don't have fast track. We believe that the customs 
facilitation issues can do very well immediately in the FTA 
process, if the countries and the United States, showing 
leadership, will just step up and go about getting it done. We 
encourage this Subcommittee and all of those who are associated 
with it in hearings today all around to take that approach, of 
being constructive about it, to understand the importance of 
these issues with regard to the classification of the goods, 
the appraisal of those goods, and getting them cleared quickly 
through customs.
    And I must admit that the difficulties of corruption and 
the integrity issues we have to address, we have to deal with 
this in our view. If you do things electronically, you can 
remove a lot of the risks that are associated with people 
contact where people can't accept bribes. If you do clearance 
and do the payments electronically, and you don't have to 
accept the cash at the border, you remove a lot of those kinds 
of risks.
    So there are a number of very positive things that can 
occur here, and I'm appreciative of being able to come here and 
share this with you. We hope that we will continue to work with 
you in the Subcommittee's efforts with regard to customs here 
and in foreign countries.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of James B. Clawson, Chief Executive Officer, JBC 
International; on Behalf of Industry Functional Advisory Committee on 
Customs, and Joint Industry Group

    It is a pleasure to be here today and to have the 
opportunity to testify before the Subcommittee on Trade of the 
Committee on Ways and Means on the Free Trade Area of the 
Americas (FTAA). As Chairman of the Industry Functional 
Advisory Committee that reports to Commerce Department and the 
Trade Representative and as Secretariat to the Joint Industry 
Group, I have concerned myself with international custom issues 
on behalf of U.S. companies exporting to foreign markets. 
Handled correctly, the FTAA is an excellent opportunity for the 
United States to fix many of the customs barrier problems 
facing U.S. exporters.
    At the 1994 Summit of the Americas, the concluding 
declaration identified 11 major areas that would be covered in 
the negotiations that are to be completed by 2005. In the 
subsequent years, at ministerial meetings, these areas have 
been further developed into negotiating methodologies. Today, I 
would like to talk about 3 of these 11 areas: Customs, Rules of 
Origin, and Standards.

                                Customs

    The goal of the FTAA is to improve trade--the engine of 
economic growth. To achieve this goal, the FTAA needs to 
harmonize and standardize customs procedures among the 34 
countries. After all, customs regulations and procedures are 
one of the most significant non-tariff barriers to global 
commerce. A 1994 United Nations survey provided revealing data 
on the documentation costs of international merchandise 
transactions. The study found that between 15% to 17% of the 
cost of goods sold in an international transaction is related 
to the required documentation. Of that amount, 4% to 8% is due 
to Customs documentation alone. It was estimated that a ship 
transporting goods also carries 500 lbs of paper documentation 
that accompanies those goods.
    For the FTAA, the U.S. should encourage all countries to 
adopt the 60 World Customs Organization/International Chamber 
of Commerce Customs Guidelines for an efficient customs 
service.
    At a minimum, the U.S. should require as part of any 
agreement that member countries adopt, implement and enforce 
the following international conventions and agreements:
      The Harmonized Commodity Description and Coding 
System (HS)
      The WTO/GATT Value Agreement
      The Kyoto Convention (when revisions are competed 
next year)
      The ATA Carnet Convention
      The WTO Pre-shipment Inspection Agreement
      The WTO Rules of Origin Agreement
    In addition, attention should be given in the agreement to 
customs automation. The FTAA will benefit by countries adopting 
existing automation systems such as UN/EDIFACT. The UN/EDIFACT 
provides for one electronic communication highway for automated 
systems. This means reduced transaction duplication and 
transaction costs to global business. A common data directory 
also needs to be adopted. A common data directory would satisfy 
the standard data requirements of a majority of international 
trade transactions. The U.S. is working on just such a system 
now called the International Trade Data System. With its G-7 
partners, the U.S. hopes to develop a limited list of data 
elements required for the international transaction.
    Customs procedures also apply to business professionals and 
their movement within the FTAA region. The FTAA must work to 
simplify customs clearance for professionals and their tools so 
those business professionals can move throughout the region 
without long delays.

                            Rules of Origin

    The lack of consistency among the 34 FTAA countries' rules 
of origin is a major obstacle to global commerce. The San Jose 
Ministerial Declaration states that for rules of origin, the 
goal is to develop efficient and transparent rules of origin, 
including nomenclature and certificates of origin, in order to 
facilitate the exchange of goods, without creating unnecessary 
obstacles to trade. This goal needs to be fully implemented. 
The FTAA can move rapidly toward this goal through the adoption 
of the WTO Rules of Origin as a basis for the development of 
the preferential rules.

                    Standards & Non-tariff barriers

    The third area of concern that has significant customs 
clearance implications is standards. These often become non-
tariff barriers and cannot go overlooked in the FTAA. Product 
standards need to be harmonized or mutually recognized 
throughout the FTAA. NAFTA is already working on harmonization 
and mutual recognition of product labeling and certification 
standards. This effort should be expanded in the FTAA. In the 
absence of harmonized or mutually recognized standards, 
companies wishing to expand internationally are challenged to 
understand those multiple standards and make separate 
production runs to meet those different standards.
    For the large, multinational companies, the issue of 
standards is troublesome, but it does not impede them from 
international trade. For the small and medium-sized businesses, 
such barriers can prohibit entry into the market. Small and 
medium-sized businesses do not have the resources to maintain 
multiple inventories or the money to find individuals who can 
interpret the regulations for them. As a result, these 
companies are unable to grow.
    Conformity assessment bodies, another aspect of standards, 
are the entities that certify a product as being in compliance 
with the regulations governing a product's safety, performance, 
and compliance with standards. Companies depend on conformity 
assessment bodies to ensure their product is fit for sale. 
Today, the FTAA does not have mutual recognition of conformity 
assessment bodies. As a result, companies are forced to have 
their products tested for every country in which they want to 
sell the goods. Establishing mutual recognition of conformity 
assessment bodies would permit goods to be tested in one 
country and their approval would then be accepted in any of the 
34 FTAA countries. Not only will this save both time and money; 
it also facilitates global commerce.

                               Conclusion

    I thank the members for their time and remain confident 
that the areas of customs, rules of origin, and standards will 
be well served by the FTAA negotiations' process.
      

                                


    Chairman Crane. Thank you, Mr. Clawson.
    Mr. Audley.

STATEMENT OF JOHN J. AUDLEY, PROGRAM COORDINATOR FOR TRADE AND 
         THE ENVIRONMENT, NATIONAL WILDLIFE FEDERATION

    Mr. Audley. Thank you, Mr. Chairman.
    At the 1994 Miami Summit, the elected heads of state and 
government linked the advancement of human prosperity to three 
fundamental principles: a healthy environment, economic 
development, and representative democracy. To quote the 
Declaration, ``Social progress and economic prosperity can be 
sustained only if our people live in a healthy environment and 
our ecosystems and natural resources are managed carefully and 
responsibly. We will advance our social well-being and economic 
prosperity in ways that are fully cognizant of our impact on 
the environment.''
    The Declaration links concretely economic development and 
hemispheric integration to three important environmental goals: 
sustainable energy development and use, conservation, and 
sustainable use of biodiversity, and a partnership for 
pollution prevention.
    Nongovernmental organizations took seriously the Miami 
Declaration's call to link hemispheric integration to the 
principles of democracy, sustainable development, and trade 
liberalization. We attended the business forums and trade 
ministerial meetings. We responded with concrete 
recommendations to issues raised during the preliminary 
negotiations, and we worked to build our own community's 
capacity to engage as effective participants in trade 
negotiations.
    We now have a blueprint for formal negotiations agreed to 
by our trade ministers at the IV trade ministerial meeting.
    The San Jose Declaration makes two important statements on 
environment and trade. The trade ministers reiterated the 
commitment they made in Miami to negotiate the FTAA, taking 
into consideration the broad social and economic agenda 
contained in the Miami Declaration. This is largely a 
rhetorical statement, one that could be significant, if it was 
supported by a plan of action. Unfortunately, from our 
perspective, the ministers' commitment to include only those 
trade and environment issues agreed to at the WTO's Committee 
on Trade and Environment, and their desire to create a dispute 
mechanism and processes similar to that used by the WTO 
seriously weakens this commitment. Given its poor performance 
on trade and environmental policy over the past few years, NGOs 
are not supportive of regulating environmental issues solely to 
the WTO.
    Perhaps more importantly, the ministers have not yet agreed 
on the terms of the second important statement made on the 
environment in San Jose; namely, the shape and procedures of 
what I now understand to be called the Civil Society Committee, 
which is charged with addressing issues raised by labor, 
environment, businesspeople, and academics.
    We ask Members of Congress to work with the administration 
and nongovernmental organizations to develop a plan of action 
for this Committee, one that promotes green competition by 
leveling the playingfield for businesses in compliance with 
environmental law. As a starting point, a plan of action should 
reiterate the general objectives for environment and trade 
stipulated in the Miami Declaration.
    We believe the terms of reference for both the Committee on 
Civil Society and the Trade Negotiating Committee should 
encourage FTA negotiations to place environmental policies on 
par with trade liberalization in such a way that would 
reinforce the Miami Declaration's commitments to advance and 
implement sustainable development.
    Congress should urge agreement on a work plan for the 
Committee that ensures the following substantive issues are 
addressed within the framework of negotiations: How do we 
promote energy efficiency among nations of all the hemisphere 
and address the intersection between trade liberalization and 
climate change? How do we integrate strategies for the 
conservation and sustainable use of biodiversity into economic 
development activities? How do we explore the creation of 
appropriate parallel institutions, as was done during the NAFTA 
negotiations? How do we safeguard national laws designed to 
reward producers who operate in compliance with national 
environmental laws? How do we safeguard against competition 
that unnecessarily pollutes the environment and destroys 
natural resources? And how do we agree to the terms of and 
scope of an environmental impact assessment?
    If properly constructed, we believe that the Committee 
should work closely with the Trade Negotiating Committee to 
identify the intersection between core negotiating issues and 
those raised by members of Civil Society. We also believe that 
resources should be dedicated by the OAS and ECLAC to build the 
capacity of our Latin America colleagues to engage in the 
policy dialogs that will take place in the committees created 
by the FTAA.
    The financial resources should be provided to build the 
capacity for these Latin American colleagues to engage in 
public discussions in their countries on the objectives and 
progress of negotiations. Resources should be available to 
enable members of Civil Society to meet regularly with 
Committee members and share their views in open sessions.
    Finally, we also outline in our testimony specific 
recommendations for the creation of an information 
clearinghouse. Electronic and hard-copy access to information 
is fundamental to what we desire to be effective and 
constructive input into the negotiations.
    In conclusion, let me say that I appreciate the difficult 
nature of the challenge that we place before this Subcommittee 
today. Responding to the nexus between sustainable development 
and trade liberalization is a difficult, but important task.
    The National Wildlife Federation believes that U.S. 
leadership is essential if our Nation is to realize this goal. 
We offer NAFTA as evidence of the ability of the United States 
to take first steps toward sustainable environmentally 
sensitive trade. We fully respect this Subcommittee that when 
the administration and Members of Congress are united in their 
commitment to environment and trade, as in NAFTA, negotiating 
parties took seriously our concerns for labor and environment, 
and we passed an agreement that many members of the 
environmental community could accept.
    Thanks.
    [The prepared statement and attachments follow:]

Statement of John J. Audley, Program Coordinator for Trade and the 
Environment, National Wildlife Federation

    Hello, my name is John Audley, and I am the Program 
Coordinator for the National Wildlife Federation's Trade and 
Environment Program. I am here on behalf of NWF Vice President 
for Federal and International Affairs Stephen J. Shimberg, who 
was called out of town unexpectedly and cannot testify.
    For nearly ten years the National Wildlife Federation has 
been actively involved in trade policy negotiation and 
implementation. Our more than four million members and 
supporters believe strongly that, when properly balanced, trade 
and investment agreements are important tools for improving the 
quality of life for people around the world. Our comments today 
are grounded in the lessons taught us by the NAFTA and WTO 
experience, and by our active participation in the ``Free Trade 
Area of the Americas'' (FTAA) process.
    As the United States and other countries prepare to enter 
into formal FTAA negotiations, NGOs throughout the hemisphere 
will urge their governments to negotiate trade rules that 
promote a just and equitable hemispheric integration process 
that improves the quality of life, reduces poverty, 
acknowledges the intrinsic value of nature, and promotes 
sustainable development for all people and nations without 
exception. We believe that U.S. leadership is critical to the 
successful realization of these goals, a challenge which we 
believe is inexorably tied to the successful outcome of the 
negotiations themselves. Unfortunately, the vast majority of 
government officials and members of the business community 
strongly resist our participation, a situation we believe 
threatens public support for the FTAA itself.
    My testimony will proceed as follows. I will first review 
the commitment made at the 1994 Miami Summit to address 
environmental issues within the context of hemispheric 
integration. Next I will describe the NGO response to the Miami 
Declaration. Third, I will comment on the performance of 
governments relative to the broad commitment to link 
environment to trade negotiations. Finally, I will describe the 
environmental provisions of the San Jose Trade Ministerial 
Declaration, and conclude with specific recommendations to 
Congress and the Administration as they plan the U.S. 
negotiating strategy within the framework agreed to in San 
Jose.

  I. Elected Heads of State Link Sustainable Development to Economic 
                               Prosperity

    At the 1994 Miami Summit of the Americas, the elected heads 
of State and Government of the Americas linked the advancement 
of human prosperity to three fundamental principles. In the 
section entitled ``Partnership for Development and Prosperity: 
Democracy, Free Trade and Sustainable Development in the 
Americas,'' government officials made clear that these three 
principles must be respected if people are to enjoy the 
benefits promised by hemispheric integration. To quote the 
Miami Declaration,
    Social progress and economic prosperity can be sustained 
only if our people live in a healthy environment and our 
ecosystems and natural resources are managed carefully and 
responsibly.... We will advance our social well-being and 
economic prosperity in ways that are fully cognizant of our 
impact on the environment.
    The Summit's Plan of Action calls upon governments to take 
concrete steps to realize social progress, economic prosperity, 
and a healthy environment. The following action statements 
taken from the Miami Summit Plan of Action are especially 
important to us:
     Cooperate fully in the development of sustainable 
energy development and use, including the promotion of 
efficient and non-polluting energy technologies, and the 
identification for priority financing and development of at 
least one economically viable project in non-conventional 
renewable energy, energy efficiency, and clean conventional 
energy;
     Integrate strategies for the conservation and 
sustainable use of bio-diversity into economic development 
activities; and
     Form a Partnership for Pollution Prevention.
    Participating governments also recognized the importance of 
numerous international environmental agreements, including a 
commitment to support the Central American Alliance for 
Sustainable Development, Agenda 21, and the Global Conference 
on the Sustainable Development of Small Island States.
    In addition to the commitment to balance trade with 
ecological priorities, throughout the Miami Declaration 
governments express their belief that a key element in the 
overall plan for hemispheric integration is the strengthening 
of democracies. To quote from the Miami Declaration,
    . . . representative democracy is indispensable for the 
stability, peace and development of the region. It is the sole 
political system which guarantees respect for human rights and 
the rule of law; it safeguards cultural diversity, pluralism, 
respect for the rights of minorities, and peace within and 
among nations.
    Because expanding the level of public participation in 
government activities is central to the goal of hemispheric 
integration, specific plans of action were developed by the 
Parties to strengthen the dialogue among social groups and 
invigorate society and community participation in governance. 
We believe strongly that democratic governance and the rule of 
law are essential components of national and international 
efforts to protect the environment, and we applaud our 
governments' commitment to these principles.

 II. Citizens Respond to Government's Call to Link Environment to Trade

    Non-governmental organizations (NGOs) around the hemisphere 
responded positively to the Miami Declaration's commitment to 
link comprehensively sustainable development with efforts to 
strengthen democracies and advance human prosperity. Despite 
strong opposition from many quarters in business and in 
government, NGOs participated in the business-oriented ``pre-
ministerial meetings'' called Business Forums, and took part in 
Forum-sponsored workshops and panels on sustainable development 
and economic integration. NGOs prepared for the trade 
ministerial meetings by developing concrete recommendations on 
the scope and nature of the preliminary negotiations. In 
February, 1997 U.S. NGOs presented the Clinton Administration 
with a list of objectives for trade negotiations. We testified 
before this Committee three times last year to explain our 
objectives for trade and the environment, and to show that, 
when our concerns are integrated fully into negotiations, 
environmental groups can and will be active supporters of trade 
negotiating authority. We have also strengthened relationships 
with Latin American NGOs by sharing the trade and environment 
lessons taught by NAFTA, and by sharing our technical knowledge 
of trade rules and institutions. NGOs around the hemisphere now 
play a more direct and active role in trade deliberations with 
their own governments.
    Our effort to promote responsible, constructive input into 
negotiations has begun to bear fruit. Over the past four months 
our community prepared two letters for the trade vice-ministers 
that offer concrete recommendations for public participation in 
negotiations. As ministers discussed establishing a ``study 
group'' for the environment, we commented on the various plans 
under consideration. And during the San Jose meeting, we worked 
with twenty-five NGOs from around the hemisphere to propose an 
action plan and formal mechanisms designed to integrate the 
principles of sustainable development into formal negotiations. 
A copy of each of these documents is appended to this 
testimony.
    In short, NGOs took seriously the Miami Declaration's call 
to linked hemispheric integration to the principles of 
democracy, sustainable development, and free trade. We embraced 
fully the promise that, when economic integration was based 
upon the principles of sustainable development, it strengthened 
democracies, enhanced national capacities to set and implement 
effective environmental policies, and respected the individual 
rights of people throughout the hemisphere. We will continue to 
organize ourselves to play a responsible role in the 
development of new trade and investment agreements. 
Unfortunately, most members of the business and governmental 
communities have not been enthusiastic about our involvement.

    III. Weak Response to NGO Input by Most Government and Business 
                               Officials

    While NGOs have worked hard to offer negotiators concrete 
recommendations, most government officials and business 
executives have turned a deaf ear to our proposals. For 
example, NGO participation in the Denver and Cartagena 
Ministerial Meetings did not result in the adoption by the 
Parties of any concrete steps to ensure that the preliminary 
trade negotiations would include concern for clean energy or 
protecting bio-diversity. The initial work program and working 
group framework adopted during the Denver meeting made no 
mention of the important role for the environment and 
sustainability as articulated by the heads of state in Miami. 
And when NGOs expressed their concern over the lack of 
environmental provisions as a component of the preliminary 
negotiations at the Third Ministerial Meeting, the trade 
ministers responded by relegating all discussion of the 
environment to the World Trade Organization's Committee on 
Trade and the Environment.
    Most members of the business community were no more 
supportive than governments for our efforts to participate 
responsibly in negotiations. In the Cartagena report to the 
trade ministers, business leaders stated that, ``. . . 
environmental policy-setting can be a barrier to economic 
development and international trade.'' But they failed to 
recognize not only that this is rarely true in practice, but 
also that good environmental laws well enforced help to level 
the competitive playing field and reward businesses for 
operating responsibly. At the 1997 Belo Horizonte meeting, the 
Business Forum discussed the creation of a government working 
group on sustainable development, but its report emphasized the 
need to avoid adopting environmental laws that might restrict 
trade. Business officials meeting with U.S. government 
officials immediately following the San Jose Business Forum 
last month reacted bitterly to the presence of a small number 
of NGOs who attended some of the workshops. And while some 
members of the business community expressed support privately, 
not a single business person in that room publicly defended 
NGOs when one speaker argued that ``NGOs have no place in trade 
negotiations.'' In fact, until officials from the government of 
Costa Rica intervened, the organizers of the San Jose Business 
Forum refused to create a workshop or a panel to discuss the 
environment in trade.
    Back in the United States, the reaction of some Members of 
Congress to NGO involvement in trade has not been much better. 
In a speech he gave to elected officials from the Mercosur 
countries, Arizona Congressman Jim Kolbe demonized environment 
and labor groups, arguing that our irresponsible behavior 
caused fast track's defeat in Congress last year. He argued 
strongly against the inclusion of environment in trade 
negotiations, purportedly based on a threat of revamping 
environmental laws within the framework of trade negotiations.
    To be quite honest, I do not understand this kind of 
response from business and government. NAFTA's implementing 
legislation did not change a single environmental law in any of 
the three participating countries. To make this statement to 
Mercosur officials sets up a false conflict and misrepresents 
environmentalists' intentions for the FTAA negotiations. More 
broadly, we consider the governments' decision to relegate to 
the WTO environmental matters that belong in the FTAA 
negotiations to be a serious flaw in logic. By considering only 
those environment and trade decisions developed by the WTO, 
FTAA governments are asking NGOs to place our faith solely in a 
Committee whose performance has been so disappointing even WTO 
Director General Renato Ruggiero acknowledged its failure in 
recent speeches and meetings with NGOs.
    Perhaps more importantly, removing the environment from the 
FTAA negotiations seriously jeopardizes the negotiators' 
ability to meet the commitments made to the people of the 
Western Hemisphere by our heads of state in Miami. It threatens 
the long term success of the integration process because 
legitimate voices are not heard. And if fast track's failure 
last fall and that of the Multilateral Agreement on Investment 
(MAI) this year, along with the problems facing re-funding of 
the International Monetary Fund (IMF) don't convince members of 
Congresses here and elsewhere that NGOs are involved and care 
about international trade and investment agreements and 
institutions, then I suggest that elected officials are not 
listening.
    NGOs are prepared to articulate a positive message on 
environment in trade. We will support trade and investment 
agreements that take into consideration our objectives, and we 
will actively oppose those which do not. Opposition to the 
inclusion of specific goals for the environment in trade 
negotiations, and exclusion of NGOs as participants in 
negotiations, place us all on a path to greater conflict and 
disagreement.

                           IV. The Road Ahead

    I conclude my presentation by reviewing the San Jose Trade 
Ministerial Declaration, and by offering the Committee some 
specific questions to ask of the Administration as they begin 
deliberations within the negotiating framework established at 
San Jose.
    Trade ministers meeting in San Jose agreed to an initial 
structure for negotiations, leaving the form flexible enough to 
respond to unforseen needs or changes in negotiating agenda. 
First the ministers agreed to meet every eighteen months, and 
agreed to the negotiating locations through the year 2004. Nine 
negotiating groups, their chairs and vice-chairs, were 
selected. Canada was selected to be the Chair of the Trade 
Negotiating Committee (TNC) through the end of 1999, to be 
followed by Argentina (Nov. 1, 1999-April 30, 2001), Ecuador 
(May 1, 2001-Oct. 31, 2002), and finally, the negotiations will 
be co-chaired by the United States and Brazil (Nov. 1, 2002-
Dec. 31, 2004). The Trade Negotiating Committee (TNC) will have 
the responsibility for guiding the work of the negotiating 
groups and of deciding on the overall architecture of the 
agreement and institutional issues. The TNC will identify and 
develop appropriate procedures to ensure timely and effective 
coordination between negotiating groups on interrelated issues.
    The San Jose Declaration makes two important statements on 
environment in trade, statements to which we now turn our 
attention. In the introduction, the trade ministers reiterated 
the commitment they made in Miami to negotiate the FTAA taking 
into consideration ``. . . the broad social and economic agenda 
contained in the Miami Declaration . . . '' This is largely a 
rhetorical statement, one that can be significant if it is 
supported by a plan of action. Unfortunately the commitment to 
environment in trade is weakened by the ministers' commitment 
to the WTO Singapore declaration which identifies the WTO's CTE 
as the arena for full discussion of the trade and environment 
nexus, and by their desire to create a dispute mechanism and 
process similar to that used at the WTO. However, the ministers 
have not yet agreed on the shape and procedures of the 
Committee of Government Representatives (CGR) charged with 
addressing issues raised by labor, environment, businesspeople 
and academics. It is with this thought in mind that we urge 
members of Congress to endorse these recommendations:

1. Substantive Issues

    We ask members of Congress to work with the Administration 
to develop a plan of action for the CGR that promotes green 
competition by leveling the playing field for businesses in 
compliance with environmental laws. As a starting point, the 
plan of action should reiterate the general objectives for 
environment in trade agreed to by the heads of state in Miami. 
FTAA negotiations should be dedicated to placing environmental 
policies on par with trade liberalization. If this objective 
shapes the work of the negotiating groups and the CGR, it 
reinforces the commitment made by the heads of state to advance 
and implement sustainable development.
    More specifically, Congress should urge agreement on a work 
plan for the CGR that:
     Promotes energy efficiency among all the nations 
of the hemisphere, and addresses the intersection between trade 
liberalization and climate change;
     Integrates strategies for the conservation and 
sustainable use of bio-diversity into economic development 
activities;
     Explores the creation of appropriate ``parallel 
institutions,'' as was done in the NAFTA;
     Safeguards national laws designed to reward 
producers operating in compliance with national environmental 
laws;
     Agrees to the terms of and scope of environmental 
impact assessments; and
     Safeguards against competition that pollutes the 
environment or destroys natural resources.
    If properly constructed and effectively used, the CGR 
should work closely with the TNC to identify the intersection 
between the core negotiating issues and those issues raised by 
members of civil society.

2. Resources for Latin American Participation

    One of the most important issues facing Latin American NGOs 
is that of resource access to enable citizens to participate 
effectively in negotiations. We believe that resources should 
be dedicated by the Organization of American States (OAS) and 
by the United Nations Economic Commission for Latin America and 
the Caribbean (ECLAC) to build the capacity of NGOs to engage 
in the policy dialogue that will take place in the CGR and TNC. 
Financial resources should be provided to build national 
capacity for NGOs to engage in public discussions in their 
countries on the objectives and progress of negotiations, and 
should be available to enable members of civil society to meet 
regularly with the Committee members and share their views in 
open sessions. We understand that the OAS has already prepared 
a budget of $2.8 million for all trade related projects in 
1998; we feel that an equivalent budgetary effort must be 
developed to enable civil society to engage fully in the 
negotiations.

3. Access to Information

    A final important obstacle to informed and productive 
participation is the lack of information; interested citizens 
around the hemisphere simply lack access to information 
detailing the negotiating timetable, objectives, and 
participants. In the February 8, 1998 letter from NGOs to the 
trade vice-ministers, we outlined specific recommendations for 
the creation of an information clearinghouse (see appendix 
documents). Electronic and hard-copy access to the information 
considered by the Committee, as well as the issues under 
consideration by the negotiating groups, is essential. We urge 
Congress to tell the President that information access is 
critical to successful participation in the Committee, and to 
achieving the Miami objective of strengthening democracy 
through expanded public participation in government business.
    In conclusion let me say that I appreciate the difficult 
nature of the challenge we place before this committee today. 
Responding to the nexus between sustainable development and 
trade liberalization is a difficult but an important task. 
National Wildlife Federation believes that U.S. leadership is 
essential if our nation is to realize this goal. We offer NAFTA 
as evidence of the United State's ability to forge a path 
toward sustainable trade. When the Administration and Members 
of Congress were united in their commitment to environment in 
trade during the NAFTA negotiations, negotiating parties took 
seriously our national commitment not to advance trade 
agreements until environment and labor issues were also 
resolved.
      

                                


  * Centro de Derecho Ambiental y de los Recursos Naturales * Centro 
Mexicano de Derecho Ambiental * Comite Nacional Pro Defensa de la Fauna 
 y Flora * Centro de Derecho Ambiental de Honduras * Fundacion AMBIO * 
Fundacion Ambiente y Recursos Naturales * FLACSO * Instituto de Derecho 
Ambiental y Desarrollo Sustenable * National Audubon Society * Natural 
Resources Defense Council * National Wildlife Federation * Universidad 
Autonoma Metropolitana * Sociedad Conservacionista Audubon de Venezuela 
                                   *

                                                   October 27, 1997

Mr. Carlos Murillo
President of the Preparatory Committee
Pro-Tempore Presidency
Free Trade Area of the Americas Office
Ministry of Foreign Trade
P.O. Box 96-2050
San Jose, Costa Rica

    To the Honorable President of the Preparatory Committe of the Free 
Trade Area of the Americas Office:

    As you prepare to discuss the appropriate role in the Free Trade 
Agreement of the Americas negotiations (FTAA) for private parties, we 
urge you to legitimize and institutionalize participation and input 
from a broad spectrum of civil society sectors.
    Under the Joint Declaration from the Third Ministerial Meeting at 
Belo Horizonte, Brasil, May 16, 1997 all signatory countries stated 
that they ``... consider[ed] the inputs from stakeholders of ... civil 
societies to be important to ... deliberations ... and ... encourage[d] 
all countries to take them into account through mechanisms of dialogue 
and consultation.'' We understand that a private-sector business forum 
has been institutionalized and held in conjunction with each FTAA 
ministerial. We also understand that business sector's recommendations 
have been reviewed and analyzed by the Working Groups. We believe that 
recommendations by the business sector are an important contribution to 
trade deliberations; however, they represent only one view from 
stakeholders of civil society.
    Public participation in trade policy deliberations needs to be 
balanced to achieve the stated goals of the Joint Declaration. First, 
the inclusion of representatives from a diverse cross-section of civil 
society sectors, such as the environmental sector, will help ensure 
that negotiators take into consideration the broader views of civil 
society. Broader public participation in the trade policy dialogue will 
ensure involvement from those directly affected by economic 
integration. Second, formal dialogue and consultation with a broad 
selection from civil society will help to ensure that ``[f]ree trade 
and economic integration ... [raise] ... standards of living, improving 
the working conditions of people in the Americas and better protecting 
the environment.'' \1\ Third, public participation in trade 
deliberations is also crucial to advancing the signatory countries' 
``... commitment to transparency in the FTAA process.'' \2\ Finally, 
public participation is a fundamental element of democratic practice 
and the cornerstone of effective decision making process. ``[A] 
vigorous democracy requires broad public participation in public 
issues.'' \3\
---------------------------------------------------------------------------
    \1\ Summit of the Americas, Declaration of Principles, subtitle 
``To Promote Prosperity through Economic Integration and Free Trade,'' 
(1994, page 2).
    \2\ Joint Declaration from the Third Ministerial Meeting at Belo 
Horizonte, Brasil, (May 16, 1997, paragraph 14).
    \3\ Plan of Action, Declaration of the Summit of the Americas, 
subtitle ``Invigorating Society/Community Participation,'' (1994, page 
4).
---------------------------------------------------------------------------
    As you work toward the completion of the March 1998 Declaration of 
San Jose, we urge you to incorporate the language of the Declaration of 
Principles, Summit of the Americas of 1994 \4\ to include ``...the 
right of all citizens to participate...'' in the decision-making 
processes surrounding FTAA negotiations by creating an effective avenue 
for public dialogue and input. Integration should guarantee adequate 
mechanisms for participation and interaction with negotiators, 
including the resources necessary to provide all members of civil 
society routine access to working group meetings and negotiating 
sessions. Participation by the environmental sector should not depend 
solely on further developments at the WTO.
---------------------------------------------------------------------------
    \4\ Declaration of Principles, Summit of the Americas, (Santa Cruz 
de la Sierra, Bolivia, 1996, paragraph 8).
---------------------------------------------------------------------------
    Economic development and environmental protection are two sides of 
the same coin and cannot be separated. We stand ready to work with you 
to develop and advance a coherent Western Hemispheric agenda for 
sustainable development.
    Thank you for your attention to this important matter.

            Respectfully submitted,

                                      Gustavo Alanis Ortega
                               Centro Mexicano de Derecho Ambiental
                                                           (Mexico)

                                              Luis Castelli
                            Fundacion Ambiente y Recursos Naturales
                                                        (Argentina)

                                             John J. Audley
                                       National Wildlife Federation
                                                           (U.S.A.)

    On behalf of the following:

    FLACSO (Argentina), Comite Nacional Pro Defensa de la Fauna y Flora 
(Chile), Centro de Derecho Ambiental y de los Recursos Naturales (Costa 
Rica), Instituto de Derecho Ambiental y Desarrollo Sustenable 
(Guatemala), Centro de Derecho Ambiental de Honduras (Honduras), 
Universidad Autonoma Metropolitana (Mexico), National Audubon Society 
(U.S.A.), Sociedad Conservacionista Audubon de Venezuela (Venezuela), 
Natural Resources Defense Council (U.S.A.), Fundacion AMBIO (Costa 
Rica)
      

                                


   * Centro de Derecho Ambiental y de los Recursos Naturales *Centro 
   Latino Americano de Ecologia Social * Centro Mexicano de Derecho 
Ambiental * Comite Nacional Pro Defensa de la Fauna y Flora * Centro de 
Derecho Ambiental de Honduras * Fundacion Ambiente y Recursos Naturales 
* Fundacion AMBIO * Fundacion Salvadorena para el Desarrollo Economico 
 y Social * National Audubon Society * National Wildlife Federation * 
   PRONATURA, Mexico * PRONATURA, Republica Dominicana * Rainforest 
 Alliance * Red Mexicana de Accion Frente al Libre Comercio * Patricia 
 Gay, Environmental Consultant * Marie-Claire Segger, Trade Rules and 
  Sustainability in the Americas Project * Mindahi Crescencio, Plural 
Group of Indigenous Peoples * Paulo Guilherme Ribiero, Universidade de 
                               Brasilia *

                                           February 8, 1998
Pro-Tempore Presidency
FTAA Office
Ministry of Foreign Trade
P.O. Box 96-2050
San Jose, Costa Rica

    To the Honorable Vice Ministers of Trade attending the Third FTAA 
Vice Ministerial Meeting:

    When government officials meet this February in San Jose, Costa 
Rica for the Third Free Trade Area for the Americas (FTAA) Vice-
Ministerial meeting, we again urge you to take concrete steps to 
legitimize input and participation in trade negotiations from a broad 
spectrum of civil society. Public participation in trade and investment 
negotiations holds the key to successful completion of the proposed 
FTAA negotiations.
    Since the First FTAA Trade Ministerial in 1995, negotiators have 
used the Business Forum proceedings to work directly with business 
community members on issues directly related to the scope and nature of 
trade negotiations. Some of the individual ``working groups'' have even 
developed more formal consultancy processes with the business sector, 
such as the meeting between the Services Working Group and the business 
community held on October 7, 1997 in Santiago, Chile. Unfortunately, 
similar opportunities to meet with negotiators do not exist for other 
sectors of civil society.
    We believe that public participation should be integral to any 
trade or investment negotiations. Such a linkage confirms the 
relationship between open markets and democratic principles, and 
provides citizens with the information they need to make sound and 
informed choices about policies that affect their future. But despite 
the fact that clear mandates which strongly support the full 
integration of civil society in the decision-making process, including 
policies and programs design, implementation and evaluation, exist in 
the Miami and Bolivia Summit Plans of Action, and in the Belo Horizonte 
Trade Ministerial Declaration, no such steps have yet been taken. The 
time has come to follow up on those commitments and make public 
participation a cornerstone of the FTAA process. We therefore urge the 
negotiators to adopt and implement the following recommendations as 
part of the Declaration of San Jose:

  Place Public Participation on a Par With Overall Trade Negotiation 
                               Objectives

    A general objective on public participation sends a strong 
signal to participating countries and to business interests 
that democratic decision making is integral to good trade and 
investment policy.

 Provide a Specific Work Plan Designed to Overcome the Obstacles that 
                     Restrict Citizen Participation

    While members of the business community enjoy the financial 
resources, technical skills, and personal and professional 
relationships required to engage government officials in useful 
policy dialogue, citizen groups--especially those working in 
emerging economy nations--do not possess such resources. To 
overcome these obstacles to effective participation, we suggest 
the following specific work plan:

1. Establish an Information Clearing House

    One of the biggest obstacles to participation is the lack 
of information; interested citizens around the hemisphere 
simply lack access to information detailing negotiating 
timetable, objectives, and participants. Because most citizens 
group now have access to information available through the 
Internet, posting documents on a website or maintaining a 
communications ``list-serve'' are an inexpensive means of 
overcoming most information obstacles. A list-serve would also 
keep citizens abreast of upcoming meetings, workshops, and 
conferences, and encourage dialogue among stakeholders.
    The current official FTAA website provides useful 
information such as a chronology of the FTAA process; the 
official documents from the Ministerial meetings; information 
on the twelve Hemispheric Working Groups and access to some of 
the official documents prepared for the Working Groups. But, 
for citizens to be fully informed, information that states the 
different countries positions towards specific concerns on the 
trade agenda; the minutes of the past Vice Ministerial 
meetings; the agenda and issues of discussion for the future 
Vice Ministerial meetings, the future Ministerial meeting, and 
the Hemispheric Working Group meetings; as well as, points of 
contact; links to related home pages; and access to position 
papers presented during negotiations, will better help 
understand the process itself, the challenges and promote 
public access. Because of the diversity of languages spoken in 
the Hemisphere, we applaud and continue to encourage the 
current effort in providing this information in English, 
Spanish, French, and Portuguese.
    We recommend you review both the websites and list-serves 
maintained by the North American Commission on Environmental 
Cooperation (CEC), and the North American Development Bank and 
Border Environmental Cooperation Commission (NADBank/BECC), for 
two examples of how to establish and maintain two important 
vehicles for citizen outreach and communication. We also 
recommend that you establish a single official FTAA website, 
and avoid rotating responsibility for maintaining it between 
ministerial meeting hosts. The United Nations Economic 
Commission for Latin America and the Caribbean (ECLAC) or the 
Organization of American States (OAS) would be good candidates 
for such an important and permanent role in trade and 
investment negotiations.

2. Establish National Advisory Committees

    Another obstacle blocking citizen participation in 
negotiations is the lack of formal access. National Advisory 
Committees, consisting of members of government and civil 
society, would be responsible for developing concrete 
negotiating recommendations, and responses to the 
recommendations offered by other countries. Committee 
appointments should be made in a transparent manner, with the 
objective of ensuring broad representation of citizen groups 
and community perspectives.

3. Promote Research, Training, and Capacity Building

    A third obstacle to effective citizen participation is the 
lack of popular understanding of the implications of expanded 
trade. The OAS recently allocated approximately $2.8 million 
for all trade-related projects in 1998, a portion of which is 
dedicated to government training programs. Equivalent budgetary 
efforts must be included into the Inter-American Strategy for 
Participation (ISP) of the OAS, regarding technical assistance 
and training addressed to civil society. Better understanding 
of the issues affecting citizens lives caused by economic 
integration will ultimately produce better policies that 
advance a sustainable development strategy for the Hemisphere.
    Workshops and forums should also combine participation of 
environmental agency representatives to discuss trade issues as 
a way to establish communication between government agencies.

4. Fund Civil Society Participation in Trade and Investment 
Negotiations

    The final major obstacle blocking citizen's participation 
in trade and investment negotiations is money; attending 
negotiating sessions, meeting with other stakeholders, and 
preparing useful position papers and analyses require resources 
most emerging economy NGOs do not have. By providing 
participation funds to NGOs, multinational institutions such as 
the Inter American Development Bank (IDB) and the Organization 
for the American States (OAS), could play an important role 
ensuring that trade liberalization benefit the largest number 
of people possible.
    Important steps need to be taken under the FTAA 
negotiations to expand the level of information dissemination 
and guarantee transparency. The objective recommendations would 
help to establish a minimum mechanism necessary to make public 
participation a reality under the FTAA process. We urge you to 
act now, and help citizens prepare to take part fully in 
potentially the most significant political events affecting 
their lives today.

    Respectfully submitted,

Franklin Paniagua & Lic. Lizbeth
Espinoza
Centro de Derecho Ambiental y de los
Recursos Naturales
(Costa Rica)

Roxana Salazar
Executive Director
Fundacion AMBIO
(Costa Rica)

Eduardo Gudynas
Centro Latino Americano de Ecologia Social
(Uruguay)

Daniel Sabsay
Executive Director
Fundacion Ambiente y Recursos Naturales
(Argentina)

Gustavo Alanis
President
Centro Mexicano de Derecho Ambiental
(Mexico)

Eduardo Nunez
Executive Director
Fundacion Salvadorena para el Desarrollo
Economico y Social
(El Salvador)

Miguel Stutzin
Comite Nacional Pro Defensa de la Fauna y
Flora
(Chile)

Kathleen Rodgers
National Audubon Society
(USA)

Lic. Mario Gerardo Galindo
President
Centro de Derecho Ambiental de Honduras
(Honduras)

John Audley
Trade and Environment Program
Coordinator
National Wildlife Federation
(USA)

Paulo Guilherme Ribiero Meireles
Universidade de Brasilia and Project Researcher
Trade Rules and Sustainability in the Americas Project

Hans Herrmann
General Director
PRONATURA Nacional, Mexico
(Mexico)

Rene Ledezma
PRONATURA, Rep. Dominicana
Executive Director
(Republica Dominicana)

Chris Willie
Co-Director, Latin American Office
Rainforest Alliance
(Costa Rica)

Alejandro Villamar
Red Mexicana de Accion Frente al Libre
Comercio (Mexico)

Patricia Gay
Environmental and Development Policy
Consultant
Latin America & the Caribbean

Marie-Claire Segger
Project Coordinator
Trade Rules and Sustainability in the Americas Project

Mindahi Crescencio Bastida
Plural Group of Indigenous People and Project Researcher
Trade Rules and Sustainability in the Americas Project

cc:

Argentina, Secretario de Relaciones Econmicas Internacionales, 
Jorge Cambell
Argentina, Canciller de Relaciones Exteriores, Guido Ditera
Barbados, Embajador, Courteney Blackman
Barbados, Minister of International Trade and Bussines, Phillip 
Goddesrd
Belize, Ambassador, James F. Murphy
Bolivia, Ministro de Comercio Exterior e Inversiones, Jorge 
Crespo
Bolivia, Vice Ministro de Comercio Exterior e Inversiones, 
Amparo Vilivian
Bolivia, Commercial Attache, Carlos Ibarguen
Bolivia, Marcos Alanda Navas
Brazil, Embajador, Jose Botafogo Goncales
Brazil, Second Secretary, Norberto Moretti
Canada, Assistant Deputy Minister, International Business and 
Comunications,
    Kathryn E. Mccallion
Canada, Third Secretary (Commercial), Allison Saunders
Chile, Director General de Relaciones Econmicas Internacionales 
y Coordinacin del
Departamento ALCA, Juan Gabriel Valdez
Chile, Segundo Secretario, Mauricio Hurtado
Chile, Departamento ALCA Amrica del Norte, Alicia Frohmann
Chile, Economic Counselor, Mario Matuz
Chile, Directora de la Division de Medio Ambiente y Desarrollo, 
TC Helga Hoffmann
Colombia, Vice Ministro de Comercio Exterior, Magdalena Pardo
Colombia, Asesor Especial del Ministro de Comercio Exterior, 
Felipe Jaramillo
Costa Rica, Vice Ministro de Comercio Exterior, Carlos Murillo
Costa Rica, Minister Counselor of Enviroment and Tourism, Oscar 
Acua
Costa Rica, Minister Counselor of Trade, Carlos Silva
Costa Rica, Encargada de la Cumbre de las Americas, Ethel 
Melania Abarca
    Amador
Ecuador, Vice Ministro de Comercio Exterior, Carlos Bano Mera 
Ecuador, Segundo Secretario, Diego Ramrez
El Salvador, Embajador, Rene Leon
El Salvador, Counselor for Economic Affairs, Werner Romero
Grenada, Ambassador, Denis Antoine
Guatemala, Vice Ministro de Comercio Exterior, Eduardo Sperisen
Guatemala, Commercial Attache, Leonel Maza
Guyana, Permanent Secretary, Neville Potaram
Guyana, Second Secretary, Taveta Haniff
Hait1, Minister Counselor, Harold Joseph
Honduras, Vice Ministro de Comercio Exterior, Sergio Nuez
Honduras, Third Secretary, Yolanda Membreo Jamaica, Pamela 
Hamilton
Jamaica, Coordinadora Cumbre de las Amricas, Ellen Bogle
Mexico, Subsecretario de Negociaciones Internacionales, Jaime 
Zabludovsky
Mexico, Director of Free Trade, Luis de La Calle
Mexico, Director de Comercio y Medio Ambiente, Gov MX M.en 
C.Luis F.
    Guadarrama
Nicaragua, Vice Ministro de Economa y Desarrollo, Azucena 
Castillo
Nicaragua, Economic and Trade Counselor, Jorge Wong-Valle
Nicaragua, Jefe del Departamento de la Cumbre de las Americas, 
Patricia Jarqun
    Barjm
Panama, Vice Ministro de Comercio e Industria, Jose Andres 
Troyano
Panama, Commercial Attache, Angela Velasquez
Paraguay, Vice Ministro de Relaciones Exteriores, Leyla Rachid 
Lichi
Paraguay, Counselor, Ricardo Caballero
Peru, Vice Ministro de Turismo, Integracin y Negociaciones 
Comerciales
    Internacionales, Diego Calmet
Peru, Commercial Counselor, Eduardo Rivoldi
St. Kitts & Nevis, Permanent Secretary of Trade, Horatio 
Verfellief
St. Kitts & Nevis, Minister Deputy Chief of Mission, Ken Jules
St. Lucia, Permanent Secretary, Earl Huntley
St. Lucia, Charge D'Affaires, Juliette Mallet
St. Vincent & Grenadines, Ambassador, Kingsley Layne
Surinam, Counselor, Rudy Alihusain
The Bahamas, Ambassador, Sir Arlington Butler
The Dominican Republic, Vice Ministro, Marcelo Puello
The Dominican Republic, Minister Counselor, Roberto Despradel
Trinidad & Tobago, Permanent Secretary, Winston Connell
Trinidad & Tobago, Counselor, Carl Francis
United States of America, Associate US Trade Representative for 
the Western Hemisphere, Peter Allgeier
United States of America, Director for The Free Trade Area of 
the Americas,
    Karen Lezney
United States of America, Deputy Assistant, Gov US Samuel E. 
Bryan
United States of America, Ambassador, Senir Coordinator, Summit 
of the Americas, Director, Inter-American Economic Affairs, Gov 
US Ricahrd C. Brown
Uruguay, Vice Ministro de Relaciones Exteriores, Carlos Prez 
del Castillo
Uruguay, Commercial Attache, Ricardo Duarte
Uruguay, Gustavo Alvarez Goyoaga
Venezuela, Director General Sectorial de Comercio Exterior, 
Jose Antonio Martnez
Venezuela, Economic and Petrolum Affairs, Manuel Iribarre
      

                                


                       National Wildlife Federation        
            Office of Federal and International Affairs    
                            1400 16th Street, NW, Suite 501
                                             Washington, D.C. 20036

Mr. Peter Allgeier
Associate US Trade Representative for the Western Hemisphere
US Trade Representative
Washington, D.C. 20508
Fax #: 202 3954579
    Dear Mr. Allgeier:

    As you prepare to discuss with your counterparts next week the 
structure for the Free Trade Area of the Americas negotiations, and 
particularly the establishment of a Study Group on Trade and the 
Environment, you have asked for our reactions to a couple of recent 
conceptual proposals for inching toward a discussion on trade and the 
environment.

I. National Mechanisms for Public Participation.

    A proposal to have the US and Mercosur jointly to develop a set of 
national consultative fora, which would probably rely on the Mercosur 
model for discussion processes, could have some useful potential. 
Nevertheless, recognizing that we do not have enough information to 
make concrete recommendations, we want to flag some potential pitfalls 
in such an approach. We have consulted with our counterparts in 
Mercosur countries and they have indicated several important 
limitations of the existing Consultative Fora for Economic and Social 
issues that should be remedied if you pursue this model:
    1). They do not feed into the Mercosur process. We believe it is 
important that if similar fora are created between the US and Mercosur 
they should develop clear mechanisms that enable them to feed their 
recommendations throughout the FTAA framework. Developing national 
consultative mechanisms are just one of a series of steps that need to 
be taken to encourage citizen participation. We recommend that you look 
at the letter we sent you on February 10, 1998 for other concrete 
recommendations.
    2).The Mercosur fora do not involve environmental NGO's, only 
business and labor. Of course we assume that your proposal would ensure 
environmental NGO participation.
    3). The Mercosur groups are for consultation only and do not have 
an advisory role. There are presently many different fora that hold 
dialogues on trade and the environment, so we would not want this to be 
just another one. It would be very important to ensure that 
participating environmental NGO's can play an appropriate role in trade 
negotiations. You probably are aware that many NGO's need financial 
support to access documents and attend meetings. Such fora will need to 
mechanism to address this.
    The proposal you are considering, to have a similar fora for the US 
and Mercosur, could be a step in the right direction to start a 
dialogue. But, as you know, we will continue to encourage you to make 
sure similar steps are taken within the FTAA framework itself.
    Others have suggested the OAS as a potential forum. But, we as well 
as other NGO's in Latin America are concerned that this would be an 
inadequate solution. At this time the OAS has a limited capacity to 
encourage citizen participation in trade negotiations, and even less to 
strengthen the trade and environment nexus. Nevertheless, encouraging 
this institution to develop a training and capacity-building project on 
trade and environment issues around the hemisphere could help produce a 
more positive atmosphere to advance a trade and environment agenda 
within the framework of the FTAA.
    Encouraging regular meetings between the trade and environment 
ministers from the region would help build national and regional 
strategies to advance a sustainable development agenda for the Western 
Hemisphere. As we have found in our discussions with government 
officials in Latin America, most of the fear of the trade and the 
environment agenda is based on misunderstanding, which such meetings 
could begin to alleviate. But as we must continue to reiterate, making 
sure that a clear mechanism is devised which allows this process to 
feed into the FTAA negotiations would be of utmost importance.
    The Central American countries, motivated by the Central American 
Commission for Environment & Development (CCAD) and the Permanent 
Secretary for the Central American Economic Integration Agreement 
(SIECA), have already taken this step, and have crafted a Declaration 
signed by both the Trade and Environment Ministers of each country 
geared towards incorporating the environmental dimension into trade 
liberalization and economic development in Central America. A copy of 
the first draft is attached to this document, but we understand there 
is a more recent version. A person to contact on this issue is Mr. 
Marco Gonzalez and Jorge Cabrera from the CCAD, tel.502 3605426; fax: 
502 3343876.
    As we have said, any of these alternative fora for a trade and 
environment dialogue should be encouraged, but should not preclude the 
establishment of the Study Group or a formal working group within the 
context of the FTAA.

II. Study Group on Trade and the Environment.

    Please remember that we applaud and continue to encourage your 
effort to keep environment in the trade dialogue. Nonetheless, it is 
probably obvious to you that a Study Group, at least the little we so 
far understand about it, would not meet our definition of fully 
integrating environmental priorities in trade negotiations. Nor does it 
reflect the agenda for trade negotiations articulated by President 
Clinton in his November 1997 ``Statement of Executive Initiatives''.
    Therefore, although we fully understand the difficulties you have 
encountered in promoting a more straightforward negotiation on trade 
and the environment, we hope you will understand, in turn, that we 
would not be in a position to publicly support this concept, since we 
cannot see at this time how it would advance our goals.
    On that basis, we offer the following observations:
    a) There is a need to articulate stronger terms of reference.
    1). As you know, we believe this Study Group could play a key role 
in defining the relationship between the Western Hemisphere trading 
system and the environment, but only if it feeds into the negotiating 
framework of the FTAA, including all the relevant negotiating groups. A 
balance needs to be struck between ``centralizing'' the trade and 
environment discussion in a Study Group on Trade and the Environment 
and promoting the integration of environmental concerns into all 
aspects of the negotiating groups. While a dialogue on trade and the 
environment issues requires a focal point to ensure that they are 
advanced continuously, this will only work if trade and environment 
becomes an integral part of the agenda of all parts of the FTAA 
negotiating framework. We appreciate your efforts to secure a foothold 
for this dialogue, but we must continue to push for full integration.
    2). The terms of reference should include the concrete steps for 
citizen participation and information dissemination that we listed in 
the letter we sent you dated February 10, 1998.
    3). We are prepared to accept the need for the Study Group to begin 
in an oblique manner, with an evaluation of the linkages between trade 
and the environment contained in existing regional agreements (i.e., 
Mercosur, Andean Pact). This would certainly be an improvement over the 
Belo Horizonte agreement, which maintained that the issue of the 
environment and its relation to trade would only be kept under 
consideration ``...in light of further developments in the work of the 
WTO Committee on Trade and the Environment'' (Declaration of Belo 
Horizonte, paragraph 15.). That formulation would severely limit the 
possibilities of developing national and regional strategies to deal 
with the topic, and it would also reduce any possibility of dealing 
with each country's specific environmental peculiarities. Of course, 
the Belo Horizonte formulation would also limit citizen participation, 
contrary to what is encouraged under Agenda 21, the Summit of the 
Americas Declaration and the Declaration of Santa Cruz de la Sierra.
    4). The terms of reference should include developing a real agenda 
for trade and the environment. For example, one topic could be 
developing a set of environmental indicators that would be comparable 
to economic indicators for the hemisphere.
    5). The Study Group on Trade and the Environment should aim to 
develop concrete steps to enhance the capacity of national governments 
to have a constructive domestic dialogue and to create their own 
programs on trade and environment. It should also foster a working 
relationship between trade and environment ministers, as well as among 
their own relevant national agencies.
    Nevertheless, please keep in mind that we await a Study Group that 
grapples with real trade and environment issues of this hemisphere, and 
that is linked to the negotiations. We urge you to work toward this in 
future steps.
    b) As you know, we have the long term goal of linking the 
development of appropriate parallel institutions, dedicated to 
balancing trade and environment priorities, to the trade negotiations 
themselves. We are unclear how the Study Group might advance this goal; 
but perhaps this can be built into the formulation of that entity.
    c) A clear commitment to make the Study Group on Trade and the 
Environment a reality should also include a budget proposal to realize 
its stated objectives.

III. We continue to encourage you to ensure that the following 
objective and principle are part of the framework of the Declaration of 
San Jose:

     A general objective which places Trade Liberalization and 
Environmental Policies on a par as mutually supportive. This will 
reinforce the commitments made at the United Nations Conference on 
Environment and Development (Agenda 21) held in Rio de Janeiro in 1992; 
at the Summit of the Americas held in Miami in 1994; and those made at 
the Summit of the Americas in Santa Cruz de la Sierra, Bolivia in 1996. 
Trade agreements our nation enters from now on should be engines for 
sustainable development.
     Procedural transparency in trade institutions and 
participation in the negotiations constitute fundamental principles for 
the way the negotiations will be led. Increased transparency and scope 
for participation play a key role in the attainment of basic goals of 
trade policy, such as ensuring that trade contributes to 
sustainability. The ``right to know'' and the ``right of all citizens 
to participate'' are fundamental elements of democratic practice and 
the cornerstone of effective decision making process.
    We again strongly encourage you to promote a stronger trade and 
environment agenda for the Western Hemisphere and to ensure effective 
steps will be taken so that a Free Trade Area of the Americas Agreement 
not be reached at the cost of environmental harm.
    Thank you for your attention to this important matter.

            Respectfully yours,
                                    Barbara Bramble        
                          Senior Director International Affairs    
                                       National Wildlife Federation
      

                                


Declaration by Non-Governmental Organizations of the Hemisphere on the 
Occasion of the IV Ministerial of the Free Trade Area of the Americas

    We, the undersigned representatives of civil society 
organizations from countries throughout the hemisphere, 
gathered here today, March 18, 1998, in San Jos, Costa Rica:
    Recognize that our governments are concluding their 
preliminary discussions on hemispheric economic integration 
here at the Fourth Trade Ministerial of the Americas, and are 
about to launch formal negotiations for a Free Trade Area of 
the Americas (FTAA) at the Second Summit of the Americas in 
Santiago, Chile;
    Support a just and equitable hemispheric integration 
process that improves the quality of life, reduces poverty, 
acknowledges the intrinsic value of nature and promotes 
sustainable development for all people and nations without 
exception;
    Recognize that our governments have committed to the 
principles of sustainable development, including environmental 
protection, poverty alleviation and democratization, as 
established at the Miami Summit of 1994 and reaffirmed in Santa 
Cruz, Bolivia in 1996;
    Recognize that trade agreements, when properly structured, 
can be consistent with the principles of sustainable 
development;
    Are concerned that economic integration has advanced 
without effectively integrating environmental, labor, social, 
cultural and political components which are indispensible to 
achieving sustainable development;
    Recognize that fair competition cannot be based on spurious 
competition that does not take into account environmental and 
social costs and recognize that there are transition costs 
associated with economic integration that must be taken into 
consideration.
    Therefore, we call on our governments to establish an 
action plan and formal mechanisms to integrate the principles 
of sustainable development, including a formal negotiating 
group on trade, environment and sustainable development with 
equal status to other negotiating groups established in the 
FTAA process. Moreover, the protection and enhancement of 
environmental quality must become part of the negotiating 
objectives of all FTAA negotiating groups.

                          Public Participation

    Public participation is fundamental to the sustainable 
development of the Hemisphere, and as such must be placed on 
the same level as the other negotiation objectives. To that 
end, in the design of the FTAA we call on governments to:
    1. Strengthen the participation of civil society in 
judicial and administrative proceedings within a domestic 
environmental law framework and in the formation, negotiation, 
and implementation of trade and investment policies and 
agreements.
    2. Provide timely access to information, relating to trade 
policy as well as trade agreement and integration processes.
    3. Establish formal processes to permit and encourage 
timely contributions of a broad spectrum of civil society in 
the development of the FTAA. This must include the right to 
make verbal and written submissions and attend national and 
hemispheric meetings involving policy deliberations.
    4. Implement dispute settlement mechanisms and other 
proceedings that allow for public participation.
    5. Provide access to adequate financial resources to 
achieve the the above goals.
    6. Make available Inter-American integration process-
related documents to the public at the same time as they are 
circulated to governments to ensure timely and meaningful 
participation of the public in policy deliberations; these 
should be at no cost and in a variety of forms, including 
printed and electronic formats, and should also include the 
creation of a Data Center, at no cost.
    7. Establish National Advisory Committees, with 
governmental and non-governmental representatives, that, among 
other objectives, should promote cross-sectoral dialogues and 
that are responsible for developing concrete recommendations 
for negotiations, and responses to recommendations offered by 
other countries.
    8. Promote research, training and capacity building in the 
area of sustainable development.
    9. Finance the participation of civil society in the trade 
and investment negotiations.

             Trade, Investment, and Sustainable Development

    We further call on governments to:
    1. Implement national and regional measures to ensure that 
economic integration in the Western Hemisphere promotes 
conservation of cultural and biological diversity and 
ecosystems in the hemisphere.
    2. Ensure that the Negotiating Group on Intellectual 
Property Rights provides guarantees that rights, access and 
benefits are shared in an equitable manner.
    3. Ensure that research on environmental, social and other 
effects of trade and investment is undertaken and that the 
results are distributed in a timely and effective manner to all 
interested parties.
    4. Implement and enforce regulations and policies that 
ensure environmental protection, including cooperation to 
ensure the upward harmonization of standards.
    5. Implement and enforce regulations and policies that 
ensure equitable distribution of benefits from trade and 
investment.
    6. Reduce and eliminate unsustainable patterns of 
consumption and production within and among countries, 
recognizing the strains placed on the environment by the 
disproportionate consumption of resources by many 
industrialized countries.
    7. Remove subsidies that encourage the unsustainable use of 
natural resources, as well as ensure the internalization of 
environmental externalities and promote incentives for 
sustainable production and consumption, including the 
development of national environmental accounting systems.
    8. Ensure that Multilateral Environmental Agreements (MEAs) 
and their dispute resolution mechanisms have at least equal 
status to trade agreements in the conduct of international 
trade and in dispute resolution. Environmental disputes arising 
out of trade agreements should be resolved in multilateral 
negotiations.

                   Environmental Standards and Trade

    As part of the FTAA negotiations we call on governments to:
    1. Incorporate the precautionary principle, as well as the 
principles of environmental prevention and legal and financial 
responsibility of polluters for damages to the environment.
    2. Create and strengthen administrative and judicial 
mechanisms for implementing environmental laws and policies, as 
well as mechanisms to denounce cases where national and 
international environmental norms are not applied.
    3. Harmonize minimum standards, consistent with each 
ecosystem, that assure the protection of human health and 
environmental integrity. At the same time, include financial 
and cooperative mechanisms to ensure the transfer and creation 
of appropriate technologies, including endogenous technologies, 
essential for the implementation and sustained improvement of 
environmental standards.
    4. Establish mechanisms to periodically update and improve 
environmental standards with the participation of all 
interested parties (NGOs, business, labor, academics, etc.).
    5. Ensure that nations, in their regulatory capacity, 
maintain the ability to set higher environmental standards.
    6. As agreed to in the 1994 Miami Summit of the Americas, 
establish mechanisms for intergovernmental cooperation for the 
exchange of information, training, technology transfer and 
policy formulation; as well as the creation of green markets.
    Institutions that participated in the drafting of this 
document: IBDPA (Brasil), Canadian Institue for Environmental 
Law and Policy (Canada), Red Nacional de Accion Ecologica y 
Corporacion Participa (Chile), Fundacion Natura (Colombia), 
CEDARENA (Costa Rica), PRONATURA (Rep. Dominicana), Centro 
Ecuatoriano de Derecho Ambiental, CLD, Fundacion Natura y 
Fundacion Futuro Latinoamericano (Ecuador), IDEADS (Guatemala), 
CEMDA y Red Mexicana Accion Frente al Libre Comercio (Mexico), 
Fundacion M. Bertoni (Paraguay), Fundacion ECOS y CLAES 
(Uruguay), National Audubon Society, National Wildlife 
Federation, Environmental Law Institute y Center for 
International Environmental Law (Estados Unidos), International 
Institute for Sustainable Development (Suiza).
      

                                


    Chairman Crane. Thank you, folks.
    Again, we're going to be interrupted here, but, Mr. Thies, 
I think we have enough time to hear your testimony, and then we 
will run over to the floor, and I would estimate we should be 
back here by 5:30.
    Mr. Thies.

  STATEMENT OF DENNIS M. THIES, EXECUTIVE VICE PRESIDENT AND 
 CHIEF FINANCIAL OFFICER, SOUTHDOWN, INC., HOUSTON, TEXAS; ON 
            BEHALF OF SOUTHERN TIER CEMENT COMMITTEE

    Mr. Thies. Thank you, Mr. Chairman. I'm executive vice 
president and chief financial officer of Southdown, Inc., 
headquartered in Houston, Texas. Southdown is the largest 
domestically owned cement producer in the United States. I am 
testifying on behalf of the Southern Tier Cement Committee, a 
coalition of 26 U.S. cement producers operating 74 production 
facilities across the United States.
    During 1990 and 1991, the U.S. cement industry obtained 
favorable rulings from the Department of Commerce and the 
International Trade Commission that dumped imports flooding 
into the United States market from Mexico, Japan, and Venezuela 
caused material injury to domestic cement producers. The 
Commerce Department imposed antidumping orders on imports from 
Mexico and Japan and entered a suspension agreement regarding 
imports from Venezuela.
    As a result of the application of U.S. antidumping laws, 
domestic cement producers became profitable again and have made 
significant investments during the nineties to modernize 
facilities and to expand production capacity. Thus, left alone, 
the free market, absent unfairly priced imports, has encouraged 
additional investment in cement capacity and increased U.S. 
jobs.
    The Cement Committee supports free trade, provided that the 
conditions of fair trade are maintained. With respect to the 
negotiations for the FTAA, I want to raise two concerns.
    First, the Cement Committee strongly opposes any weakening 
of U.S. antidumping laws during the FTAA process. Several 
countries have advocated eliminating the use of antidumping 
laws in the Western Hemisphere when free trade is established. 
This is a proposition that the United States must reject at the 
outset. The antidumping laws represent one of the few remaining 
measures, consistent with U.S. obligations under the World 
Trade Organization, for remedying injury to U.S. industries 
caused by unfairly traded imports. Congress should urge the 
administration to vigorously oppose any effort to weaken the 
ability of U.S. industries to respond to unfair trade practices 
under U.S. antidumping laws.
    Second, the cement industry strongly opposes the extension 
of the chapter 19 binational panel dispute settlement system 
under NAFTA to additional countries under the FTAA. During the 
final stages of negotiations of the Canada-United States free 
trade agreement, the United States agreed to a temporary 
dispute settlement system that authorizes ad hoc, five-member 
panels of United States and foreign nationals to substitute for 
United States courts in reviewing the consistency of United 
States antidumping determinations with United States law. This 
temporary agreement with Canada was extended to Mexico and made 
permanent under NAFTA.
    Chapter 19 has caused unnecessary dispute resolution 
delays. The pool of panelists that have the necessary expertise 
and don't have a conflict of interest is small in Mexico and 
Canada, and would be negligible in most Latin American 
countries.
    In the cases involving the U.S. cement industry, for 
example, NAFTA panels under chapter 19 have been suspended and 
otherwise delayed for 7 months because of the difficulty in 
finding qualified panelists from Mexico that don't have 
conflicts based on an association with CEMEX, the monopoly 
Mexican cement producer. According to GAO statistics, NAFTA 
panel cases have taken up to almost 2 years to complete. 
Similar delays are expected when sunset reviews of 23 
transition orders against Canada and Mexico all reach NAFTA 
panels at about the same time.
    Since its inception, the chapter 19 dispute settlement 
system has raised serious constitutional concerns. The system 
precludes judicial review by article III courts, contravenes 
the appointments clause of the Constitution, and raises other 
due process concerns. These concerns have never been tested in 
the courts.
    The application of the binational panel system has also led 
to erroneous results. The system requires individuals from 
diverse legal cultures to interpret and apply concepts from 
legal systems with which they lack any experience. As a result, 
Congress has been forced to correct interpretations of U.S. 
law, notably in the swine and lumber cases.
    Finally, chapter 19 risks inconsistent results in 
multicountry cases involving the same product. For example, if 
the system is extended under FTAA in an antidumping case 
involving imports from Chile, Mexico, and Japan, a United 
States-Chile panel, a United States-Mexico panel, and the U.S. 
Court of International Trade could issue three differing 
decisions interpreting the same provision of United States law.
    Accordingly, Congress should take this opportunity to 
prevent the problems generated under NAFTA from being extended 
to the FTAA and should deny the administration the flexibility 
to cut any last-minute deals that weaken U.S. antidumping laws 
or that divest U.S. courts of their constitutional jurisdiction 
to decide matters of U.S. law.
    Thank you.
    [The prepared statement and attachments follow:]

Statement of Dennis M. Thies, Executive Vice President and Chief 
Financial Officer, Southdown, Inc., Houston, Texas; on Behalf of 
Southern Tier Cement Committee

    My name is Dennis M. Thies. I am Executive Vice President 
and Chief Financial Officer for Southdown, Inc., headquartered 
in Houston, Texas. Southdown is the largest domestically-owned 
cement producer in the United States. I am testifying on behalf 
of the Southern Tier Cement Committee (the ``Cement 
Committee''), a coalition of 26 U.S. cement producers. The 
Cement Committee represents approximately 65 percent of U.S. 
production capacity and 75 percent of capacity located in the 
southern tier states extending from California to Florida. A 
list of the members of the Cement Committee, together with the 
locations of their headquarters offices and their 74 production 
plants, is attached to this statement.

                              Introduction

    The Cement Committee respectfully provides comments on two 
aspects of the negotiations for the Free Trade Area of the 
Americas ``FTAA.'' First, the Cement Committee strongly opposes 
any weakening of U.S. antidumping or other unfair trade laws 
during the FTAA or any other free trade negotiations. Second, 
the Cement Committee strongly opposes the extension of the 
Chapter 19 binational dispute settlement system under the North 
American Free Trade Agreement (``NAFTA'') to additional 
countries under the FTAA or future free trade agreements.
    In preparatory negotiations for the FTAA, several countries 
have advocated eliminating the use of antidumping laws in the 
Western Hemisphere when free trade is established. These 
countries have introduced a dangerous proposition into the FTAA 
negotiations--a proposition that the United States must reject 
from the outset. The antidumping laws represent one of the few 
remaining measures consistent with U.S. obligations under the 
World Trade Organization (``WTO'') for remedying injury to U.S. 
industries caused by unfairly traded imports. The existence of 
``free trade'' in the Western Hemisphere will not remove the 
incentives for foreign producers to dump in the United States 
and will not remove the non-tariff barriers preventing U.S. 
producers from responding in kind. Congress should urge the 
Administration to oppose vigorously any effort to weaken the 
ability of U.S. industries to respond to unfair trade practices 
under U.S. antidumping and other unfair trade laws. If foreign 
producers do not dump or do not injure U.S. industries, U.S. 
unfair trade laws will not effect them. If they do, even with 
an FTAA, U.S. industry needs a remedy.
    During the final stages of negotiations of the Canada-U.S. 
Free Trade Agreement (``CFTA'') and the NAFTA, the United 
States agreed to a dispute settlement system that authorizes ad 
hoc five-member panels of U.S. and foreign nationals to 
substitute for U.S. constitutional courts in reviewing the 
consistency of U.S. antidumping and countervailing duty 
determinations with U.S. law. This dispute settlement system, 
now provided under Chapter 19 of NAFTA, is unnecessary, raises 
serious constitutional and national sovereignty concerns, has 
led to erroneous results, and has proven unworkable. The 
multitude of problems experienced under Chapter 19 will be 
exacerbated if such a system is extended to additional 
countries under the FTAA. Although the Cement Committee 
strongly supports the elimination or substantial revision of 
Chapter 19 of NAFTA, it is especially concerned that the 
problems associated with the system are not extended under the 
FTAA. Congress should take this opportunity to prevent the 
problems generated under NAFTA from being extended to the FTAA 
and should deny the Administration the flexibility to cut any 
last minute deals that divest U.S. courts of their 
constitutional jurisdiction to decide matters of U.S. law. A 
more detailed discussion of this issue was provided by a broad 
and diverse coalition of 30 companies and industry groups in a 
written statement filed with the Office of the U.S. Trade 
Representative on April 23, 1997. A copy of this statement will 
be submitted under separate cover for the Subcommittee's 
review.

  II. Dumped Imports From Mexico, Japan, and Venezuela Caused Serious 
            Injury to the U.S. Cement Industry in the 1980s

    The U.S. antidumping laws provided the U.S. cement industry 
with an effective remedy in response to injurious dumping 
during the 1980s by Mexico, Japan, and Venezuela. During the 
1983-89 expansion of construction activity in the United 
States, dumped cement imports flooded the U.S. market and 
suppressed prices. Average import prices for cement declined 
from $45.13 per ton in 1981 to $34.42 per ton in 1989, a 24 
percent decline. This rapid decline in import prices drove down 
the U.S. price for cement.
    The sharp increase in unfairly priced imports in the 1980s 
removed U.S. producers' normal investment incentives and led to 
a net disinvestment in cement assets during a period of sharply 
increasing demand. Domestic production capacity declined 10 
percent between 1980 and 1990, even though demand for cement 
increased 40 percent. In addition, employment in the industry 
declined 19 percent between 1986 and 1989. Due to the market 
distortion of unfairly priced imports, cement prices in the 
United States did not increase to signal the need for 
investment in additional capacity. Meanwhile, foreign producers 
in Mexico, Japan, and Venezuela maximized their returns by 
exporting their excess capacity to the United States at dumped 
prices.

     III. The Application of U.S. Antidumping Laws Has Stimulated 
              Substantial New Investment and Job Creation

    During 1990-91, the U.S. cement industry obtained favorable 
rulings from the U.S. Department of Commerce and the U.S. 
International Trade Commission that dumped cement imports were 
materially injuring and threatening additional material injury 
to U.S. cement producers. The dumping margins averaged in 
excess of 50 percent. That is, the exporters' prices in their 
home market were over 50 percent higher than their export 
prices to the United States.
    During the expansion phase of the construction cycle that 
began in 1993, the U.S. market has been able to function 
without the distortion of unfairly priced imports. As economic 
theory would predict, during the 1990s, U.S. cement producers 
have experienced increasing capacity utilization, which has led 
to higher cement prices. The higher prices have induced capital 
investment and job creation in the industry. As shown in the 
second attachment to this statement, the U.S. cement industry 
has made significant investments in the 1990s to modernize 
facilities and to expand production capacity. According to the 
Portland Cement Association, new cement plants and plant 
modernizations announced in 1996 will increase U.S. cement 
production capacity by over 9 million tons per year. Thus, left 
alone, the free market--absent unfairly priced imports--has 
resulted in additional and planned cement capacity to support 
future construction activity and additional U.S. jobs.

IV. The United States Should Maintain its Ability To Enforce Vigorously 
                         its Unfair Trade Laws

    During meetings in preparation for the initiation of the 
formal FTAA negotiations, several countries advocated 
eliminating the use of antidumping laws. In a Draft FTAA 
Ministerial Declaration, the parties included the following 
provision as a negotiating objective in the area of Subsidies, 
Antidumping and Countervailing Duties:
    Assess the feasibility of eliminating the use of 
antidumping measures within the Hemisphere once free trade has 
been achieved.
    Although this language was rejected in the final 
Ministerial Declaration of San Jose, the Cement Committee is 
concerned that the United States will not vigorously oppose 
such a position as the negotiations progress.
    An agreement providing for ``free trade'' in the Western 
Hemisphere is meaningless without the discipline of antidumping 
laws to remedy discriminatory pricing that is injurious to 
domestic industries. As the NAFTA demonstrates, free trade has 
not reduced the instances where home market conditions in 
Mexico or Canada, such as excess capacity, non-tariff barriers, 
anticompetitive activities, or subsidized production, have 
created economic incentives for Mexican and Canadian producers 
to dump into the United States, with the resultant injury, 
declines in investment, and job losses to U.S. industries. For 
example, during administrative reviews of the antidumping order 
on cement from Mexico, the Commerce Department has found that 
the monopoly Mexican cement producer, CEMEX, is still dumping 
into the United States at margins ranging from 36 to 109 
percent. Thus, the only remedy for U.S. producers and the only 
potential disincentive for foreign producers is the application 
or threatened application of U.S. antidumping laws.
    Advocates for eliminating the use of antidumping laws in 
free trade areas contend that the situation between countries 
would be no different than exists between the states of the 
United States. In other words, if producers in State A sell at 
dumped prices in State B, the producers in State B will simply 
sell in State A at similarly low prices to gain market share 
from producers in State A. In trade between countries, however, 
the absence of tariffs normally does not provide the 
opportunity to respond in the same manner to dumping, given the 
existence of significant non-tariff barriers. For example, the 
absence or ineffective enforcement of antitrust laws in other 
countries denies U.S. producers the necessary access to foreign 
markets to respond to discriminatory pricing, subsidies, or 
other anticompetitive practices.
    During the FTAA negotiations, the ability of the U.S. 
cement industry, and other U.S. industries, to defend against 
unfair trade practices should not be sacrificed. The General 
Agreement on Tariffs and Trade 1994 specifically provides that 
``dumping . . . is to be condemned if it causes or threatens 
material injury to an established industry.'' The WTO 
Antidumping Agreement provides specific international 
obligations regarding the application of antidumping measures, 
and the WTO Dispute Settlement Understanding provides a binding 
forum for enforcing these obligations. The United States should 
not concede its right to apply antidumping measures consistent 
with its international obligations. The United States should 
vigorously oppose any attempt to undermine the application and 
enforcement of U.S. antidumping laws during the FTAA 
negotiations.

     V. The United States Should Oppose the Extension of the NAFTA 
  Binational Panel Dispute Settlement System to Additional Countries 
                             Under the FTAA

A. The Original Conditions For Congressional Approval Of The Binational 
Panel System As A Temporary Compromise With Canada Have Been Violated

    In the final stages of the negotiations of the CFTA, the parties 
agreed to implement a binational panel dispute settlement system for 
the review of domestic antidumping and countervailing duty 
determinations. The system was established as a temporary compromise in 
the wake of disagreements between Canada and the United States 
regarding the extent to which substantive antidumping and 
countervailing duty provisions should be included in the agreement.
    The binational panel dispute settlement system under the CFTA 
provided that ad hoc five-member binational panels substitute for U.S. 
constitutional courts in reviewing the consistency of antidumping and 
countervailing duty determinations with national law. The panels did 
not rule on whether these domestic agency decisions are consistent with 
the international obligations under the CFTA; they solely interpret and 
apply domestic law of the United States or Canada. Thus, this system 
represented the only international dispute settlement system that 
reviews and interprets the domestic law of signatory countries.
    During the Congressional debate over the CFTA, the system was 
extremely controversial. At the time, officials from the U.S. 
Department of Justice advised that the system would be unconstitutional 
if panel decisions were implemented automatically, as is now the case. 
Several Members of Congress also expressed serious reservations about 
the constitutionality and workability of the system. Ultimately, the 
system was accepted 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, (2) there would be 
strict and fully enforced conflict-of-interest rules, and (3) the 
system would be in place only a short time and only with Canada. These 
commitments have not been satisfied.
    In the final stages of NAFTA negotiations and despite assurances to 
the contrary, the binational panel dispute settlement system was 
extended to Mexico under Chapter 19 of NAFTA. Although negotiators of 
the original CFTA system stated that it was only workable with Canada 
because of the similarity between the U.S. and Canadian legal systems, 
Chapter 19 now provides for binational panel review by Mexican 
nationals who are not trained in the U.S. legal tradition, including 
the proper application of the standard of review under U.S. law. Thus, 
in violation of the commitments made at its inception, the system was 
made permanent and extended to a country with different legal 
traditions.
    The nature and experience of binational panels also demonstrates 
that conflict-of-interest rules have been ignored. Chapter 19 panels 
are composed of private individuals, each with his or her own clients 
and interests, empowered to interpret provisions of U.S. law, direct 
the actions of U.S. government officials, and dictate the outcome of 
U.S. cases involving billions of dollars in trade. In addition, the 
panelists often review decisions of the agencies where they may have 
ongoing cases. The most notable example of problems relating to 
conflicts is the Canadian softwood lumber case where two of the three 
Canadian panelists and their law firms had previously represented 
Canadian lumber interests. The Canadian government and the panelists 
did not disclose all of these conflicts prior to the Canadian majority 
rendering an adverse decision against the U.S. industry. Thus, the 
final commitment regarding enforcement of conflict-of-interest rules 
has also been violated.

B. The Chapter 19 System Raises Serious Concerns Regarding Its 
Constitutionality And Workability

    Over the past 10 years, disputes under the Chapter 19 system (and 
its CFTA predecessor) have demonstrated that the system has 
constitutional flaws and is otherwise unworkable, especially when it is 
extended to additional countries. First, since its inception, the 
Chapter 19 dispute settlement system has raised serious constitutional 
concerns. The system precludes judicial review by Article III courts, 
contravenes the Appointments Clause of the Constitution, and raises 
other due process concerns. These concerns have never been tested in 
court, and the most recent constitutional challenge to Chapter 19 was 
dismissed based on the plaintiff's lack of standing.
    Second, the application of the binational panel system has led to 
erroneous results. The system requires individuals from diverse legal 
cultures to interpret and apply concepts from legal systems with which 
they lack any experience. As a result, Congress has been forced to 
correct clearly erroneous interpretations of U.S. law, notably in the 
swine and lumber cases. In fact, in the NAFTA Extraordinary Challenge 
Committee review of the softwood lumber panel decision, former Federal 
Appeals Court Judge (and former Ambassador) Malcolm Wilkey commented 
that the underlying panel decision ``may violate more principles of 
appellate review of agency action than any opinion by a reviewing body 
which I have ever read.''
    Third, Chapter 19 risks inconsistent results in multi-country cases 
involving the same product. For example, if the system is extended 
under the FTAA, in an antidumping case involving imports from Chile, 
Mexico, and Japan, a U.S.-Chile panel, a U.S.-Mexico panel, and the 
U.S. Court of International Trade could issue inconsistent decisions 
interpreting the same provision of U.S. law.
    Fourth, Chapter 19 delays justice. The ad hoc panelists selected in 
each country are often trade lawyers that have other cases pending 
before the agency being reviewed. The pool of panelists that possess 
the necessary expertise and lack any conflict of interest is small in 
Mexico and Canada and is negligible in most Latin American countries. 
For a case involving a large, integrated domestic company in a Latin 
American country, virtually all qualified panelists in that country 
will be conflicted based on some association with the company. Several 
panel proceedings under NAFTA have faced extraordinary delays because 
of the absence of qualified panelists without actual or apparent 
conflicts. In the cases involving the U.S. cement industry, for 
example, NAFTA panels under Chapter 19 have been suspended and 
otherwise delayed for months because of the difficulty in finding 
qualified panelists that did not have conflicts based on an association 
with CEMEX, the monopoly Mexican cement producer. According to GAO 
statistics, NAFTA panel cases have taken up to 654 days to complete. 
Additional delays are expected when sunset reviews of 23 ``transition 
orders'' against Canada and Mexico reach NAFTA panels at about the same 
time.
C. Chapter 19 Is Unnecessary

    The Chapter 19 system's intrusion into U.S. sovereignty is now 
unnecessary because the WTO provides substantive international 
disciplines applicable to dumping and subsidies and provides for 
binding dispute settlement to enforce such international disciplines. 
The WTO Antidumping Agreement includes detailed procedural and 
substantive provisions for the application of antidumping remedies, and 
the WTO Dispute Settlement Understanding now makes these obligations 
effectively binding on Members.
    In addition, Chile, Canada, and Mexico have demonstrated that 
Chapter 19 is not important in future trade agreements. These countries 
have not extended the Chapter 19 system in their recent bilateral trade 
agreements. The failure to include such a system in these agreements 
indicates that any demands for such a system under the FTAA is simply a 
method for extracting additional concessions from the United States 
without justification.

D. Leading Members Of Congress Have Expressed Opposition To The 
Extension of Chapter 19 In Future Trade Negotiations

    On December 1, 1997, fourteen Senators sent a letter to U.S. Trade 
Representative Charlene Barshefsky stating, inter alia, that given the 
intended temporary nature of Chapter 19 and the great problems it has 
engendered, we believe that this fundamentally flawed system should not 
be extended in future trade agreements to any other country. No trade 
agreement, particularly one considered on a ``fast track,'' should 
divest U.S. courts of their constitutional jurisdiction to decide 
matters of U.S. law.
    In late 1997, Senator Charles Grassley (R-IA) and Senator Larry 
Craig (R-ID) also filed amendments to the Senate fast track legislation 
to prevent the ceding of U.S. courts' jurisdiction in future trade 
agreements under fast track procedures.

                             IV. Conclusion

    The Cement Committee urges the Subcommittee to monitor the 
progress of negotiations to ensure that the Administration does 
not make any concessions that will weaken U.S. antidumping 
laws. The experience of the domestic cement industry 
demonstrates that dumping may continue despite the existence of 
``free trade.'' Congress should ensure that U.S. industry and 
its workers have a remedy available to combat injurious dumping 
from all foreign countries, consistent with its WTO rights and 
obligations.

Joseph W. Dorn
Michael P. Mabile
Stephen J. Orava
King & Spalding
1730 Pennsylvania Avenue, N.W.
Washington, DC 20006
(202) 737-0500
Counsel for the Southern Tier
Cement Committee

Gene E. Godley
Marc C. Hebert
Bracewell & Patterson, L.L.P.
2000 K Street, N.W.
Washington, DC 20006
(202) 828-5800
Counsel for Southdown, Inc.

                   The Southern Tier Cement Committee
------------------------------------------------------------------------
           Company/Headquarters                    Plant Locations
------------------------------------------------------------------------
Alamo Cement Company, San Antonio, TX.....  San Antonio, TX
Arizona Portland Cement Co., Glendora, CA.  Rillito, AZ
Ash Grove Cement Company, Overland Park,    Chanute, KS
 KS.                                        Durkee, OR
                                            Foreman, AR
                                            Inkom, ID Nephi, UT
                                            Louisville, NE
                                            Clancy, MT
                                            Seattle, WA Blue Circle
Blue Circle, Marietta,....................  Atlanta, GA
                                            Harleyville, SC
                                            Sparrows Point, MD Calera,
                                             AL
                                            Ravena, NY
                                            Tulsa, OK Calaveras Cement
                                             Co.
Calaveras Cement Co., Concord, CA.........  Redding, CA
                                            Monolith, CA
California Portland Cement Co., Glendora,   Colton, CA
 CA.                                        Mojave, CA
Centex Construction Products, Inc.,         LaSalle, IL
 Dallas, TX.                                Laramie, WY
                                            Fernley, NV
Florida Crushed Stone Co., Leesburg, FL...  Brooksville, FL
Florida Rock Industries Inc.,               Gainesville, FL
 Jacksonville, FL.
Giant Cement Company, Summerville, SC.....  Harleyville, SC
Kaiser Cement Corp., Pleasanton, CA.......  Cupertino, CA
Lafarge Corporation, Reston, VA...........  Alpena, MI
                                            Davenport, IA
                                            Fredonia, KS
                                            Grand Chain, IL
                                            Independence, MO Paulding,
                                             OH
                                            Tampa, FL
                                            Palmetto, FL
                                            Whitehall, PA Lehigh
                                             Portland Cement Company
Lehigh Portland Cement Company, Allentown,  Gary, IN
 PA.                                        Leeds, AL
                                            Mason City, IA
                                            Mitchell, IN
                                            Union Bridge, MD
                                            Waco, TX
                                            York, PA
Lone Star Industries, Stamford, CT........  Cape Girardeau, MO
                                            Greencastle, IN
                                            Sweetwater, TX
                                            Oglesby, IL
                                            Pryor, OK
Medusa Corporation, Cleveland, OH.........  Charlevoix, MI
                                            Clinchfield, GA
                                            Demopolis, AL
                                            Wampum, PA
National Cement Co. of Alabama, Inc.,       Ragland, AL
 Birmingham, AL.
National Cement Co. of California, Inc.,    Lebec, CA
 Encino, CA.
North Texas Cement Company, Dallas, TX....  Midlothian, TX
Phoenix Cement Company, Phoenix, AZ.......  Clarkdale, AZ
RC Cement Co., Inc., Bethlehem, PA........  Stockertown, PA
                                            Chattanooga, TN
                                            Festus, MO
                                            Independence, KS RMC
RMC, Pleasanton, CA.......................  Davenport, CA
Southdown, Inc, Houston, TX...............  Louisville, KY
                                            1Pittsburgh, PA
                                            Fairborn, OH
                                            Brooksville, FL
                                            Knoxville, TN
                                            Lyons, CO
                                            Odessa, TX
                                            Victorville, CA
Tarmac America, Inc., Medley, FL..........  Medley, FL TXI Corporation
TXI Corporation, Dallas, TX...............  New Braunfels, TX
                                            Midlothian, TX
                                            Riverside, CA
                                            Oro Grande, CA
Texas-Lehigh Cement Company, Buda, TX.....  Buda, TX
------------------------------------------------------------------------

      

                                


    Recent Investments To Expand Capacity In The U.S. Cement Industry
------------------------------------------------------------------------
                  Company                        Investment Project
------------------------------------------------------------------------
Ash Grove.................................  Increasing capacity of
                                             Leamington, UT plant from
                                             650,000 to 825,000 tons.
                                             Increasing capacity of
                                             Durkee, OR plant from
                                             500,000 to 985,000 tons
                                             (est. $85 million).
Blue Circle America.......................  Installing new finish mill
                                             to increase cement grinding
                                             capacity at Roberta, AL
                                             plant ($22.5 million).
Capitol Aggregates........................  Installing new finish mill
                                             to increase cement grinding
                                             capacity at San Antonio, TX
                                             plant.
Florida Crushed Stone.....................  Building second kiln at its
                                             Brooksville, FL plant to
                                             double clinker capacity
                                             (est. $60 million).
Florida Rock Industries...................  Building 750,000 ton plant
                                             near Gainesville, FL (est.
                                             $100 million).
Holnam....................................  Doubling capacity of its
                                             Devil's Slide, UT plant to
                                             700,000 tons by replacing
                                             the existing wet kiln with
                                             a dry kiln (est. $75
                                             million). Adding 950,000
                                             tons of capacity in
                                             Midlothian, TX plant.
                                             Modernizing and upgrading
                                             clinker coolers in
                                             Theodore, AL, and Santee,
                                             S.C. plants. Replacing raw
                                             mill separator with high-
                                             efficiency separator at
                                             Theodore, AL plant.
Lafarge...................................  Investing $135 million in a
                                             new facility at an existing
                                             cement plant site near
                                             Kansas City, MO, increasing
                                             capacity by 400,000 tons
                                             annually. Modernizing
                                             heating and cooling
                                             processes in Davenport, IA
                                             and Fredonia, KS plants to
                                             increase production and
                                             reduce fuel consumption.
                                             Investing $9.7 million in
                                             modernization of Paulding,
                                             OH plant.
Lehigh Portland Cement....................  Modernizing and expanding
                                             project at the Union
                                             Bridge, MD cement plant,
                                             increasing capacity from
                                             1.0 to 1.5 million tons
                                             ($180 million). Upgrading
                                             kiln preheater and clinker
                                             cooling systems at Leeds,
                                             AL plant. Upgrading Macon
                                             City, IA plant to increase
                                             capacity.
Lone Star Industries......................  Investing $15.5 million in a
                                             new finish mill and storage
                                             facilities at Greencastle,
                                             IN plant, increasing cement
                                             capacity by 11 percent.
North Texas Cement........................  Building 1.0 million ton
                                             plant.
Roanoke Cement............................  Investing $37 million to
                                             modernize Roanoke, VA
                                             cement plant, expanding
                                             capacity from 1.0 to 1.2
                                             million tons.
Southdown.................................  Investing $48 million in
                                             expansion and modernization
                                             of Fairborn, OH cement
                                             plant, increasing cement
                                             capacity by 120,000 tons
                                             per year. Increasing cement
                                             capacity of Victorville, CA
                                             plant by 300,000 tons per
                                             year.
Southdown & Lone Star Industries..........  Investing $50 million in
                                             expansion of jointly-owned
                                             Louisville, KY cement
                                             plant, increasing cement
                                             capacity from 875,000 to
                                             1.4 million tons per year.
------------------------------------------------------------------------

      

                                


Statement of Chapter 19 Coalition (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, Western Wood Products Association

    The NAFTA Chapter 19 Binational Panel Dispute Settlement System

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

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

    Before it came into effect, Senator Grassley expressed deep 
concern about the novel experiment in replacing the U.S. 
judiciary with panels and whether it could, in practice, earn 
the respect of private parties. Senate Judiciary Comm. Hearing 
at 89-90, 94, 96. Unfortunately, Senator Grassley's concerns 
have been vindicated. Based on the panels' track record, 
private parties cannot have faith that the trade laws will be 
administered fairly or correctly as regards imports from Canada 
and Mexico.
    Were they to adhere to the standard of review mandated by 
the NAFTA and U.S. law, panels would reach exactly the same 
results as the Court of International Trade and be very 
deferential to DOC and ITC trade determinations. In particular, 
they would sustain the agency's findings unless they have no 
``reasonable'' factual basis or are grounded on a legal 
interpretation that is ``effectively precluded by the 
statute.'' PPG Indus., Inc. v. United States, 928 F.2d 1568, 
1573 (Fed. Cir. 1991).
    As recognized by Congress, the reality has often been to 
the contrary.\5\ Panel decisions involving Canadian pork and 
swine imports were so flawed that the U.S. Government sought 
review by appellate Chapter 19 panels (``extraordinary 
challenge committees'' or ``ECCs''). The swine ECC virtually 
conceded that the lower panel erred but declined to take 
corrective action. Live Swine from Canada, No. ECC-93-1904-01-
USA, slip op. at 6 (Apr. 8, 1993) (``the Committee felt the 
Panel may have erred'').
---------------------------------------------------------------------------
    \5\ See North American Free Trade Agreement Implementation Act, 
Joint Senate Report, S. Rep. No. 103-189, at 42 (1993) (``[t]he 
Committee believes . . . that CFTA binational panels have, in several 
instances, failed to apply the appropriate standard of review. . . 
.''); see also North American Free Trade Agreement Implementation Act, 
House Ways & Means Committee Report, H.R. Rep. No. 103-361, at 75 
(1993).
---------------------------------------------------------------------------
    The Chapter 19 system also failed conspicuously in the last 
case involving subsidized Canadian softwood lumber, where:
    Both the lower panel decision and the ECC decision were 
decided by bare majorities divided by nationality. Certain 
Softwood Lumber Products from Canada, No. USA-92-1902-190401, 
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 applicable 
U.S. statute. See Lumber ECC at 28 (Hart opinion) (indicating 
that panels need not apply the review standard of the Court of 
International Trade).
    The dissenter in the lumber ECC decision was former Federal 
Appeals Court Judge (and former Ambassador) Malcolm Wilkey. 
According to Judge Wilkey, the underlying panel majority 
opinion ``may violate more principles of appellate review of 
agency action than any opinion by a reviewing body which I have 
ever read.'' Lumber ECC at 37 (Wilkey opinion). Moreover, Judge 
Wilkey concluded that the lumber case violated all of the 
safeguards on which Congress based its conclusion that the 
Chapter 19 system is consistent with constitutional due process 
protections. Id. at 69-71, citing H.R. Rep. No. 100-816, Pt. 4, 
at 5 (1988).

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

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

           VII. Statutory Containment of Chapter 19 Is Needed

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

                            VIII. Conclusion

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

                                


                    Draft Section of Fast Track Bill

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

                                

    Chairman Crane. Thank you.
    Mr. Neal.
    Mr. Neal. A quick question for Mr. Clawson.
    Mr. Clawson. Surely, I'd be happy to answer.
    Mr. Neal. Tell me about drug trafficking.
    Mr. Clawson. Surely. A terrible problem--we know that it 
is, and Customs--in fact, our view is, particularly on the 
commercial side, if we can do some of the things we talked 
about here in terms of making the commercial clearance 
facilitated, that will free up inspectors to do a better job of 
looking for drugs and contraband, instead of spending time 
ruffling through papers and saying if the things are in the 
right order. Because it is a terrible problem; there is no 
question.
    Mr. Neal. In your humble opinion, could the Mexicans be 
doing more, much more--
    Mr. Clawson. Yes, much more. Absolutely, there's no 
question. They could do a lot more. In fact, there's no 
question that there's a lot more that they can do, both as a 
government and I think some of the businesses, the Mexican 
businesses, in helping in a partnership to try to deal with 
this problem.
    Mr. Neal. Has the Mexican Government slipped backward, in 
your opinion?
    Mr. Clawson. No, I don't think they've slipped backward. 
They haven't made enough progress, though.
    Mr. Neal. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Mr. Chairman, I'm not going to ask a question. 
I know we're going to relieve all of you of the pain of having 
to stay around. I think the Chairman plans to make an 
announcement right after this. But I want to thank all four of 
you.
    I'd like to follow up with Mr. Audley sometime, because I 
appreciated some of your comments, and I kind of want to get a 
little bit more into that with you, because there may be some 
opportunities. But, again, I would prefer to do that at some 
later date. I don't want to create confusion----
    Mr. Audley. I'd be happy to do so. Thanks.
    Mr. Matsui. Thank you. We thank all of you as well.
    Chairman Crane. Again, I thank you for your testimony, and 
that will conclude this session. The record will remain open 
until April 13, and that concludes the meeting.
    [Whereupon, at 5:15 p.m., the hearing was adjourned, 
subject to the call of the Chair.]
    [Submissions for the record follow:]

Statement of Air Courier Conference of America, Falls Church, Virginia

    This statement is submitted for the printed record by the 
Air Courier Conference of America (ACCA) in conjunction with 
the March 31, 1998 hearing by the Subcommittee on Trade of the 
Committee on Ways and Means regarding the Free Trade Area of 
the Americas (FTAA). ACCA is the trade association representing 
the express consignment industry. Our members include large 
firms with global delivery networks, such as DHL, Federal 
Express, TNT and United Parcel Service, as well as smaller 
businesses with strong regional delivery networks, such as 
Global Mail, Midnite Express and Quick International.
    The express transportation industry specializes in fast, 
reliable transportation services for documents, packages and 
freight; our operations encompass a variety of express delivery 
services. Because express companies provide integrated, door-
to-door delivery, we are affected by all governmental policies 
that apply to the distribution chain, and liberalization of 
international trade for the express transportation sector 
necessarily involves addressing trade restrictions and trade 
distortive measures that affect any element of distribution, 
including air and ground transportation, air auxiliary 
services, warehousing, customs brokerage, electronic commerce, 
telecommunications, and freight forwarding.
    A major hallmark of the express transportation service 
sector is the support of time-definite, or just-in-time (JIT), 
shipment of goods and services. Government measures that impede 
this expedited flow of goods severely limit the economic growth 
in key high-tech industries, such as computers and electronics. 
Although the JIT concept is not new, the emergence of the 
express transportation industry has revolutionized the way 
companies do business worldwide and has given a broad-based 
application to the concept. Producers using supplies from 
overseas no longer need to maintain costly inventories, nor do 
business persons need to wait extended periods of time for 
important documents. Waste due to obsolescence and seasonality 
is almost entirely eliminated. In addition, consumers now have 
the option of receiving international shipments on an expedited 
basis.
    The express transportation industry plays a key role in 
FTAA economies. The U.S. sector reports revenues of over $50 
billion and employs more than 400,000 workers. The industry has 
averaged 20 percent annual growth for the past two decades. As 
the industry is labor-and capital-intensive, its expansion 
creates more jobs and investment in all countries serviced by 
the sector. The industry's explosive growth is reflected in the 
rapid expansion of international air express shipments, which 
have doubled since 1993 and now average 1.2 million shipments 
per day.
    The express transportation industry is essential to the 
future growth of the Western Hemisphere's trade and commerce, 
as more and more of the region's trade is centered on the type 
of high-value goods that are carried by this industry, such as 
electronics, computers and computer parts, software, optics, 
precision equipment, medicine, medical supplies, 
pharmaceuticals, aircraft and auto parts, avionics, fashions 
and high-value perishables. In addition, the industry 
encourages small and medium-sized businesses to grow by 
enabling them to participate in international trade. The 
express transportation sector, with its integrated services 
that provide door-to-door delivery, frees small businesses from 
the burdensome and costly tasks of arranging for the 
transportation of their goods through a myriad of unrelated and 
often uncommunicating parties.
    In an effort to enhance our ability to operate throughout 
the Western Hemisphere, the express sector has participated 
actively in the FTAA process. We were present at the III 
Americas Business Forum held in Belo Horizonte, Brazil on May 
12-13, 1997 which, among other things, called for FTAA 
negotiations to include all service industries and to allow for 
sectoral agreements. We also participated in the meeting held 
in October, 1997 by the FTAA Working Group on Services in 
Santiago, Chile. This was the first official joint meeting 
between the private sector and an FTAA working group, and was a 
direct outgrowth of the directive in the Summit of the Americas 
Action Plan calling for a partnership between government and 
the private sector.
    The joint meeting explored the FTAA objectives of seven 
specific service sectors, including express integrated 
transportation. The sectoral commission for our industry 
developed detailed recommendations which reflect a strong 
consensus among industry members throughout the hemisphere 
regarding our objectives for the FTAA negotiations, including:
     the express integrated transportation service 
sector should be the subject of sectoral negotiations in the 
FTAA process;
     Customs procedures for express services should be 
streamlined and applied on a non-discriminatory basis;
     the services working group should create a liaison 
with the Customs working group regarding the simplification of 
customs procedures;
     the FTAA services agreement should contain the 
following disciplines with respect to postal services and the 
express integrated transportation sector: elimination of price 
regulation, discriminatory taxes and fees, abusive monopoly 
practices, cross subsidization and preferential customs 
agreements; binding of government postal services to the same 
measures applied to the private sector; and requiring 
government postal authorities to maintain separate fiscal 
organizations with respect to revenue from postal business and 
revenue from express services;
     the FTAA services agreement should contain 
disciplines on postal services to eliminate unfair trade 
practices and trade distortion resulting from the use of 
exclusive service providers;
     the FTAA should contain disciplines to eliminate 
discriminatory treatment with respect to ground transportation 
regulations and the express integrated transportation sector, 
particularly regulation of: vehicle weight and size, use of 
highways and roads, documentation, type of goods that may be 
shipped, parking, operating hours, and price regulation; and 
that FTAA countries should strive to achieve upwards 
harmonization with respect to these areas;
     the FTAA should contain a mechanism for the 
effective protection and enforcement of intellectual property 
rights in services, particularly service marks;
     the FTAA services agreement should apply the same 
rights and obligations contained in the WTO Agreement on 
Subsidies and Countervailing Measures;
     the FTAA services agreement should contain a 
national treatment provision as well as transparency and most-
favored-nation obligations; and
     the FTAA services negotiations should be conducted 
on a ``negative list'' basis.
    Our sector was able to build on this hemispheric-wide 
consensus at the Americas Business Forum in Costa Rica by 
targeting as a business facilitation measure implementation of 
the so-called Cancun Accord by June, 1999. The Accord, which is 
a comprehensive statement of obligations applying to both 
customs authorities and private operators with respect to 
express procedures, resulted from a meeting in June, 1996 in 
Cancun, Mexico of the Customs Directors and private sector 
representatives of 16 FTAA countries. Among other things, the 
agreement addresses the type of merchandise that may be 
transported by express service, the modalities of 
transportation that may be used for express service, 
obligations incumbent upon express service providers, and 
customs procedures for clearing and entering express shipments. 
Immediate implementation of the Cancun Accord would be an 
initial step towards the ultimate goal of trade liberalization 
for the express sector as outlined in the above measures.
    The effectiveness of the Cancun Accord has been limited by 
the fact that very few of the signatories have implemented it. 
This, along with the fact that all 16 FTAA countries present at 
Cancun signed the accord, makes immediate implementation of the 
Cancun Accord as a business facilitation measure a logical 
action for FTAA trade ministers and one that would have 
immediate benefits for the hemisphere.
    In Costa Rica, the express integrated transportation sector 
also called for implementation within one year of any future 
agreements on customs reforms for our sector. We also endorsed 
adoption by FTAA countries of the express customs guidelines 
approved by the World Customs Organization and the express 
customs guidelines of the International Chamber of Commerce.
    At the Fourth Americas Business Forum, our working group 
also called on FTAA members to eliminate anti-competitive 
measures and practices by postal and customs authorities in the 
area of express integrated transportation services and 
international deliveries of goods and services. The working 
group also called on FTAA members to abolish discriminatory 
measures, including application of postal rates and taxes to 
subsidize government agencies. We recommended that the laws, 
regulations and government practices related to these measures 
and practices be amended by January 1, 1999 to provide for the 
elimination of these policies by January 1, 2000.
    As noted in the November, 1997 issue of The Economist, 
``the vast expansion in international trade owes much to a 
revolution in the business of moving freight.'' If implemented, 
the steps outlined above would significantly enhance our 
industry's ability to operate throughout the Western 
Hemisphere. More important, they would facilitate the free 
movement of goods and services across FTAA borders, which is 
critical to realizing the benefits of liberalized trade. It 
simply makes no sense to reduce certain barriers to trade 
throughout the hemisphere but to continue to maintain archaic 
customs, postal and other policies that obstruct the efficient 
distribution of goods and services. Dismantling these barriers 
will remain ACCA's principal focus throughout the FTAA process, 
and, in this effort, we will seek to build on the groundwork 
laid at Belo Horizonte, Santiago and San Jose.
      

                                


Statement of American Electronics Association

                              Introduction

    As the millennium comes to a close, international trade and 
investment have become increasingly important components of 
global integration and prosperity. Indeed, in this century 
alone, the evolution in developed and developing economies from 
isolationist policies which proved to intensify economic 
inefficiencies to free trade regimes has prolonged profound 
periods of economic expansion and opportunity.
    The Americas Work Group of American Electronics Association 
(AEA) welcomes the opportunity to submit its views on the 
negotiation of the Free Trade Area of the Americas (FTAA) 
before the House Ways and Means Subcommittee on Trade.
    AEA represents more than 3,000 member companies across the 
broad spectrum of electronics and information businesses--from 
semiconductors and software to computers and telecommunication 
systems. As the largest high-tech trade association in the 
U.S., AEA represents American high-tech companies nationally 
through 17 council offices and globally through offices in 
Brussels, Tokyo, and Beijing.

                       Challenges to Negotiation

    Despite the lack of Fast Track, the Administration can 
begin negotiations of the FTAA, but cannot commit to any 
provisions requiring a change to U.S. law. Unfortunately, this 
limitation caters to the ``go-slow'' approach of many South 
American economies looking to protect their domestic industries 
as long as possible. Even without Fast Track, AEA urges the 
Congress to support the Administration's efforts to continue 
momentum of the United States' international trade agenda by 
pursuing an aggressive, comprehensive FTAA. Further, AEA 
supports the identification and implementation of interim 
agreements in order to stimulate and drive trade liberalization 
Hemisphere-wide. Finally, whenever possible, the Trade 
Ministers should strive to exceed the trade and investment 
disciplines reached in other trade fora.

                          Trade and Investment

    Trade and investment between the U.S. and Latin America has 
increased substantially in recent years. Between 1990-1996, 
U.S. electronics exports to Latin America tripled from $3 
billion in 1990 to over $9 billion in 1996, according to the 
recently-released AEA report CyberNation. During the same 
period, U.S. imports of electronics products from Latin America 
doubled, from $242 million in 1990 to $506 million in 1996.

                               Key Issues

    In order to further the growth of trade and investment in 
high-tech products and services between the U.S. and Latin 
America, a few key areas must be examined and addressed. The 
main issues critical to the growth of the information 
technology (IT) industry in the 34 member economies of the FTAA 
are:
    I. Market Access
    II. Government Procurement
    III. Investment
    IV. Standards, Testing and Conformity Assessment
    V. Intellectual Property
    VI. Services
    VII. Private Sector Participation

                            I. Market Access

Objective

     Elimination of tariffs and non-tariff measures on 
electronics products within the Hemisphere.

Principles

    The elimination of duties, import charges and non-tariff 
barriers accelerate the introduction of IT products to the 
market, and as a result, increases customer choice, allows the 
supplier to reduce costs to the customer and expedites the 
introduction of products to the market. The guiding principles 
behind the reduction of tariffs are:
     the reduction and timely elimination to tariff and 
non-tariff barriers, resulting in lower costs and greater 
benefit to the consumers of IT products; and
     the promotion of transparency of applicable rules 
and regulations, with the opportunity for comment by all 
interested parties.

Agenda for Progress

    The FTAA countries are encouraged to identify the non-
tariff measures and business facilitation issues to improve 
Hemisphere-wide market access, including the acceptance by all 
countries of the ATA Carnet for temporary duty-free importation 
of products. AEA further recommends that the 34 economies of 
the FTAA eliminate duties on IT products consistent with the 
terms of the North American Free Trade Agreement (NAFTA), the 
GATT ``zero-for-zero'' package for medical devices and 
semiconductor fabrication equipment, and the Information 
Technology Agreement (ITA). While Panama and Costa Rica have 
joined the ITA, those countries which do not yet adhere to the 
Agreement should immediately do so and consider involvement in 
the second-phase of the ITA which is projected to expand 
product coverage and address non-tariff measures.

                       II. Government Procurement

Objective

     Promote a Hemisphere-wide government procurement agreement 
based on transparent and competitive government procurement practices.

Principles

    Government procurement practices should be non-discriminatory 
throughout the Hemisphere, transparent in their administration and free 
from corrupt practices. In addition, AEA recommends that the Trade 
Ministers consider the following guidelines for procurement 
transparency:
     Adequate Notice: Timely notification of opportunities is 
essential to unbiased and open procurement. Bidders must be given 
adequate time to evaluate projects and prepare bids. In large or 
complex contracts, pre-qualification of bidders is advisable.
     Neutral Standards: Bid specifications should be stated in 
terms of internationally recognized standards, wherever possible. 
Performance standards should be used to ensure that equivalent products 
are treated equally.
     Objective Criteria: Bidding documents should specify the 
relevant factors in addition to price to be considered in bid 
evaluation, and the formula by which they will be applied. All bidders 
should be able to determine whether the objective criteria have been 
followed in the final award.
     Public Bid Opening: To ensure accountability in the 
application of these procedures, bids should be opened in public, in 
the presence of all bidders.
     Award of Contract: Contracts should be awarded to the 
lowest compliant bidder on the basis of objective criteria.
     Intellectual Property (IP): The rights of the seller in 
its technical data and its patents and copyrights need to be considered 
and respected in the process of government procurement if the process 
is to be considered fair and open. Failure to address the legitimate 
concerns of the IP holders is a significant deterrent to open 
procurement and it grieves the purchasing government by culling 
participants who own the best technology. Even where development is 
funded as part of the procurement, there are mutual benefits to be 
gained by permitting the contractor to own and use the funded 
technology, and the opportunity to own and use the funded technology is 
an attractant to the best-qualified participants.
     Dispute Settlement: Contracting agencies should provide 
unsuccessful bidders access to independent review of compliance with 
the bid process in accordance with the aforementioned principles, 
including adequate remedies for non-compliance.

Agenda for Progress

    AEA supports a Hemispheric government procurement agreement based 
on the guidelines detailed above. Once the procurement transparency 
agreement is in place, AEA recommends that all Hemispheric economies 
develop and subscribe to an agreement for non-discrimination in public 
procurement based on the principles of the WTO Government Procurement 
Code.
    AEA notes that the Organization for American States (OAS) has 
recognized that corruption of public officials is a problem in 
government procurement which frequently denies both companies and 
domestic consumers the full benefits of international competition, 
particularly in the development of national infrastructures. The OAS 
anti-bribery convention is an important new international agreement 
aimed at reducing this problem; however, only a few member countries, 
have ratified the Convention. Given the relationship between questions 
of bribery and the procurement process, AEA suggests that all OAS 
members complete the ratification process as soon as possible. In 
addition, AEA encourages all Western Hemisphere governments to review 
the international anti-bribery convention concluded by the OECD, with a 
view to subscribing to this Agreement as well.

                            III. Investment

Objective

     Ensure an open and competitive investment environment, 
prohibit performance requirements, and divorce investment 
determinations from procurement decisions through an intra-Hemisphere 
investment agreement.

Principles

    AEA believes intra-Hemispheric investment flows should be supported 
by principles of:
     non-discrimination,
     MFN,
     national treatment,
     fair and equitable treatment, and
     impartial and fair dispute settlement.

Agenda for Progress

    AEA recommends a Hemispheric investment agreement, based on the 
above principles, which includes investor-state arbitration for dealing 
with disputes between private parties and States and among private 
parties, in addition to State-to-State dispute settlement. AEA suggests 
that a Hemispheric investment agreement draw upon the principles of the 
Multilateral Agreement on Investment (MAI) under the auspices of the 
OECD, while remaining consistent with the WTO Agreement on Trade-
Related Investment Measures (TRIMs).

            IV. Standards, Testing and Conformity Assessment

Objective

     Promote regulatory structures that reference:
    1) internationally-accepted standards or suite of standards;
    2) one test or suite of tests to meet those standards;
    3) acceptance of a supplier's test results or a third-party's; and
    4) acceptance of supplier's declaration of conformity or third-
party certification.

Principles

    Standards, certification and regulatory policy often create 
unintended barriers to trade. Accordingly, the principle ``One 
Standard--One Test, Supplier's Declaration of Conformity'' should guide 
the negotiators in their discussion on standards, testing and 
certification issues as a regulatory reform model that goes beyond the 
initial model calling for the mutual recognition of test results and 
certification regimes.

Agenda for Progress

    Internationally-accepted standards (de facto or created by 
international standards bodies), based on performance criteria, should 
be adopted whenever possible. Specifically, with regard to the 
telecommunications and medical device sectors in conformity assessment, 
there should be the intra-Hemisphere mutual recognition of test 
results, provided by suppliers or third-party labs, and of type-
approval, allowing for manufacturers' self-declaration of conformity. 
An intermediate goal in the telecommunications sector should be to 
continue development of the Yellow Book on equipment certification 
processes and to provide educational seminars on the benefit of Mutual 
Recognition Agreements (as planned under CITEL--the Inter-American 
Telecommunications Committee). An intermediate goal in the medical 
device sector should be to implement common registration and Good 
Manufacturing Practices (GMP) requirements, moving toward harmonization 
and recognition of certificates generated overseas (e.g., FDA 
certificate of free sale or EU certificate of conformity) in lieu of 
local testing. An immediate goal for computers should be the 
establishment of a Hemisphere-wide pilot program to investigate and 
test the implementation of the principle ``One Standard--One Test, 
Supplier's Declaration of Conformity.''
    In addition, AEA recommends the reduction of product marking 
requirements to a single global system for demonstrating conformity.

                        V. Intellectual Property

Objective

     Extend and enforce a strong intellectual property rights 
(IPR) protection regime throughout the Hemisphere.

Principles

    A balance must be struck between satisfying the interests of 
numerous parties: right holders, manufacturers, distributors, consumers 
and network operators. It is essential that industry and government 
cooperate to protect intellectual property rights. Producers rely on 
legal protection of their products and activities. Therefore, as the 
market develops and as cross-border product and information flow 
increase,
     a harmonized, secure and stable legal regime is necessary 
both internationally and within the Hemisphere.

Agenda for Progress

    AEA urges the implementation of the WTO Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPs), and suggests the 
development of a Hemispheric Agreement which goes beyond the TRIPs 
measures.
    AEA urges the member countries of the WTO to promptly pass 
legislation providing IP protection for computer and telecommunications 
products including software and electronic information products under 
both copyright laws and patent laws. The copyright laws should 
specifically provide that computer programs and computerized databases 
are literary works, within the meaning of the Berne Convention, and 
that every kind of information processing product be protected under 
the patent laws, even when such products comprise software components. 
The problem with the patent laws of many Latin American countries is 
that they expressly exclude ``computer programs'' from patentability. 
This exclusion is often interpreted to mean that products having a 
principal function implemented with software are not patentable. Thus, 
the ``computer program'' exclusion has the effect of excluding a large 
class of computer-related technologies from protection under the 
national patent laws. This is in contravention of the provision in Art. 
27 of TRIPS which provides that patents shall be available in all 
fields of technology. Further, AEA urges all countries to adopt the 
World Intellectual Property Organization (WIPO) Treaties of December 
1996 on Copyrights and Performances and Phonograms. AEA also recommends 
the international protection of databases (again, under WIPO auspices).
    With respect to telecommunications equipment, many of the product 
features are embedded in software; therefore, IP exists past layer-one 
of system software and should be equally protected Hemisphere-wide.

                              VI. Services

Objective

     Promote the unfettered growth of electronic commerce, 
support the liberalization of telecommunications infrastructure and 
encourage pro-competitive policies Hemisphere-wide.

Principles

    The principles encouraged to promote business facilitation efforts 
are based on industry leadership, predictability, consistency and 
fairness.
    In order for countries to maintain and improve their competitive 
position in the services sector, they must hasten deregulation and 
privatization efforts in telecommunications and aggressively promote 
competition in the industry.
    In the area of electronic commerce, the following principles should 
guide the Ministers:
     Electronic Commerce should be market-driven: Increased 
innovation, expanded participation, broader services and lower prices 
result in a commercial environment where market forces prevail.
     Electronic Commerce should remain unfettered by undue 
government intervention and/or regulation: Governments have a 
responsibility to understand the unique nature of the Internet as an 
electronic medium and should refrain from any undue regulation. The 
successful Internet economy will have a significant multiplier effect 
on economic development, job growth and competitiveness.
     Electronic Commerce should feature protection of the 
security and of the integrity of data: Rapidly expanding markets for 
information technology demand the privacy and integrity of data be 
secured through encryption technology. These global market 
opportunities will not be realized if encryption technology cannot be 
used, imported and exported freely to protect information exchanged 
over public and corporate global networks. AEA supports efforts to 
reach these objectives within the Hemisphere and at the international-
level using the OECD Cryptography Guidelines.
     Electronic Commerce should allow the global free flow of 
data: Data protection standards should not be utilized to erect new 
trade barriers which could frustrate the development of electronic 
commerce. AEA is supportive of industry-developed answers to issues of 
privacy and market-driven solutions to insure customer satisfaction 
regarding how private data is handled.
     Electronic Commerce should be tax-neutral: The electronic 
commerce environment must not be subject to a more onerous tax regime 
than traditional forms of commerce. It is crucial that any minimal 
regulatory approach be globally-harmonized and technology-neutral.

Agenda for Progress

    All countries should, at minimum, adopt the Reference Paper, with 
the ultimate objective to ratify and implement the WTO Agreement on 
Basic Telecommunications. Those countries that have not done so, should 
make market-opening commitments in basic telecommunications and remove 
foreign ownership restrictions on telecommunications operators.
    In the area of electronic commerce, countries should respect the 
OECD Cryptography Guidelines, as well as those Governing the Protection 
of Privacy and Transborder Flows of Personal Data. Further, Ministers 
are urged to abide by the principles outlined in the U.S. ``Framework 
for Electronic Commerce.''

                   VII. Private Sector Participation

Objective

     Create a sectoral work group to address issues specific to 
the high-technology industry.
Principles

    Since U.S. and Latin American businesses are the practitioners of 
international commerce, industry leaders have the unique ability to 
recognize the practical impacts of trade policy and therefore, should 
be consulted in the policy-making process.
     Meaningful discussion among business serves as a basis for 
understanding within industry itself with regard to identifying common 
objectives and addressing barriers to trade and investment in the 
Hemisphere.
    If commonalties can be found and transmitted in a coherent, 
consistent manner to the Ministers, this exercise could provide 
valuable information in the decision-making process.

Agenda for Progress

    Create a regular, predictable framework for business leaders from 
the high-technology industry of the Hemisphere to meet, discuss and 
present unified recommendations to the Ministers of the FTAA. AEA 
proposes that the private sector be consulted before and/or after 
negotiating group sessions as well as at Ministerial meetings. The 
regularity of bi-annual Ministerial meetings affords an opportune time 
to consult with industry. Every effort should be made to incorporate 
private sector consultations into these meetings.

                               Conclusion

    The negotiation of the FTAA presents many opportunities to 
companies and workers in the Western Hemisphere. With the 
dynamic and rapid growth of information technology in the 
region, it is critical for the U.S. to lead and engage our 
Hemispheric trading partners into an arrangement beneficial to 
all. AEA looks forward to working with the Congress and the 
Administration to ensure that the efforts to construct a 
comprehensive and meaningful FTAA are successful.
      

                                


Statement of Carolyn Cheney, Washington Representative, Sugar Cane 
Growers Cooperative of Florida; and Chairman, American Sugar Alliance

    Thank you for the opportunity to submit testimony for this 
important hearing. I am Carolyn Cheney, Washington 
Representative for the Sugar Cane Growers Cooperative of 
Florida. I also serve as chairman of the American Sugar 
Alliance, of which my cooperative is a member. The ASA is a 
national coalition of growers, processors, and refiners of 
sugarbeets, sugarcane, and corn for sweetener.
    I am proud to present the views not only of the Sugar Cane 
Growers Cooperative of Florida, but also of the American Sugar 
Alliance.

                                Summary

    The U.S. sugar industry has long endorsed the goal of 
global free trade because we are efficient by world standards 
and would welcome the opportunity to compete on a genuine level 
playing field. Until we achieve that free trade goal, however, 
we must retain at least the minimal, transitional sugar policy 
now in place to prevent foreign subsidized, dump market sugar 
from unfairly displacing efficient American producers. This 
policy was substantially modified by Congress in the 1996 Farm 
Bill, but remains highly beneficial to American taxpayers and 
consumers.
    Despite its free trade goal, however, the sugar industry 
has some serious concerns about the structure of future 
multilateral or regional trade agreements.
    Multilaterally, we are concerned that, while U.S. 
agriculture unilaterally far surpassed its Uruguay Round 
commitments through huge government cutbacks in the 1996 Farm 
Bill, many foreign countries have yet to even minimally comply 
with their Uruguay Round commitments.
    Regionally, we are facing serious problems with both Canada 
and Mexico. Canada is exploiting a loophole to circumvent the 
U.S. tariff-rate quota for sugar and threaten the no-cost 
operation of U.S. sugar policy. Mexico, four years after the 
NAFTA went into effect, is calling into question the validity 
of special sugar provisions to which it agreed before the NAFTA 
was voted upon and approved.
    American sugar farmers want free trade. But we have trouble 
moving further in that direction when past free trade 
agreements are being ignored, or circumvented, by our trading 
partners, to the possible detriment of our farmers.
    I would like to provide some background on the United 
States' role and standing in the world sugar economy and on 
U.S. sugar policy's effect on American consumers and taxpayers 
and discuss the U.S. sugar industry's trade policy goal, 
concerns, and recommendations, with special focus on the 
proposed Free Trade Area of the Americas (FTAA).

               Background on U.S. Sugar Industry, Policy

    Size and Competitiveness. Sugar is grown and processed in 
17 states and 420,000 American jobs, in 40 states, are 
dependent, directly or indirectly, on the production of sugar 
and corn sweeteners. The United States is the world's fourth 
largest sugar producer, trailing only Brazil, India, and China. 
The European Union (EU), taken collectively, is by far the 
world's largest producing region. It benefits from massive 
production and export subsidy programs.
    Despite some of the world's highest government-imposed 
costs for labor and environmental protections, U.S. sugar 
producers are among the world's most efficient. According to a 
study released in 1997 by LMC International, of Oxford, 
England, American sugar producers rank 19th lowest in cost 
among 96 producing countries, most of which are developing 
countries. According to LMC, fully two-thirds of the world's 
sugar is produced at a higher cost per pound than in the United 
States.
    Because of our efficiency, American sugar farmers would 
welcome the opportunity to compete against foreign farmers on a 
level playing field, free of government subsidies.
    Unfortunately, the extreme distortion of the world sugar 
market makes any such free trade competition impossible today.
    World Dump Market. More than 100 countries produce sugar 
and the governments of all these countries intervene in their 
sugar markets in some way. The most egregious, and most trade 
distorting, example is the EU. The Europeans are higher cost 
sugar producers than we are but they enjoy price supports that 
are 40% higher--high enough to generate huge surpluses that are 
dumped on the world sugar market, for whatever price they will 
bring, through an elaborate system of export subsidies.
    World trade in sugar has always been riddled with unfair 
trading practices. These practices have led to the distortion 
in the so-called ``world market'' for sugar. These distortions 
have led to a disconnect between the cost of production and 
prices on the world sugar market, more aptly called a ``dump 
market.'' Indeed, for the period of 1984/85 through 1994/95, 
the most recent period for which cost of production data are 
available, the world dump market price averaged just a little 
more than 9 cents per pound raw value, barely half the world 
average production cost of production of over 18 cents. (See 
chart, Attachment A.)
    Furthermore, its dump nature makes sugar the world's most 
volatile commodity market. Just in the past two decades, world 
sugar prices have soared above 60 cents per pound and plummeted 
below 3 cents per pound. Because it is a relatively thinly 
traded market, small shifts in supply or demand can cause huge 
changes in price.
    As long as foreign subsidies drive prices on the world 
market well below the global cost of production, the United 
States must retain some border control. This is our only 
response to the foreign predatory pricing practices that 
threaten the more efficient American sugar farmers.
    The reformed sugar policy of the 1996 Farm Bill does retain 
the Secretary of Agriculture's ability to limit imports, and 
also provides a price support mechanism, though only when 
imports exceed 1.5 million short tons. We are currently only 
240,000 tons above that critical trigger level.
    Sugar Reforms. The 1996 Farm Bill drastically changed U.S. 
sugar policy, as it did other commodity programs. All American 
farmers, including sugar farmers, now face a less certain 
future, with less government intervention, higher risk, and the 
prospect of lower prices.
    There were six major reforms to U.S. sugar policy in the 
1996 Farm Bill:
    1. Marketing allotments eliminated. With no production 
controls, we now have a domestic free market for sugar. Less 
efficient producers are more likely to go out of business; more 
efficient producers are free to expand. Just last month the 
only sugarbeet processing company in Texas announced it is 
closing, ending sugarbeet production in that state, because of 
low returns.
    2. Guaranteed minimum price eliminated. Sugar is the only 
program crop that has lost the guarantee of non-recourse loans 
and a minimum grower price. Sugar producers will have access to 
non-recourse loans only when imports exceed 1.5 million short 
tons.
    3. Minimum imports effectively raised. Under the Uruguay 
Round of the GATT, the U.S. was required to import no less than 
1.256 million tons of sugar per year. The non-recourse loan 
trigger of 1.5 million tons effectively raises our import 
minimum to that level, a unilateral increase of 20%.
    4. Marketing tax raised. The special marketing assessment, 
or tax, sugar producers must pay to the government on every 
pound of sugar was raised by 25%, to 1.375% of the loan rate on 
every pound produced. This added burden on sugar farmers will 
generate about $40 million per year for the U.S. Treasury, with 
all this money earmarked for federal budget deficit reduction.
    5. Forfeiture penalty initiated. To discourage forfeiture 
of loans to the government when non-recourse loans are in 
effect, and to raise even more money for the U.S. Treasury, a 
1-cent per pound forfeiture penalty was initiated.
    6. Commitment to further reductions. A provision called 
``GATT Plus'' requires that the U.S. will reduce its sugar 
supports further if, and when, foreign countries surpass their 
Uruguay Round commitments, as the U.S. has done.
    Effect on Consumers. American consumers and food and candy 
manufacturers benefit from high-quality, dependable, reasonably 
priced supply of sugar. Consumer prices in the United States 
are fully 32% below the developed-country average, according to 
a world survey by LMC International. Compared with consumers 
worldwide, and taking varying income levels into account, LMC 
found that in terms of minutes worked to purchase one pound of 
sugar, American consumers are the second lowest in the world, 
trailing only the tiny country of Singapore. (See charts, 
Attachments B and C.)
    Consumer Cost Myths. The food manufacturer critics of U.S. 
sugar policy repeatedly point to a severely flawed 1993 General 
Accounting Office study that estimated a consumer cost of U.S. 
sugar policy at $1.4 billion per year. Experts at the U.S. 
Department of Agriculture have twice vilified this flawed 
report, as have noted academicians. More recently critics are 
citing a Public Voice ``update,'' which mimicked the faulty 
methodology of the GAO report and dropped this supposed cost to 
$1.2 billion.
    Both of these absurd studies assumed that: 1) All U.S. 
sugar needs could be supplied from the world dump market at a 
price well below the world average cost of production; 2) We 
could fulfill our needs from this thinly traded, highly 
volatile world market without that price increasing at all; and 
3) Every penny of the food manufacturers' and retailers' 
savings from the lower dump market sugar prices would be passed 
along to consumers.
    For reasons I have already outlined, it is clear that if 
the United States destroyed its sugar industry and shifted all 
its demand for sugar to the thinly traded world dump market--
which would increase demand on that market by about 50%--the 
price would skyrocket, as it has in the past with far smaller 
surges in offtake.
    To address the third and most outrageous of these 
assumptions, one need only examine price behavior of the past 
year, or the past decade. History shows absolutely no 
passthrough.
    No Passthrough to Consumers. Since Farm Bill reforms went 
into effect in October 1996, both raw cane and wholesale 
refined beet sugar prices to producers have dropped 
dramatically, wholesale refined prices by a whopping 12%. But 
at the retail level, not even the price of sugar on the grocery 
shelf has dropped at all. And prices for sweetened products, 
such as candy, cereal, ice cream, cakes, and cookies have all 
risen by 1-5%. Looking back to price changes since 1990, the 
story remains the same: producer prices down, but consumer 
prices for sugar and products up. (See charts, Attachments D 
and E.)
    Effect on Taxpayers. Not only has U.S. sugar policy been 
run at no cost to the government since 1985, but since 1991 it 
has been a revenue raiser. The marketing assessment burden on 
sugar farmers will generate an estimated $288 million for 
federal budget deficit reduction over the seven years of the 
1996 Farm Bill.

                 U.S. Sugar Industry's Free Trade Goal

    Because of our competitiveness, with costs of production 
well below the world average, the U.S. sugar industry supports 
the goal of genuine, global free trade in sugar. We cannot 
compete with foreign governments, but we are perfectly willing 
to compete with foreign farmers in a truly free trade 
environment.
    We were the first U.S. commodity group to endorse the goal 
of completely eliminating government barriers to trade at the 
outset of the Uruguay Round, in 1986. We understand we are the 
first group to endorse this same goal prior to the start of the 
1999 multilateral trade round. We described our goals and 
concerns to the Administration in a letter last May to Trade 
Representative Barshefsky and Agriculture Secretary Glickman. A 
copy of that letter is attached to this testimony (Attachment 
F).
    The U.S. sugar industry does not endorse the notion of free 
trade at any cost. The movement toward free trade must be made 
deliberately and rationally, to ensure fairness and to ensure 
that those of us who have a global comparative advantage in 
sugar production are not disadvantaged by allowing distortions, 
exemptions, or delays for our foreign competitors.

                      Sugar and the Uruguay Round

    Little Effect on World Sugar Policies. More than 100 
countries produce sugar and all have some forms of government 
intervention. Unfortunately, these policies were not 
significantly changed in the Uruguay Round Agreement (URA) of 
the GATT.
     The agreement failed to reduce the European 
Union's lavish price support level and requires only a tiny 
potential drop in their massive export subsidies.
     Developing countries, which dominate world sugar 
trade, have little or no labor and environmental standards for 
sugar farmers, have no minimum import access requirements, and 
often have high import tariffs. Nonetheless, developing 
countries were put on a much slower track for reductions, or 
were exempted altogether.
     Important players such as China and the former 
Soviet republics are not GATT members, and need to do nothing.
     State trading enterprises (STE's) that are 
prevalent in sugar-producing countries were ignored.
    Furthermore, many countries have not yet even complied with 
their URA commitments. U.S. Sugar Surpasses URA Requirements. 
The United States is one of only about 25 countries that 
guarantees a portion of its sugar market to foreign producers 
and it has far surpassed is URA commitment on import access. 
The URA required a minimum access of 3-5% of domestic 
consumption. The United States accepted a sugar-import minimum 
that amounts to about 12% of consumption. In practice, U.S. 
imports the past two years have averaged 24%--double the 
promise we made in the GATT, and about six times the global 
GATT minimum.
    All this sugar imported from 41 countries under the tariff-
rate quota enters the United States at the U.S. price, and not 
at the world dump price. Virtually all this sugar enters duty 
free. Just five countries (Argentina, Australia, Brazil, Gabon, 
and Taiwan) that lack Generalized System of Preferences (GSP) 
status pay a duty, and that is quite small, about 0.6 cents per 
pound.
    The United States calculated its above-quota tariff rate in 
the manner dictated by the URA. These tariff levels are totally 
GATT consistent, and are dropping by 15%, as we promised they 
would in the Uruguay Round.

                          Sugar and the NAFTA

    Canada. Sugar trade between the United States and Canada, 
which imports about 90% of its sugar needs, was essentially 
excluded from the NAFTA. U.S.-Canadian sugar trade is governed 
mainly by the U.S.-Canada Free Trade Agreement and by the WTO.
    Currently, Canada is threatening the integrity of U.S. 
sugar policy by circumventing the quota with a new product 
referred to in the trade as ``stuffed molasses''--a high-sugar 
product not currently included in U.S. sugar TRQ 
classifications. USDA has estimated imports of this product 
could add 125,000 tons of non-quota sugar to the U.S. market 
this year. That amount could grow if this loophole is not 
closed.
    Mexico. Mexico had been a net importer of sugar for a 
number of years prior to the inception of the NAFTA. 
Nonetheless, the NAFTA provided Mexico with more than three 
times its traditional access to the U.S. sugar market during 
the first six years, 35 times its traditional access in years 
7-14, and virtually unlimited access thereafter. The NAFTA 
sugar provisions are summarized on the attached table 
(Attachment G).
    These provisions were negotiated by the U.S. and Mexican 
governments and contained in a side letter signed by Cabinet 
officials of both governments before the U.S. Congress took 
action on the NAFTA in November 1993. Nonetheless, Mexico is 
now undermining the integrity of the NAFTA by claiming the 
sugar side letter is somehow invalid.

                      Concerns Regarding the FTAA

    Consistent with our desire for genuine, global free trade 
in sugar, the U.S. sugar industry supports the goal of free 
trade for the Americas. Because of the uniqueness of sugar, 
particularly in terms of the highly distorted world market for 
sugar, a number of concerns must be taken into account as the 
FTAA is negotiated.
    Compliance with Past Agreements. While the United States 
has far surpassed its Uruguay Round commitments, many other 
countries have yet to even minimally comply. Numerous examples 
exist where export subsidies, internal supports, and import 
tariffs for many crops are not in compliance with WTO 
commitments.
    Despite the generous additional access to the U.S. market 
Mexico receives, Mexico is casting doubts on the validity of 
the NAFTA sugar provisions to which it agreed in 1993. Now, 
four years after the agreement's inception, Mexico has filed 
for a dispute panel resolution. Furthermore, counter to both 
WTO and NAFTA rules, Mexico has imposed extremely high duties 
on imports of U.S. corn sweeteners. The United States has been 
forced to seek redress through both WTO and NAFTA channels.
    Unfortunately, foreign countries' failure to comply 
undermines the credibility of past agreements and jeopardizes 
the public's ability to support the negotiation of new ones. 
Foreign countries must be brought into full compliance with 
past agreements before the United States considers additional 
concessions in new agreements.
    Minimum Access Commitment. In the Uruguay Round, the United 
States agreed it would import no less than 1.26 million short 
tons of sugar per year. In the NAFTA, the United States agreed 
it would import up to 275,000 tons (250,000 metric) of sugar 
from Mexico during transition years 7-14. The U.S. 
Administration has committed that the additional Mexican 
imports would count toward fulfillment of the URA import 
minimum.
    We are concerned about how any additional access granted 
under the FTAA would be reconciled relative to our WTO minimum 
import commitment, and we are concerned about the possible 
effect on non-FTAA quotaholding countries that have come to 
rely, economically, on access to the preferentially priced U.S. 
sugar market.
    Widely Varying Levels of Support. Unilateral reforms to 
U.S. agriculture policy in the 1996 Farm Bill far exceeded U.S. 
commitments made the year before in the Uruguay Round. 
Furthermore, developing countries, which dominate world 
agricultural trade and particularly sugar trade, were subject 
to a slower pace of reductions, if any.
    As a result, the United States is way out in front of the 
rest of the world in removing its government from agriculture 
and has placed its farmers in a domestic free market situation. 
This gap makes American farmers uniquely vulnerable to 
continued subsidies by foreign competitors.
    In sugar, two examples come to mind: 1) The EU sugar 
support price is approximately 40% higher than the stand-by 
U.S. support price. The Uruguay Round's formula-driven 
percentage reductions in support levels do not reduce the gap 
between the EU and the U.S. at all. 2) Actual U.S. sugar 
imports the past two years have been nearly double the 1.26-
million-ton minimum import commitment the U.S. made in the 
Uruguay Round and about six times the URA global minimum.
    It is key that American farmers not be penalized for 
attempting to lead the rest of the world toward free 
agricultural trade. American farmers must be given credit for 
the reforms they have endured.
    Labor and Environmental Standards. The gap in government 
standards--and resulting producer costs--between developed and 
developing countries is well documented and immense. In sugar, 
the gap is particularly pronounced because, while the EU and 
the U.S. are major players, production and exports are highly 
dominated by developing countries, especially in the cane 
sector. The contrast is pronounced in the potential FTAA, in 
which the United States is the only major developed-country 
sugar producer.
    American sugar producers comply with the world's highest 
standards for environmental protection--at a price. For 
example, the Everglades Forever Act (EFA) mandates that Florida 
farmers pay at least $232 million in taxes for Everglades 
preservation activities--on top of the many costs borne by 
farmers to monitor and clean water leaving farm areas. In 
Hawaii, extremely high environmental compliance costs have been 
a factor in driving two-thirds of the state's sugar growers out 
of business in the past 10 years. In many developing countries, 
by contrast, sugar mills face no restrictions, or no 
enforcement of restrictions, on the quality of water or air 
emissions.
    American sugar farmers are proud to raise sugar with the 
highest possible regard for workers and the environment. But we 
should not be penalized in multilateral or regional trade 
negotiations for providing these costly protections. And 
foreign countries that do not provide such protections should 
not be rewarded.
    If we are attempting to globalize or regionalize our 
economy, we should do the same with our food safety and worker 
and environmental protection responsibilities.
    State Trading Enterprises (STE's). STE's are quasi-
governmental, or government-tolerated organizations that 
support domestic producers through a variety of monopolistic 
buyer or seller arrangements, marketing quotas, dual-pricing 
arrangements, and other strategies. These practices were 
ignored in the Uruguay Round, but are, unfortunately, common in 
the world sugar industry. Major producers such as Australia, 
Brazil, China, Cuba, and India have sugar STE's, but were not 
required to make any changes in the Uruguay Round.
    In addition to Brazil, other FTAA countries allow practices 
similar to those characteristic of STE's. We are studying the 
sugar trading systems in these countries, and will share our 
findings with Congress and the Administration. These, and 
other, foreign trade-distorting practices will have to be taken 
into account as the FTAA is negotiated.

               Recommendations for the FTAA Negotiations

    To address these concerns, we have several recommendations 
for U.S. FTAA negotiators.
    1. The United States should not reduce its government 
programs any further until other countries have complied with 
their Uruguay Round commitments and have reduced their programs 
to our level. Nor should the United States agree to expanding 
the NAFTA to the rest of the hemisphere until Mexico complies 
with the NAFTA.
    2. The wide gap in labor and environmental standards 
between developed and developing countries must be taken into 
account in the FTAA, and addressed in a manner that ensures 
foreign standards rise to U.S. levels, rather than providing an 
advantage to developing countries with despicable labor and 
environmental standards.
    3. Because of the uniqueness of the world sugar market and 
the huge differences between the nature of the U.S. sugar 
economy and those of developing nations that dominate the 
potential FTAA, sugar should receive special consideration, as 
it did in the NAFTA.

                               Conclusion

    In conclusion, Mr. Chairman, thank you for convening this 
timely and important hearing. U.S. agriculture is extremely 
vulnerable as we approach new multilateral and regional trade 
negotiations. If we negotiate carefully and rationally, 
however, there is enormous potential for responsible American 
sugar producers to compete and prosper in a genuine free trade 
environment, free from the need for government intervention. We 
are anxious to work with you to resolve problems with past 
agreements, and then move ahead to forge, and enforce, new 
ones. Thank you for the opportunity to submit our views.
      

                                

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Statement of Dr. Steven Cord, Research Director, Center for the Study 
of Economics, Columbia, Maryland

    Let us start by agreeing that free trade between nations is 
a good idea; then why not free trade within a nation. A tariff 
is a tax on imports, but if it's no good then aren't all taxes 
no good?
    If we do away with taxes on producers (e.g., workers and 
businesses), how will government subsist? Easy--by taxing 
locations, many of which are quite valuable and are not 
produced by human labor. The value of these locations is 
exactly expressed by the value of land, which can be assessed 
with a high degree of accuracy. Land values are right now 
widely taxed and 16 U.S. cities are taxing land more than 
buildings and with uniformly good results.
    Imagine if we had real free trade within our country--if 
land values were more fully taxed in place of taxes on workers 
and businesses. Wouldn't production be spurred and wouldn't 
land have to be more efficiently used?
    Can the federal government do this? Yes! This organization 
has done extensive research to find out how and invites 
inquiries.
    Client listing: The Center for the Study of Economics is a 
non-profit organization supported by two private foundation 
grants, and contributions and bequests from about 500 members 
across the country, but we are testifying on our own behalf.
      

                                

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Statement of Chemical Manufacturers Association, Arlington, Virginia

    The U.S. chemical industry is a leader in free trade and 
U.S. exports. The chemical industry is America's largest 
exporter, and in 1997, accounted for over $69 billion in U.S. 
exports. For the same year, U.S. imports of chemicals and 
allied products were $50 billion, for a U.S. trade surplus in 
the sector of over $19 billion. Cumulatively, the industry's 
trade surplus in the chemicals sector over the last 10 years 
amounts to $172 billion.
    The negotiations to create the Free Trade Area of the 
Americas (FTAA) are of critical importance for the future of 
our industry. U.S. companies have long been the preferred 
suppliers in Latin American markets, but this situation is 
rapidly changing, as the MERCOSUR member countries of Brazil, 
Argentina, Uruguay and Paraguay move to negotiate agreements 
with the European Union, and strengthen linkages with other 
trading partners in South America. The Free Trade Area of the 
Americas would be a powerful means to retain America's ability 
to be the pre-eminent supplier to the Hemisphere. Considering 
just the markets of Central and South America, these countries 
provide the U.S. chemical industry with market potential of 400 
million persons and combined Gross Domestic Products of $2.7 
trillion. The U.S. chemical industry is very much a global 
industry. Our exports to Europe are strong, yet the European 
market is mature. The emerging markets in Asia and Latin 
America will be our fastest growing export markets, and with 
the current financial crisis still burdening many of the 
markets in Asia, Latin America becomes an even more significant 
destination for America's chemical exports.
    The Chemical Manufacturers Association supports the goal of 
negotiating the FTAA by 2005. We believe this goal is realistic 
and achievable. Although we recognize that the 34 economies 
participating in the FTAA are diverse as to size, economic 
strength, and overall competitiveness, we are firmly convinced 
that the key to continued prosperity is trade without barriers, 
subsidies and other unfair practices. Eliminating impediments 
to market access for goods and services fosters economic growth 
which, in turn, will raise standards of living in the region, 
and will improve working conditions for people throughout the 
Americas.
    Key aspects of the FTAA of importance to the U.S. chemical 
industry include:
    Consistency with the WTO. The U.S. chemical industry 
supports the principle that the FTAA should be consistent with 
all aspects of the WTO. At the same time, the FTAA should seek 
to improve upon WTO disciplines and agree to implement trade-
liberalizing rules that go beyond the basic WTO requirements.
    Tariffs and non-tariff barriers. Free trade is good for 
U.S. chemicals exports. In NAFTA, for example, Canada is our 
single largest market for U.S. chemicals, accounting for 19 
percent of the industry's total exports. Under NAFTA, U.S. 
exports of chemicals and allied products to Canada more than 
trebled from 1989-1997, rising from $4.3 billion to $13.1 
billion. Export growth to Mexico has been nearly as rapid 
rising in 1997 to $6.3 billion, just short of triple the 1989 
total of $2.2 billion.
    Rules of origin. These need to be clear and easy for the 
industry to understand. At the same time, the rules must ensure 
that the benefits of the FTAA accrue to producers within the 
Hemisphere.
    Intellectual Property Rights. The FTAA should aim to create 
strong rules for the protection of intellectual property rights 
in the Hemisphere. Enacting TRIPs-consistent laws and 
regulations throughout the Hemisphere by 2000, for example, 
would be a desirable step and could certainly be considered 
``concrete progress.''
    Standards and Conformance Testing. Chemical products are 
often highly regulated and subject to numerous standards and 
certification requirements. Harmonization of product standards 
and testing requirements throughout the Hemisphere is critical 
to ensure safe handling and at the same time avoid increasing 
compliance costs and creating new barriers to trade.
    Environment and Labor. Although CMA supports individual 
country efforts on environmental and labor initiatives, 
governments should not be compelled to adopt policies through 
the inclusion of unrelated or inappropriate measures in trade 
agreements. For example, the Chemical Manufacturers Association 
is concerned over the U.S. government's promotion of 
environmental elements in the Multilateral Agreement on 
Investment (MAI) now under negotiation in the Organization of 
Economic Cooperation and Development (OECD). In the MAI, the 
U.S. is proposing to single out the chemical industry in an 
agreement with broad implications for U.S. business. If 
adopted, CMA believes this proposal will unfairly stigmatize 
chemical industry investments, as well as possibly infringe on 
MAI member states' authority in the area of environmental 
protection. In short, environment and labor issues should not 
be a required element in a trade agreement.
    Role of the business community. We support a regular and 
formal role for the participation of the business community in 
the formation of the FTAA, and beyond. The agreement may be 
among governments, but businesses are the drivers for a strong 
economy. Industry should be able to provide views to the 
negotiators, and to the officials of the 34 participating 
governments in an organized fashion. The Administration's 
proposal for a Committee on Civil Society, while interesting, 
does not appear to adequately fulfill this need.
    Finally, the members of the Chemical Manufacturers 
Association strongly support the renewal of the President's 
fast-track negotiating authority. We view such authority as 
critical to the ability of the United States to demonstrate 
leadership on international trade questions. In the context of 
the FTAA, it is evident that renewed fast-track authority is 
needed as soon as possible in order to infuse real momentum 
into the Hemispheric negotiations.
      

                                


Statement of Rufus E. Jarman, Jr., President, and Patrick C. Reed, 
Chairman, International Trade Committee, Customs and International 
Trade Bar Association, New York, New York

 Any New Trade Agreements Should Not Include Binational Panel Dispute 
                               Resolution

    The Customs and International Trade Bar Association 
(``CITBA'') is pleased to submit this statement for the record 
in connection with the above captioned hearing. CITBA is a 
national Bar Association comprised of attorneys who practice 
customs and international trade law. All active members are 
members of the Bar of the United States Court of International 
Trade. CITBA has no political or ideological affiliations or 
motivations. CITBA's members represent every manner of party 
from individuals to multi-national corporations both domestic 
and foreign.
    CITBA has continuously, and strongly, opposed the 
institution of binational panel review of disputes arising 
under the antidumping and countervailing duty laws since such 
procedures were first seriously suggested in connection with 
the negotiation of the U.S./Canada Free Trade Agreement 
(``CFTA'') in 1987. CITBA's opposition to these procedures is 
based both on policy grounds and on legal/constitutional 
grounds.
    I. Chapter 19 Binational Panel Review is Bad Policy. Even 
if there were no legal objections, there exist no rational 
policy objectives served by the present binational panel 
review, much less extension of such procedures to any proposed 
agreement on a free-trade area of the Americas or otherwise. To 
the contrary, for a number of reasons, the binational panel 
review system represents extremely bad public policy with great 
potential for mischief, particularly to the extent that it 
might be extended beyond its present limited existence in 
NAFTA.
    The binational panel review system was never the result of 
any coherent and cohesive policy objective. Rather, it was 
strictly the result of political compromise resulting in a 
system which was probably worse than that desired by either the 
Canadian or United States negotiators. This was clearly 
reviewed by Hon. Gregory W. Carman, Chief Judge of the United 
States Court of International Trade at an address delivered to 
CITBA at its annual dinner on April 16, 1997.\1\
---------------------------------------------------------------------------
    \1\ The excerpts contained herein are taken from the version of 
Judge Carman's speech as published at Volume XXVII, Stetson Law Review 
643. A similar version also appears at 21 Fordham Int'l. L.J. 1 (1997).
---------------------------------------------------------------------------
    Not surprisingly, each side [Canada and the United States] 
had different objectives it hoped to accomplish in the 
negotiations. In an article published in the Spring 1995 issue 
of Law and Policy in International Business, Charles Gastle and 
Jean-G. Castel, two Canadian lawyers, discussed the ``awkward 
compromise'' that brought about the CFTA/NAFTA mechanism for 
settling disputes. They state:
    The Canadian goal had been to eliminate existing 
antidumping and countervailing duty rates [in the United 
States] and to negotiate a new set of laws modeled on 
competition law principles with a binational tribunal to 
enforce them. This goal proved elusive because U.S. trade 
officials wanted strict limits placed upon what they considered 
to be trade distorting practices through Canada's improper use 
of subsidies.
    While the Canadians sought to exempt or ameliorate the 
effect of the United States' dumping and countervailing duty 
laws on its products, there was strong opposition in Congress 
to weakening these laws.
    To resolve the conflict resulting from these polarizing 
points, the parties agreed not to change United States or 
Canadian countervailing or dumping laws, and substituted 
binational panels for judicial review. While the CFTA's 
adoption of the binational panel dispute resolution system was 
designed only as an interim measure, this compromise was 
materially significant in securing approval of the treaty in 
both countries. (Footnotes omitted.)
    What else but political compromise could explain the 
creation of a system the purpose of which is to apply U.S. law, 
but which usurps specialized constitutional courts established 
for that purpose in order to substitute non-judicial ``experts 
for tenured judges?''
    When the binational panel system was first adopted, it was 
expressly understood that the system was to be temporary and 
was not to be continued or expanded into other contexts. Again, 
this aspect was succinctly reviewed by Judge Carman as follows:
    The United States and Canada agreed to suspend CFTA upon 
NAFTA's entry into force on January 1, 1994. nevertheless, 
Chapter Nineteen of NAFTA substantially replicates the 
binational panel mechanism. NAFTA, however, ... contains no 
language indicating the panel process is intended to be 
temporary, as was expressly stated in the CFTA.
    One problem which is virtually unavoidable in the 
binational panel review system is that it is virtually 
impossible to select panels composed of individuals who do not 
at least have the appearance of lacking impartiality as a 
result of their professional activities. Many panelists are 
lawyers who, of necessity, have represented companies or 
governments on one side or the other, sometimes in industries 
closely associated with those involved in the dispute. Indeed, 
the panel mechanism unavoidably involves the built-in dilemma 
that in order to find competent and qualified individuals who 
understand the subject matter sufficiently well to serve as 
panelists, it is necessary to select persons with specific 
experience representing participants in other disputes. This, 
of course, is one of the very reasons for lifetime tenure and 
an independent judiciary. Many CITBA members refuse, on 
principle, to participate in panel proceedings as this would 
be, they believe, incompatible with their roles as advocates in 
their day-to-day activities in the international trade areas.
    II. The Binational Panel Procedure is Unconstitutional. 
Whether or not the binational panel procedure represents 
acceptable policy, CITBA is of the strong opinion that the 
procedure is impermissible under basic constitutional 
principles. CITBA's basic position was set out in an amicus 
curiae brief filed in 1997 in American Coalition for 
Competitive Trade v. United States, No. 97-1036 (D.C.) Cir. 
filed Jan. 16, 1997. This case was dismissed on the basis of 
lack of standing by the plaintiff. No court has ever addressed 
the fundamental constitutional issues involved. CITBA's 
position is summarized below.

A. Elimination of Article III Judicial Review Of Antidumping 
Duty And Countervailing Duty Determinations Is 
Unconstitutional.

    1. Antidumping And Countervailing Duty Determinations 
Result In The Assessment of Federal Taxes. The U.S. antidumping 
and countervailing duty statutes are intended to remedy injury 
to U.S. industry caused by imports which are sold at less than 
their normal value (``dumped'') or which have been subsidized. 
The statutory remedy consists in imposing a special import 
duty, payable to the United States, on the dumped or subsidized 
imported merchandise. See 19 U.S.C. 1671 et seq. (codifying 
Tariff Act of 1930, 701 et seq., as amended).
    Thus, in assessing whether the system of binational panel 
review in antidumping and countervailing duty matters under 
NAFTA is constitutional, it is important to understand that the 
underlying administrative decisions result in the assessment of 
import duties, a form of federal taxation. The system of 
binational panel review means that the government can assess 
taxes without having the lawfulness of its tax-assessment 
decisions judicially reviewed by an Article III court. 
Responsibility for reviewing the lawfulness of tax assessments 
is assigned to panels of five private individuals, of whom two 
or three are not U.S. citizens.
    CITBA maintains that the system of binational panel review 
is unconstitutional because, contrary to the requirements of 
Article III, it precludes Article III judicial review in cases 
contesting the government's assessment of antidumping and 
countervailing duties.
    2. The Drafting History Of The Constitution Shows That The 
Federal Judicial Power Was Intended To Apply To Federal Customs 
Cases. One of the main purposes of the Constitution was to 
provide the Federal Government with the authority to raise 
revenue through import duties (see U.S. Constitution, Article 
I, Section 8). The drafters also intended to create federal 
courts, which had not existed under the Articles of 
Confederation.
    At the constitutional convention, each of the major initial 
plans provided that federal courts be established to hear the 
customs cases that would arise under the new federal taxation 
power. Thus, for example, the ``Virginia Plan,'' proposed by 
Governor Randolph of Virginia, provided:
    9. Resd. that a National Judiciary be established to 
consist of one or more supreme tribunals, and of inferior 
tribunals to be chosen by the National Legislature ... that the 
jurisdiction of the inferior tribunals shall be to hear and 
determine in the first instance, and of the supreme tribunal to 
hear and determine in the dernier resort, all ... cases ... 
which respect the collection of the National Revenue ....

Farrand, I Records of the Federal Convention of 1787 21-22 (New 
Haven, 1911, 1936, 1986) (``Records''). Competing plans 
submitted by New Jersey, Hamilton, and Pinckney also each 
provided for similar new federal judicial review over tax 
matters. See id. at 136, 223-224, 230, 232, 237, 243, 244, 293 
& 305. As the convention granted more powers to Congress, the 
functions of the federal courts encompassed more subjects, and 
the judicial power that we know today in Article III became 
more generalized. Thus, as James Wilson stated in reference to 
Congress's control over duties and trade, ``the Judicial should 
be commensurate to the legislative and executive authority.'' 
Id. at 237, n.18; see also George Washington's letter of 
transmittal at II Records 666.
    The foregoing drafting history of the Constitution 
establishes that the Article III judicial power was intended 
specifically to extend to cases involving import duties. The 
system of binational panel review improperly withdraws cases of 
this kind from Article III courts.
    3. Case Law Does Not Support The Constitutionality Of 
Binational panel Review. The seminal case on whether it is 
constitutional to preclude Article III judicial review in 
customs duty cases is Cary v. Curtis, 44 U.S. (3 How.) 236 
(1846). In that four-to-three decision, \2\ the Court 
interpreted a statute (Act of March 3, 1839, ch. 82, 2, 5 Stat. 
339, 348-49) so as to extinguish use of the common law action 
in assumpsit for obtaining judicial review of customs duty 
assessments and, instead, to vest authority to resolve customs 
disputes in the Secretary of the Treasury. The Court further 
ruled that the statute as interpreted was constitutional. 
However, within 36 days after the Court's decision, Congress 
amended the 1839 statute to overrule the Court's interpretation 
and restore the right to obtain judicial review in federal 
court by action in assumpsit to determine the legality of 
customs duty assessments. (Act of February 26, 1845, ch. 22, 5 
Stat. 727.)
---------------------------------------------------------------------------
    \2\ Justices Story and McLean filed written dissents, but scholarly 
research has revealed that Justice Wayne dissented without opinion. See 
Roger W. Kirst, Administrative Penalties and the Civil Jury: The 
Supreme Court's Assault on the Seventh Amendment, 126 U. Pa. L. Rev. 
1281, 1334 n.258 (1978) (citing the minutes of the Supreme Court).
---------------------------------------------------------------------------
    Cary v. Curtis has been miscited for the proposition that 
claims for refunds of customs duties ``ha[ve] at times been 
confided to the Secretary of the Treasury, with no recourse to 
judicial proceedings.'' Ex parte Bakelite Corp., 279 U.S. 438, 
458 (1929). On the contrary, in a passage from Cary v. Curtis 
that often seems to have been overlooked, the Court majority 
emphasized that it did not intend to condone the 
constitutionality of eliminating Article III judicial review 
entirely in import duty cases. The Court noted the argument 
that, under the statute as interpreted by the Court, ``the 
party is debarred from all access to the courts of justice, and 
left entirely at the mercy of an executive officer ....'' 44 
U.S. (3 How.) at 250. The Court rejected the premise of the 
argument: ``[n]either have Congress nor this court furnished 
the slightest ground for the above assertion'' that judicial 
review was precluded. Id. Rather, the Court felt that other 
procedures for obtaining review besides an action in assumpsit 
remained available. Id. (suggesting ``by replevin, or in an 
action of detinue, or perhaps by an action of trover ....'').
    In fact, although the common law action in assumpsit was 
often used in customs litigation before Cary v. Curtis, it was 
not only the procedure available at the time. As the Court 
accurately stated, judicial review in nineteenth century 
customs cases was sometimes obtained by other common law forms 
of action, such as the writ of trover, e.g., Tracy v. 
Swartwout, 35 U.S. (10 Pet.) 80 (1836), or the writ of 
trespass, Sands v. Knox, 7 U.S. (3 Cranch) 499 (1806) 
(reviewing decision of New York courts in action in trespass). 
And judicial review was also sometimes obtained by the 
importer's refusing to pay the duties demanded by the 
government or to pay the customs bond given to secure the duty. 
This refusal forced the government to sue to obtain payment on 
the bond or to hold the importer personally liable for the 
duty. E.g., United States v. Kid, 8 U.S. (4 Cranch) 1 (1807) 
(action on customs bond); Meredith v. United States, 38 U.S. 
(13 Pet.) 486 (1839) (holding that customs duty is personal 
obligation of importer).
    Thus, as the Supreme Court later noted, Cary v. Curtis 
``specifically declined to rule whether all right of action 
might be taken away from a protestant, even going so far as to 
suggest several judicial remedies that might have been 
available.'' Glidden Co. v. Zdanok, 370 U.S. 530, 549 n.21 
(1962) (citing 44 U.S. (3 How.) at 250). This ruling in Glidden 
criticized the miscitation of Cary v. Curtis noted above in Ex 
parte Bakelite Corp., and the plurality opinion in Glidden 
expressly overruled Bakelite.

B. The System of Binational Panel Review Violates the 
Appointments Clause.

    CITBA maintains that the system of binational panel review 
in antidumping and countervailing duty matters under Chapter 
Nineteen of NAFTA is unconstitutional because it violates the 
Appointments Clause in Article II, Section 2 of the 
Constitution. Members of binational panels are officers of the 
United States under Buckley v. Valeo, 424 U.S. 1, 126 (1976) 
and, therefore, they are required to be appointed in accordance 
with the Appointments Clause.
    Customs jurisprudence does not support the 
constitutionality of the method for appointing binational 
panelists under Chapter Nineteen. In Auffmordt v. Hedden, 137 
U.S. 310 (1890), the Supreme Court ruled on the 
constitutionality of the system of ``merchant appraisers'' 
used, prior to 1890, to review certain administrative decisions 
on the appraised value of imported goods under the customs 
laws.
    Under the customs laws before 1890, if an importer was 
dissatisfied with the customs appraiser's determination of the 
appraised value of imported goods, the dissatisfied importer 
could request a reappraisement by giving notice to the local 
Collector of Customs, the senior customs official at reach port 
of entry. See Auffmordt v. Hedden, 137 U.S. at 312 (citing Rev. 
Stat. 2930). The reappraisement was conducted by two persons: a 
government official known as a General Appraiser, and a 
``discreet and experienced merchant, ... [a] citizen[] of the 
United States, ... familiar with the value and character of the 
goods in question ....'' who was selected by the Collector of 
Customs. Id. The General Appraiser and the merchant appraiser 
would ``examine and appraise'' the imported goods, and if they 
disagreed, the Collector would decide between them. Under the 
statute, the ``appraisement thus determined [was] final, and 
[was] deemed to be the true value'' of the goods. Id. 
(Alternatively, if a General Appraiser was not available, the 
Collector selected two merchant appraisers to conduct the 
reappraisement. Id.)
    In Auffmordt v. Hedden, the importer contended that the 
reappraisement procedure violated the Appointments Clause 
because the merchant appraiser was an ``inferior officer'' of 
the United States who could only be appointed by the President, 
a court, or the head of a department, and not by the local 
Collector of Customs. The Supreme Court ruled that the merchant 
appraiser was not an ``inferior officer' within the meaning of 
the Appointments Clause and, therefore, was not required to be 
appointed in accordance with its provisions. 137 U.S. at 326-
27. The Court explained that the merchant appraiser was ``an 
expert, selected as such.'' Id. at 327. He was ``an executive 
assistant, an expert assistant to aid in ascertaining the value 
of the goods, ... and selected for his special knowledge in 
regard to the character and value of the particular goods in 
question.'' Id. His ``position [was] without tenure, duration, 
continuing emolument, or continuing duties, and he acts only 
occasionally and temporarily.'' Id.
    The nineteenth century merchant appraiser is materially 
different from the members of binational panels under NAFTA. 
Therefore, the Supreme Court's holding in Auffmordt that a 
merchant appraiser is not an ``officer'' of the United States 
should not be extended to binational panelists. First, the 
merchant appraisers made fact-finding decisions based on their 
expertise on particular imported goods. In contrast, binational 
panelists perform a judicial-type function by adjudicating 
questions of law based on an underlying administrative record. 
Second, unlike binational panelists whose decisions are not 
subject to judicial review at all, the reappraisement decisions 
in nineteenth century customs law were subject to judicial 
review in federal court for errors of law, jurisdiction, and 
procedure. See, e.g., Stairs v. Peaslee, 59 U.S. (18 How.) 521 
(1855) (reappraisement judicially reviewed on issue of 
statutory interpretation); Greely v. Thompson, 51 U.S. (10 
How.) 225 (1850) (reappraisement judicially reviewed on issues 
of procedural irregularity and statutory interpretation). But 
cf. Hilton v. Merritt, 110 U.S. 97, 106 (1884) (reappraisement 
is final and not subject to judicial review on factual 
determination of value; ``the valuation made by the customs 
officers [is] not open to question in an action at law as long 
as the officers acted without fraud and within the power 
conferred on them by the statute.''). Moreover, so long as the 
reappraisement was conducted by a General Appraiser and a 
merchant appraiser (as in Auffmordt), the decision by the 
merchant appraiser had no effect unless one of the relevant 
government officials (either the General Appraiser or the 
Collector) agreed with the merchant appraiser.
    Accordingly, the members of binational panels exert 
materially more authority pursuant to the laws of the United 
States than nineteenth century merchant appraisers. This makes 
the binational panelists ``officers'' or ``inferior officers'' 
of the United States within the meaning of the Appointments 
Clause.
    III. Conclusion. The United States has a well functioning 
system of qualified constitutional courts to apply United 
States law in antidumping and countervailing duty disputes. 
Replacing these courts with binational panel review is bad 
policy and of dubious constitutional validity. Thus, binational 
panel procedures should not be extended under any new trade 
agreements.

            Respectfully submitted,

            Customs and International Trade Bar Association
                                 By Rufus E. Jarman, Jr., President
      

                                


Statement of Dresser-Rand Co., Corning, New York

                            I. Introduction

    These comments are submitted on behalf of the Dresser-Rand 
Company pursuant to the Honorable Philip M. Crane's March 17, 
1998, announcement of a public hearing on the Free Trade Area 
of the Americas (FTAA). Dresser-Rand is a leading global 
supplier of centrifugal and reciprocating compressors, gas 
expanders, gas and steam turbines, and related equipment. The 
Dresser-Rand Company is a partnership between Dresser 
Industries, Inc. of Dallas, Texas and Ingersoll-Rand Co. of 
Woodcliff Lake, New Jersey. Dresser-Rand combines the 
facilities and expertise of these two companies, along with 
that of Worthington Steam Turbine Division, Turbodyne, and 
Terry Corporation, in the design, manufacture, sale, and 
servicing of turbines, compressors, and other equipment. 
Dresser-Rand's headquarters are located at 1 Baron Steubon 
Place, Corning, New York 14830 (tel. (607) 937-6441)\1\ These 
comments address the specific objectives for the FTAA 
negotiations that are likely to benefit Dresser-Rand and the 
domestic turbo-compressor and steam turbine industry.
---------------------------------------------------------------------------
    \1\ The primary manufacturing facilities for turbines and 
compressors are located in the state of New York (Olean, Painted Post, 
Wellsville) with additional facilities in Broken Arrow, Oklahoma. 
Electronic control systems for these products are manufactured by 
Dresser-Rand in Houston, Texas. The company manufactures electric 
motors for use in turbo-compressor trains and generators for turbine-
generators in Minneapolis, Minnesota. Dresser-Rand's international 
operations include compressor and turbine manufacturing facilities in 
LeHavre, France; Kongsberg, Norway; and Oberhaussen, Germany.
---------------------------------------------------------------------------

II. Market Access: The United States Should Negotiate Reciprocal Tariff 
Rates for Turbo-Compressor and Steam Turbine Products Traded Within the 
                                Americas

    Dresser-Rand markets and exports turbo-compressor systems, 
compressors, steam turbines, and allied products throughout the 
Americas and the world. Exports accounted for over half of 
company sales over the past several years. To date, Dresser-
Rand systems are installed and operating in Argentina, Aruba, 
Brazil, Canada, Chile, Colombia, Mexico, Trinidad and Tobago, 
and Venezuela. This year, Brazil and Venezuela have been 
particularly active potential export markets. As shown by 
Attachment 1, however, the tariff rate differential between 
Brazilian and U.S. tariffs, for example, is substantial. Duties 
imposed on U.S. imports in 1997 ranged from 0.7% to 7.0%. By 
comparison, Brazil imposed duties from 5% to 20%.
    In terms of overall trade, Brazil has traditionally been 
the United States' largest trading partner of the South 
American countries.\2\ Brazil's trade reform since 1990 is 
expected to increase opportunities for U.S. exporters.\3\ In 
recent years, Dresser-Rand has booked major system contracts 
for installation in Brazil. Indeed, with the current financial 
crisis in Asia, Brazil and other South American countries are 
vital markets for Dresser-Rand's exports. But, current 
Brazilian tariffs on turbo-compressor and steam turbine 
products, represent a significant trade barrier.
---------------------------------------------------------------------------
    \2\ USTR, Future Free Trade Area Negotiations: Report on 
Significant Market Opening 6 (May 1, 1997).
    \3\ Id.
---------------------------------------------------------------------------
    The United States, Mexico and Canada negotiated zero-for-
zero tariff concessions under the North American Free Trade 
Agreement (NAFTA), with respect to imports of turbo-compressors 
and steam turbines. Certain compressor parts are subject to 
duties when imported from another NAFTA country into Mexico, 
until 2003. The United States unilaterally provides duty-free 
access to imports from FTAA countries under the Generalized 
System of Preference Program, the Caribbean Basin Economic 
Recovery Act, and the Andean Trade Preference Act. With the 
exception of NAFTA, however, duty-free access to the U.S. 
market under these programs, and reciprocal duty-free 
treatment, is not guaranteed or permanent. Therefore, in the 
context of the market access negotiations, the United States 
should negotiate to obtain reciprocal tariff treatment with all 
FTAA countries so that duties on U.S. exports of turbo-
compressor and steam turbine products are at the same levels as 
duties on U.S. imports from FTAA countries.
    In the global market for turbo-compressors, steam turbines, 
and allied equipment, competition is fierce and the price is 
critical. Contractors building large-scale chemical or petro-
chemical plants or refineries will typically award the contract 
to the lowest-price qualified bidder. Jobs are bid by 
manufacturers invited from around the world. Because of the 
open U.S. market, the dependence on exports, and the fierce 
competition among global manufacturers, U.S. producers are 
sensitive to even small changes in price. The U.S. turbo-
compressor industry in 1997 obtained relief under the 
antidumping law with respect to certain imported turbo-
compressor systems from Japan. A predicate for such relief was 
the finding of the International Trade Commission that dumped 
imports materially injured the U.S. industry.\4\ And, the 
Commission found that ``the record demonstrates the importance 
of price in most purchasing decision once a technical fit is 
established.'' \5\
---------------------------------------------------------------------------
    \4\ Engineered Process Gas Turbo-Compressor Systems from Japan, 
Inv. No. 731-TA-748 (Final), USITC Pub. 3042 (June 1997).
    \5\ Id. at 25.
---------------------------------------------------------------------------
    More recently, workers in Dresser-Rand's manufacturing 
facilities, engaged in the production of reciprocating 
compressors, qualified for adjustment assistance as a result of 
the adverse effects of ``increased imports.'' \6\ Increased 
market access and export opportunities within the FTAA region 
offer the potential to reverse such setbacks.
---------------------------------------------------------------------------
    \6\ Dresser-Rand Company, Painted Post and Corning, New York; 
Amended Certification Regarding Eligibility to Apply for Worker 
Adjustment Assistance, 63 Fed. Reg. 17,893 (April 10, 1998); see also 
63 Fed. Reg. 8211 (February 18, 1998).
---------------------------------------------------------------------------
    Negotiation of duty-free or reciprocal access is 
particularly important in view of the various negotiations 
between the European Union and countries within the Americas. 
There are only a few turbo-compressor manufacturers in the 
world, and several of our largest competitors are located in 
Europe. The remaining manufacturers are in Japan. To the extent 
that these multi-national producers obtain more favorable 
tariff treatment, U.S. exports are at an unwarranted 
competitive disadvantage.

III. Competition Policy: The United States Should Negotiate Competition 
 Rules That Define Actionable Anti-Competitive Practices and Procedures

    Among the negotiating objectives identified by the San Jose 
Ministerial Declaration of March 19, 1998, were the following 
objectives with respect to competition policy: (1) to advance 
towards the establishment of juridical and institutional 
coverage at the national, sub-regional or regional level, that 
proscribes the carrying out of anti-competitive business 
practices, and (2) to develop mechanisms that facilitate and 
promote the development of competition policy and guarantee the 
enforcement of regulations on free competition among and within 
countries of the Hemisphere. In general, the negotiations aim 
to guarantee that the benefits of the FTAA liberalization 
process will not be undermined by anti-competitive business 
practices.
    Prior to establishing these negotiating objectives, the 
FTAA Working Group on Competition Policy received an inventory 
of the various national laws governing competition in the 34 
countries expected to participate in FTAA negotiations. 
According to an August 30, 1997, report, only 12 countries have 
legislation and institutions governing competition policy while 
another 8 countries are in the process of drafting 
legislation.\7\ A review of existing legislation in the 12 FTAA 
countries reveals that a significant number of those countries 
agree with the United States that, inter alia, abuse of 
dominant positions (or monopolies), predatory pricing, and 
tying arrangements should be considered anti-competitive 
practices.
---------------------------------------------------------------------------
    \7\ OAS, Inventory of Domestic Laws and Regulations Relating to 
Competition Policy in the Western Hemisphere (Final Version), SG/TU/
WG.COMPOL/DOC.1/97/Rev.5/Corr. 1, at i (August 30, 1997).
---------------------------------------------------------------------------
    Many of the FTAA countries have also participated in 
regional trade and integration arrangements that include 
provisions governing competition policy: (1) North American 
Free Trade Agreement, (2) the U.S.-Canada Agreement Regarding 
the Application of Their Competition and Deceptive Marketing 
Practices laws; (3) the Canada-Chile Free Trade Agreement; (4) 
the Group-of-Three Treaty Between Mexico, Colombia, and 
Venezuela; (5) the Andean Group; and (6) the Protocol for the 
Defense of Competition of Mercosur.\8\ Only two of the six 
agreements, however, provide substantive standards that define 
anti-competitive practices: (1) the Decision 285 of the Andean 
Group; and (2) the Protocol for the Defense of Competition of 
Mercosur. For example, both Decision 285 and the Mercosur 
Protocol consider abuses of a dominant position to be anti-
competitive.\9\
---------------------------------------------------------------------------
    \8\ See OAS, Inventory of the Competition Policy Agreements, 
Treaties and Other Arrangements Existing in the Western Hemisphere 
(Preliminary Report), SG/TU/WG.COMPOL.DOC.3/96/Rev.4, at Summary (Aug. 
30, 1997).
    \9\ OAS, Inventory of the Competition Policy Agreements, Treaties 
and Other Arrangements Existing in the Western Hemisphere (Preliminary 
Report), SG/TU/WG.COMPOL.DOC.3/96/Rev.4, at Summary, 38, 48-49 (Aug. 
30, 1997). The Mercosur Protocol also includes among its anti-
competitive practices the following forms of conduct:
    to procure or contribute to the adoption of uniform business 
practices or concerted action by competitors
    to limit or prevent access of new enterprises to the market
    to subordinate the sale of one good to the purchase of another good 
or to the use of a service, or to subordinate the supply of a service 
to the use of another or to the purchase of a good
    to sell merchandise, for reasons unfounded on business practices, 
at prices below the cost price

    Id.

    According to the WTO's review of competition laws, most 
countries with competition laws consider the following types of 
conduct to be anti-competitive: horizontal agreements, mergers, 
vertical market restraints, and abuse of a dominant 
position.\10\ Included in the definition of ``abuse of a 
dominant position'' or ``monopolization'' are the following 
types of conduct: (1) exclusive dealing, (2) market foreclosure 
through vertical integration, (3) tied selling, (4) the control 
of scarce facilities and vital inputs or distribution channels, 
(5) price and non-price predation, (6) price discrimination, 
(7) exclusionary contractual arrangements, (8) charging higher 
than competitive prices, or (9) imposition of other 
``exploitative'' abuses.\11\
---------------------------------------------------------------------------
    \10\ WTO, Trade and Competition Policy, 1 Annual Report 1997 30, 
40-42.
    \11\ Id. at 42.
---------------------------------------------------------------------------
    Given the global nature of the market, the small number of 
world-wide manufacturers and the importance of low prices in 
securing contracts, much of the competition in the market takes 
place outside the jurisdiction of the country of exportation. 
Many of the countries in which turbo-compressors are installed 
have no local manufacturers. Hence, there is no local interest 
in enforcement of competition policy norms. Given that existing 
regional trade and integration arrangements covering 
competition policy do not provide a comprehensive definition of 
anti-competitive practices, the United States should take a 
leading role in drafting a definition of anti-competitive 
practices to cover all FTAA countries. The Dresser-Rand Company 
supports the Business Forum of the Americas' suggestion that 
negotiations focus on the development of general principles 
prohibiting abuse of a dominant position and practices 
restraining competition (vertical as well as horizontal).\12\ 
At the very least, negotiators should strive to define anti-
competitive practices and to work toward the establishment of 
principles to cover competition policy within the region.
---------------------------------------------------------------------------
    \12\ Business Forum of the Americas, Workshop IX: Competition 
Policy, Subsidies, Antidumping, Countervailing Duties and Safeguards 
(San Jose, Costa Rica, March 16-18, 1998).
---------------------------------------------------------------------------

 IV. Subsidies, Antidumping and Countervailing Duties: The FTAA Should 
Provide Separate Remedies for Dumping and Anti-Competitive Activity and 
           Should Strengthen Third-Country Dumping Provisions

    In the Ministerial Declaration of San Jose of March 19, 
1998, the trade ministers specifically agreed to permit the 
relevant negotiating groups to study issues relating to the 
interaction between trade and competition policy, including 
antidumping measures. The purpose of such study is to identify 
any areas that may merit merged negotiation or consideration. 
It has been suggested that the FTAA's efforts should include 
harmonization of competition laws and adoption of a harmonized 
competition policy that would replace antidumping laws.\13\ In 
the international community, there is a perception by some that 
competition laws can address the pricing practices which are 
specifically addressed by the antidumping law.\14\ This view, 
however, is incorrect.
---------------------------------------------------------------------------
    \13\ See, e.g., Brazil: Report on Developments and Enforcement of 
Competition Policy and Laws 1994-96, in OAS, Report on Developments and 
Enforcement of Competition Policy and Laws in the Western Hemisphere 
(Preliminary Report), SG/TU/WG.COMPOL/97/DOC.4/Rev.1, at 25, 38 (Sept. 
2, 1997).
    \14\ See WTO, Trade and Competition Policy, 1 Annual Report 1997 at 
68.
---------------------------------------------------------------------------
    The fundamental purposes of competition and antidumping 
laws differ. Both in United States law and in the WTO 
Antidumping Agreement, a limited remedy import duties-is 
provided to redress price discrimination that results in 
material injury (or threatens such injury) to a domestic 
industry. The goal of competition law is to preserve 
competition, principally for the benefit of consumers, but also 
for the benefit of competitors. The different requirements and 
relief available under competition laws and antidumping laws do 
not necessarily address the same practices or concerns. For 
example, although some have argued that predatory pricing is 
covered under competition law, a remedy is particularly elusive 
under the standards applied in U.S. precedents.\15\
---------------------------------------------------------------------------
    \15\ See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 
U.S. 209 (1993). Commentators and the Supreme Court have warned that 
successful predatory pricing claims are uncommon. See S.W. Waller, 
International Trade and U.S. Antitrust Law at 2-18-23 (1997); 
Matsushita Elec. Indus. Co. v. Zenith Radio, 106 S. Ct. 1348, 1357 
(1986); R.A. Givens, Antitrust: An Economic Approach 3.04 (1997) 
(``predatory pricing is one of the most common complaints made by 
competitors but one of the least likely to succeed'').
---------------------------------------------------------------------------
    Depending on the facts, the collection of antidumping 
duties on imports, in the context of an administrative 
proceeding, may be preferable or more appropriate than cease-
and-desist orders, injunctions, fines, damages, or criminal 
penalties available under competition law. Because the 
antidumping laws afford limited relief in the case of a 
specific type of pricing practice, without regard to intent, a 
comparable remedy is not available under competition laws as 
they now exist in the United States. Both types of remedies 
have been separately established by law in the United States 
for over seventy-seven years. For these reasons, the United 
States should argue against replacing or merging antidumping 
law and competition policy.
    Separately, Article 14 of the Agreement on Implementation 
of Article VI of the General Agreement on Tariffs and Trade 
1994 permits countries to address third-country dumping 
complaints. Third-country dumping occurs when an industry 
producing an exported product in one country is being injured 
by imports from another country to the same ultimate market. 
Article 14 permits the exporting country to petition the 
importing country for relief. However, the procedure for 
obtaining relief under the WTO Agreement is not automatic or 
readily available. After Dresser-Rand's experience as a 
petitioner in an antidumping case involving turbo compressors 
from Japan in 1997, \16\ Dresser-Rand remains concerned that 
discriminatory pricing will affect competition in the FTAA in 
the absence of strong rules against third-country dumping. In 
order to protect our domestic industry's interests in obtaining 
a expeditious and fair review of all third country dumping 
petitions, the United States should ensure that the FTAA 
strengthens third country dumping provisions in the Hemisphere. 
Petitioners should have access to relief whether or not there 
is a local producer. Moreover, the rules should provide for 
automatic initiation of an investigation upon request of a 
complaining country that has adjudged the petition to state a 
prima facie case.
---------------------------------------------------------------------------
    \16\ Engineered Process Gas Turbo-Compressor Systems, Whether 
Assembled or Unassembled, and Whether Complete or Incomplete, from 
Japan, 62 Fed. Reg. 24,394 (Dep't Comm. 1997) (Final LTFV Deter.).
---------------------------------------------------------------------------

                             V. Conclusion

    In the FTAA market access negotiations, the United States 
should negotiate for reciprocal tariff treatment for turbo-
compressors, steam turbines and allied products. In the 
competition policy negotiations, the United States should 
negotiate competition rules that provide a comprehensive 
definition of anticompetitive practices based on existing 
definitions in most countries with competition laws. Finally, 
in the subsidies, antidumping, and countervailing duty 
negotiations, the United States should ensure that the FTAA 
provides separate remedies for dumping and anti-competitive 
activities as well as strengthens third country dumping 
provisions in the hemisphere.
      

                                


  1998 BRAZILIAN IMPORT DUTIES ON TURBO-COMPRESSORS AND STEAM TURBINES
------------------------------------------------------------------------
                  HS                           Description         Duty
------------------------------------------------------------------------
8406.81...............................  Turbines, over 40 MW....      5%
8406.82...............................  Turbines, not over 40 MW     20%
8406.90...............................  Parts (of turbines).....     20%

  ....................................
                     as compressors, other than air:

------------------------------------------------------------------------
8414.80.31............................  Piston type.............     20%
8414.80.32............................  Screw type..............     20%
8414.80.33............................  Centrifugal.............      5%
8414.80.39............................  Other...................     20%

  ....................................
                          parts of compressors:

------------------------------------------------------------------------
8414.90.31............................  Pistons.................     20%
8414.90.32............................  Piston rings............     20%
8414.90.33............................  Cylinder blocks,             20%
                                         cylinder heads, sumps
                                         and housings.
8414.90.34............................  Valves..................     20%
8414.90.39............................  Other...................     20%
8419..................................  Machinery, plant or
                                         laboratory equipment,
                                         whether or not
                                         electrically heated,
                                         for the treatment of
                                         materials by a process
                                         involving a change in
                                         temperature such as
                                         heating, cooking,
                                         roasting, distilling,
                                         rectifying,
                                         sterilizing,
                                         pasteurizing, steaming,
                                         drying, evaporating,
                                         vaporizing, condensing
                                         or cooling, other than
                                         machinery or plant of a
                                         kind used for domestic
                                         purposes; instantaneous
                                         or storage water
                                         heaters, non-electric:.
8419.60.00............................  Machinery for liquifying     20%
                                         air or other gases.

  ....................................
                  other machinery, plant and equipment:

------------------------------------------------------------------------
8419.89.99............................  Other...................      5%
8419.90.90............................  Other (parts)...........     20%
------------------------------------------------------------------------
Source: U.S. Department of Commerce.


     1998 U.S. IMPORT DUTIES ON TURBO-COMPRESSORS AND STEAM TURBINES
------------------------------------------------------------------------
                  HS                          Description          Duty
------------------------------------------------------------------------
8406.81.10...........................  Steam turbines, over 40      7.0%
                                        MW.
8406.82.10...........................  Steam turbines, not over     7.0%
                                        40 MW.
8406.90.20...........................  Parts (of steam              7.0%
                                        turbines).
8406.90.30...........................  Parts (of steam              7.0%
                                        turbines).
8406.90.40...........................  Parts (of steam              7.0%
                                        turbines).
8406.90.45...........................  Parts (of steam              7.0%
                                        turbines).

  ...................................
                     as compressors, other than air:

------------------------------------------------------------------------
8414.30.80...........................  Compressors for              0.7%
                                        refrigerating ammonia.
8414.80.20...........................  Other gas compressors...     0.7%

  ...................................
                          Parts of compressors:

------------------------------------------------------------------------
8414.90.30...........................  Parts of compressors for     0.7%
                                        refrigerating ammonia.
8414.90.40...........................  Parts of other gas           0.7%
                                        compressors.
8419.60.50...........................  Machinery for liquifying     0.8%
                                        air or other gases.

  ...................................
                  Other machinery, plant and equipment:

------------------------------------------------------------------------
8419.89.90...........................  Other machinery for a        4.2%
                                        process involving
                                        temperature change.
8419.91.90...........................  Parts of items under         4.0%
                                        subheadings 8419.81 or
                                        8419.89.
------------------------------------------------------------------------
Source: Harmonized Tariff Schedules of the United States (1998).

      

                                


Statement of Floral Trade Council, Haslett, Michigan

                            I. Introduction

    These comments are submitted on behalf of the Floral Trade 
Council, pursuant to the Honorable Philip M. Crane's March 17, 
1998, announcement of a public hearing on the Free Trade Area 
of the Americas (FTAA). The Floral Trade Council is a U.S. 
trade association the majority of whose members are domestic 
producers or wholesalers of fresh cut flowers in the United 
States and is located at 1152 Haslett Road, Haslett, Michigan 
48840 (telephone 517-339-9765). These comments address the 
specific objectives for the FTAA negotiations that would 
benefit the U.S. fresh cut flower industry.

          II. Existing Trade Relationship With FTAA Countries

    Among the 34 FTAA countries are some of the largest flower 
producing and exporting countries in the world. The following 
twenty FTAA countries exported fresh cut flowers to the United 
States during the 1990's: Argentina, Bolivia, Brazil, Canada, 
Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El 
Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico, 
Panama, Peru, St. Vincent and the Grenadines, Trinidad and 
Tobago, and Venezuela. Of those countries, the major flower 
producing countries have historically been Colombia, Ecuador, 
Guatemala, Mexico, Costa Rica, and Canada. No other country, 
however, has had the impact that Colombia has had on the 
domestic fresh cut flower market.
    The domestic market for fresh cut flowers has been besieged 
with imports from Colombia over the last five years. Since 
1991, Colombia's imports of the major cut flower categories 
have almost doubled for most categories:

                                           Table 1.--Columbian imports
                                              (F.A.S. value U.S.$)
----------------------------------------------------------------------------------------------------------------
                                                                                           % Change   % Colombia
                       Flower Type                             1991            1997        from 1991   of Total
                                                                                            to 1997     in 1997
----------------------------------------------------------------------------------------------------------------
other roses.............................................      65,808,342     132,076,796         101          64
sweetheart roses........................................       1,734,753         169,613         -90          12
pompom..................................................      40,438,520      60,262,390          49          90
chrysanthemums..........................................
standard................................................       8,277,383       9,402,155          14          87
chrysanthemums..........................................
standard carnations.....................................      47,707,635      73,754,726          55          93
miniature carnations....................................      20,212,738      35,858,959          77          95
other cut flowers.......................................      18,615,100      48,051,143         158          28
----------------------------------------------------------------------------------------------------------------
Source: TIOS as compiled from U.S. Dept. Commerce, Bureau of the Census tapes which may differ from adjusted
  annualized data.

    As a result, the U.S. fresh cut flower industry has lost 
growers at alarming rates in each of the major cut flower 
categories. The total number of fresh cut flower growers (in 
the 36 states surveyed) plummeted from 1548 in 1992 to 1216 in 
1996: a decline of 21 percent:

                     Table 2.--Domestic Grower Loss
                           (number of growers)
------------------------------------------------------------------------
                  Flower                      1992      1995      1996
------------------------------------------------------------------------
other roses...............................       224       179       165
sweetheart roses..........................       133        97        90
pompom chrysanthemums.....................       172       135       116
standard chrysanthemums...................       152       116       112
standard carnations.......................       139        93        80
miniature carnations......................       123       100        78
other cut flowers.........................       605       596       575
    Total.................................      1548      1316      1216
------------------------------------------------------------------------
Source: USDA, Floricultural Crops Summary at 18-32 (1993), at 14-28
  (1995), at 14-28 (1997).

    Flower-producing FTAA countries have duty-free access to 
the U.S. market under the Generalized System of Preference 
Program, the Caribbean Basin Economic Recovery Act, and the 
Andean Trade Preference Act in addition to the North American 
Free Trade Agreement (NAFTA). With the exception of NAFTA, 
duty-free access to the U.S. market under these programs, 
however, is not necessarily permanent. One of the causes of the 
dramatic increase in imports in the 1990's, however, was the 
enactment of the Andean Trade Preference Act (ATPA) which 
eliminated all duties on fresh cut flowers from Colombia, 
Ecuador, Bolivia, and Peru. Since its enactment in 1991, the 
chief beneficiary of the ATPA has been Colombian flower 
growers.\1\
---------------------------------------------------------------------------
    \1\ Andean Trade Preference Act: Fourth Report 1996, Inv. No. 332-
352, USITC Pub. 3058, at xvi (Sept. 1997).
---------------------------------------------------------------------------
    The removal of duties on fresh cut flowers under the NAFTA, 
ATPA, and the Generalized System of Preferences Program has 
also undermined the effectiveness of the antidumping and/or 
countervailing duty orders on certain fresh cut flowers from 
Colombia, Mexico, Ecuador, Chile, and Peru.\2\ The mere 
existence of those orders, however, is a testament to the 
strong interest FTAA flower producers have in capturing the 
U.S. fresh cut flower market. Indeed, even with MFN duties in 
place, prior to passage of the ATPA, imports from Colombia 
steadily increased for well over ten years. In part, the 
relentless surge in imports reflects dumping; in part, however, 
off-shore producers enjoy cost advantageous bought about by the 
lack of protection for workers and the environment that inheres 
in existing standards for pesticide and fungicide use.
---------------------------------------------------------------------------
    \2\ Certain Fresh Cut Flowers from Colombia, 52 Fed. Reg. 6842 
(Dep't Comm. 1987) (Final LTFV Deter.); Certain Fresh Cut Flowers from 
Mexico, 52 Fed. Reg. 6361 (Dep't Comm. 1987) (Final LTFV Deter.); 
Certain Fresh Cut Flowers from Ecuador, 52 Fed. Reg. 2128 (Dep't Comm. 
1987) (Final LTFV Deter.); Standard Carnations from Chile, 52 Fed. Reg. 
3313 (Dep't Comm. 1987) (Final CVD Deter.); Standard Carnations from 
Chile, 52 Fed. Reg. 8939 (Dep't Comm. 1987) (AD Order); Certain Fresh 
Cut Flowers from Peru, 52 Fed. Reg. 13,491 (Dep't Comm. 1987) (CVD 
Order).
---------------------------------------------------------------------------

   III. The United States Should Seek Harmonization of Pesticide and 
Fungicide Use for Flower Production and Routine Screening for Pesticide 
                          Residues on Imports

    At the April 1998, Summit of the Americas, Heads of State 
and Government are expected to initiate negotiations of the 
FTAA.\3\ According to the Miami Declaration of Principles and 
Plan of Action, the 34 countries agreed to focus on improving 
the working conditions of all people in the Americas and better 
protecting the environment.\4\ The Plan of Action specifically 
calls on the various governments to address issues such as the 
environmental impact of pesticides and fungicides, as well as 
their misuse. Specifically, the governments pledged to:
---------------------------------------------------------------------------
    \3\ Ministerial Declaration of San Jose, Summit of the Americas 
Fourth Trade Ministerial Meeting, at para. 8 (San Jose, Costa Rica, 
March 19, 1998).
    \4\ Id.; Summit of the Americas, Declaration of Principles.
---------------------------------------------------------------------------
     strengthen and build technical and institutional 
capacity to address environmental priorities such as 
pesticides.
     strengthen national environmental protection 
frameworks and mechanisms for implementation and enforcement.
     undertake national consultations to identify 
priorities for possible international collaboration.
     convene a meeting of technical experts, designed 
by each interested country, to develop a framework for 
cooperative partnership, building on existing institutions and 
networks to identify priority projects which initially will 
focus on, inter alia, the health and environmental problems 
associated with the misuse of pesticides.
     develop compatible environmental laws and 
regulations, at high levels of environmental protection, and 
promote the implementation of international environmental 
agreements.
    In the March 19, 1998, Ministerial Declaration, the trade 
ministers committed to identify trade-distorting practices for 
agricultural products to bring them under greater discipline. 
Consistent with these objectives, therefore, the U.S. 
government should propose in the context of the market access 
negotiations that countries harmonize their pesticide standards 
for flower production, as well as the standards applied to 
screen fresh cut flowers for pesticide residues.\5\
---------------------------------------------------------------------------
    \5\ Fresh cut flowers are classified under Harmonized Tariff 
Schedules of the United States Number 0603.10.
---------------------------------------------------------------------------
    Disparate use of pesticides in the production of fresh cut 
flowers affects the relative costs of production for U.S. and 
Colombian growers and distorts trade flows. California growers 
are subject to the most restrictive environmental regulations 
in the country and, therefore, have the highest pesticide use-
related costs.\6\ California growers are permitted to use only 
about of the number of approved pesticides for use elsewhere in 
the United States. Yet, these growers account for the major 
proportion of U.S. fresh cut flower production. Obviously, 
then, the use of harmful pesticides is not a requirement for 
growing or marketing fresh cut flowers.
---------------------------------------------------------------------------
    \6\ California Cut Flower Commission Statement to Subcommittee on 
Trade, Impact of NAFTA on U.S. and California Cut Flower and Foliage 
Industry 2 (April 5, 1993).
---------------------------------------------------------------------------
    Nevertheless, reducing the dependence on pesticides and 
fungicides has its costs. Costs associated with the use of 
pesticides in the United States account for approximately 6 to 
8 percent of total production costs, including costs of 
materials, licensing, training, regulatory compliance measures, 
labor, and record-keeping. Hence, the additional costs of 
pesticide use to the U.S. grower are significant. U.S. growers 
are also restricted from entering greenhouses for a specific 
period of time during and after fumigation.\7\ The immediate 
result is lost production.
---------------------------------------------------------------------------
    \7\ See Pesticide Worker Protection Standard; Administrative 
Exception for Cut-Rose Hand Harvesting, 62 Fed. Reg. 51,994 (EPA 1997) 
(Admin. Exception Decision).
---------------------------------------------------------------------------
    Colombian flower growers' use of more effective, yet 
extremely toxic, pesticides reduces Colombian costs of 
production and enhances their export potential. Not only are 
Colombian flowers less susceptible to disease or damage, but 
application of powerful pesticides reduces the incidence of 
pest infestation on exported flowers. Upon importation, there 
is no routine screening of dangerous pesticide residues. The 
following list includes some of the pesticides available for 
fresh cut flower production in Colombia but not in the United 
States:

   A List of Pesticides Available for Colombian, but not U.S., Flower 
                               Production

    1. Actellic
    2. Afugan
    3. Applaud
    4. Azodrin
    5. Bendiocarb
    6. Carzol
    7. Curacron
    8. DDDP
    9. Fonofos
    10. Hostathion
    11. Kartap
    12. Methanil or Lanate
    13. Nack
    14. Nomolt
    15. Oxanil
    16. Plictran
    17. Pyramore
    18. Qinalphos
    19. Sulprufus
    20. Vidate

    As recently as July 1994, a Financial Times article 
reported that a fifth of the pesticides used in Colombian 
flower production are banned or not registered in the United 
States and Europe because of their toxicity.\8\ In recent 
years, there have been widespread reports that Colombian flower 
producers misuse pesticides and have endangered workers' 
rights, in some cases causing death and disfigurement:
---------------------------------------------------------------------------
    \8\ Maitland, Colombia ``misusing pesticides'', Fin. Times, July 
13, 1994, at 4.
---------------------------------------------------------------------------
     On February 14, 1995, an ``American Journal'' 
television broadcast reported instances of worker illness 
caused by pesticide use in Colombian greenhouses, including the 
death of one woman sprayed directly with pesticides.
     On July 12, 1994, Christian Aid, a U.K. aid 
agency, reported use of pesticides banned in the United States 
and Europe as well as instances of adult Colombian greenhouse 
workers stricken with paralysis causing death. Pregnant women 
working in greenhouses have given birth to children with 
bronchial illness.
     On June 1, 1993, the International Labor Rights 
Education and Research Fund (ILRERF) asserted that the 
Colombian flower industry is the ``setting for gross and 
criminal mismanagement of toxic chemicals in the workplace.'' 
Greenhouse workers have been forced to work while pesticides 
are sprayed and training in pesticide application or protective 
measures was nonexistent. Workers have suffered from diseases, 
headaches, nausea, and have given birth to children with an 
abnormally high number of stillbirths and severe birth defects. 
Pesticides used include some banned by Colombian law. In 1993, 
USTR rejected ILRERF claims because the Colombian government 
was taking some measures to improve enforcement of existing 
laws. The GSP Subcommittee, however, expected that any 
necessary enforcement measures would be taken. See GSP 
Subcommittee Decision (002-CP-93) at 5, 7 (Nov. 1993). As shown 
above, however, the pesticide application practices of 
Colombian flower growers continued.
     On October 12, 1992, a ``National Public Radio'' 
report cited use of pesticides banned in the United States and 
instances of pesticides spraying while workers were in 
Colombian greenhouses, pesticide hoses spraying workers in the 
face, hands turning black from immersion into bags of 
chemicals, and chronic illness.
    In this manner, Colombian producers spread their costs over 
increased production due, in part, to more effective pesticides 
as well as inadequate worker safety controls. Not only does 
misuse of pesticides endanger workers, but it can also endanger 
the environment by contaminating the water table.\9\
---------------------------------------------------------------------------
    \9\ See Morning Edition, National Public Radio (Oct. 12, 1992); 
Kendall, Financial Problems Take the Bloom off a Colombian Success 
Story, Fin. Times 28 (9/14/93) (``The heavy use of pesticides--required 
if flowers are to meet most import standards--has caused health and 
environmental problems.'').
---------------------------------------------------------------------------
    The United States should address these trade distorting 
practices in the context of the FTAA market access 
negotiations. The United States should demand harmonized 
pesticide use for flower production and routine screening for 
dangerous pesticide residues on imports. Not only would such 
safeguards benefit the domestic industry and workers, but, more 
importantly, these measures would safeguard consumers and the 
environment. Given that the Californian growers have continued 
to operate even under the most severe restrictions, there is no 
legitimate argument that the costs of safety are too great.
    In his testimony before the House Committee on Ways and 
Means, Subcommittee on Trade, Congressman Sam Farr protested 
the inequitable treatment of imported and domestic fresh cut 
flowers as a result of the lack of control or enforcement with 
respect to chemical use and residues present on imported 
flowers. As noted above, the stated pledge of the Summit of the 
Americas was to strengthen environmental protection, explicitly 
with respect to pesticide use. In concert with this goal, the 
United States should seek harmonization of pesticide and 
fungicide use and residue screening to enforce the harmonized 
rules.

                             IV. Conclusion

    The U.S. market is a highly desirable destination for 
exported fresh cut flowers from FTAA flower-producing 
countries. The ability of major flower producing FTAA countries 
to use pesticides and fungicides that are more effective, yet 
more toxic, than U.S. growers places U.S. growers at an 
unwarranted disadvantage in U.S. and export markets. The 
consequent misuse of those dangerous chemicals has also 
jeopardized worker safety and the environment. Therefore, the 
United States should address these trade distorting practices 
in the context of the FTAA market access negotiations.
    Specifically, the United States should seek harmonized 
pesticide and fungicide use for flower production and routine 
screening for dangerous pesticide residues on imports. Because 
there are no significant export markets, and because U.S. 
growers must in any event comply with adequate safety 
standards, Under no circumstances should the United States 
accept partial tariff reductions or exempt any FTAA country 
from harmonized standards and adequate clearance procedures.
      

                                

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Statement of Michael J. Stuart, Executive Vice President, Florida Fruit 
& Vegetable Association, Orlando, Florida

    The following comments on the outlook for negotiations 
aimed at achieving a Free Trade Area of the Americas (FTAA) are 
submitted on behalf of the Florida Fruit & Vegetable 
Association (FFVA). FFVA is an organization comprised of 
growers of vegetables, citrus, sugarcane, tropical fruit and 
other agricultural commodities in Florida. Florida's unique 
geographical location in the United States affords growers an 
opportunity to provide American consumers and export markets 
with fruits, vegetables and seasonal crops during the months of 
the year when other domestic producers cannot grow and harvest 
these crops. Historically, competition for Florida's fruit and 
vegetable industry in the U.S. marketplace has come from 
Mexico, other areas that have farmland suitable for winter 
production in the northern hemisphere, and from Latin America. 
In export markets, Florida's crops compete against low-cost, 
often subsidized producers from Latin America, Europe, and 
elsewhere.
    Under recent trade agreements, Florida's fruit and 
vegetable specialty crops have lost, rather than gained, 
competitive ground. With competition from Mexico increasing 
under the North American Free Trade Agreement (NAFTA), many of 
Florida's producers have been forced to curtail their 
operations; others have been closed down altogether. Special 
provisions negotiated in both NAFTA and the Uruguay Round 
Agreement that were intended to protect Florida agriculture and 
offer expanded export opportunities have not had their intended 
effect.
    Like NAFTA, the FTAA promises to create more domestic 
competitive pressures than export opportunities for Florida 
fruit and vegetable producers. As discussed in more detail 
below, before an FTAA agreement can be struck, Congress and the 
Administration must first seek to correct the inadequacies of 
prior agreements through Legislative and Executive Branch 
action, as well as through the relevant regional and 
multilateral working groups that are already established, so 
that growers of Florida specialty crops do not continue to have 
their interests negotiated from a position of weakness.

 I. Florida's Specialty Fruit And Vegetable Industries Have Not Fared 
           Well In The Post-NAFTA, Post-Uruguay Round Period.

A. In The U.S. Market, Florida's Industries Have Faced Increased 
Competition From Their Principal Competitor, Mexico.

    Since the NAFTA Agreement took effect, Florida's fruit and 
vegetable industries have experienced a substantial increase in 
competitive pressure from Mexican imports. Statistical data show that 
in many specialty crops, Florida growers have lost significant domestic 
sales to Mexico. NAFTA has contributed to this increased competition in 
two ways: first, by reducing U.S. tariffs, making low-priced Mexican 
imports even more price competitive; and, second, by spurring 
investment in Mexico's agricultural industries from non-traditional 
sources. Increased investment in the export-oriented agricultural 
sectors in Mexico has dramatically advanced Mexico's technology, 
increased Mexico's production in those sectors, and reduced the per-
unit costs of those commodities. Those advantages, combined with the 
cost advantages Mexican industries derived from the devaluation of the 
peso in 1994, have materially enhanced the competitive position of 
Mexican agricultural exports in the U.S. marketplace. The result has 
been steady increases since 1994 of Mexican fruits and vegetables into 
the United States to the detriment of Florida producers.
    This trend has been most dramatic in the Florida tomato sector. 
Since the 1992-93 season (the last complete season prior to NAFTA's 
implementation), Florida's tomato acreage, shipments, crop value, and 
market share all have declined. In the 1992-93 season, Florida enjoyed 
a 56.4 percent market share. In the most recent full season for which 
statistics are available, market share had declined to 35.1 percent. 
Meanwhile, Mexico's share of the U.S. market has increased from 28 
percent in 1992-93 to 49.5 percent in 1995-96.\1\ Mexico's sales of 
tomatoes below fair market value during that period had a serious 
impact on Florida's position in the marketplace.
---------------------------------------------------------------------------
    \1\ Competitive Growing Season Shipments, Annual Change and U.S. 
Market Share, Florida Department of Agriculture and Consumer Services, 
November 5, 1996.
---------------------------------------------------------------------------
    The increase in Mexican exports of tomatoes to the United States at 
predatory prices prompted the filing of an antidumping petition by the 
domestic tomato industry in March, 1996. The Department of Commerce's 
investigation found sales at below fair value during the period of 
investigation and established preliminary dumping margins at a weighted 
average of 17.56 percent, with individual exporter rates as high as 188 
percent.\2\ A suspension agreement establishing a floor price for 
Mexican tomatoes was reached between the Department of Commerce and the 
Mexican industry in October, 1996, and is currently in place.
---------------------------------------------------------------------------
    \2\ Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Fresh Tomatoes From 
Mexico, Federal Register, Department of Commerce, November 1, 1996.
---------------------------------------------------------------------------
    Other Florida commodities have suffered similar pressures. Mexican 
shipments of bell peppers, cucumbers, squash, eggplant, beans and sweet 
corn increased substantially during the period, particularly in the 
1995-96 season.\3\
---------------------------------------------------------------------------
    \3\ Competitive Growing Season Shipments, Annual Change and U.S. 
Market Share, Florida Department of Agriculture and Consumer Services, 
November 5, 1996.
---------------------------------------------------------------------------
    Florida's import-sensitive fruit and vegetable industries are 
concerned that a free trade agreement with other countries of this 
Hemisphere, many of which are highly competitive in specialty fruits 
and vegetables, will only compound the pressures precipitated by NAFTA, 
further eroding the economic stability of the Florida industry.

B. In Export Markets, Florida's Specialty Crops Have Also Lost Ground, 
In Part Because The Uruguay Round Did Not Achieve The Market Access 
Gains For Florida That Were Promised By That Round.

    The Uruguay Round was widely billed as a major win for U.S. 
agriculture. U.S. growers and industries, because of their superior 
quality and technical advances, were expected to benefit more than most 
foreign producers from increased global market access. For Florida, the 
global market access gains have been minimal, offering little 
offsetting relief against increased competition in the U.S. domestic 
market from Mexico and elsewhere.
    In many markets, tariffication of non-tariff barriers on several 
fruit and vegetable crops resulting from the Uruguay Round has 
increased, not decreased, border protections. Increased border 
restrictions combined with onerous, non-transparent procedures adopted 
to administer the new tariff rate quotas in Europe and elsewhere have 
meant that old market access barriers have been replaced by new, often 
less transparent ones.

II. The Inadequacies Of NAFTA And The Uruguay Round Agreement Have Left 
     Florida Growers Skeptical About A Hemispheric-Wide Free Trade 
                               Agreement.

    During the negotiations leading up to NAFTA and the Uruguay 
Round Agreement, Florida fruit and vegetable growers sought 
special accommodation in three areas to protect the import-
sensitivity of their crops. One area related to tariff 
treatment. The second related to safeguard measures designed to 
provide temporary relief to injured import-sensitive U.S. 
industries. The third area related to the adoption of a strong 
sanitary and phytosanitary agreement that would eliminate the 
use of unfounded sanitary and phytosanitary restrictions as 
market access barriers. For the most part, FFVA's requests were 
inadequately addressed. Florida's growers are more vulnerable 
today to import increases and export competition than they were 
before those agreements were reached. Some of the defects 
contributing to these pressures, particularly those found in 
U.S. import relief laws, should be addressed and corrected 
prior to negotiating a new, more expansive free trade area in 
the Western Hemisphere.

A. Tariff Phase-Out Periods Have Generally Not Provided A 
Sufficient Transition Period For Florida Agriculture.

    In NAFTA, despite the extreme import-sensitivity of Florida 
fruit and vegetable products, most of those sectors did not 
receive the maximum tariff phase-out period of 15 years 
provided for under the NAFTA Agreement. Of Florida's major 
fruit and vegetable commodities, only frozen concentrated 
orange juice and, for part of the year, cucumbers received that 
treatment, with most of the other products falling into the 5-
or 10-year phase-out category.
    Although the tariff-phase out periods have offered some 
protection in limited areas, Mexican exports to the U.S. market 
in many Florida product areas have enjoyed immediate and 
substantial increases as U.S. tariffs have been reduced. Even 
in product areas for which U.S. tariffs are being eliminated 
over ten years, such as fresh tomatoes, peppers and cucumbers, 
Mexico has already been able to increase imports and improve 
its competitive position in the U.S. marketplace. This is due 
not only to insufficient transition periods, but also to 
currency devaluation, which was not taken into account in 
structuring the NAFTA ``protections.''
    Because many South American countries covered by the FTAA 
are also major competitive producers of fruits and vegetables, 
including citrus products, FFVA is equally concerned about 
tariff elimination and import penetration in the case of a 
Hemispheric free trade area.

B. The Special Safeguard Provisions Included In Both The NAFTA 
And Uruguay Round Have Not Worked For Florida's Growers.

    To offset the effects of tariff reductions that were 
expected to result in increased U.S. imports, both the NAFTA 
and Uruguay Round agreements promised to provide safeguard 
provisions that would deliver temporary relief to injured, 
import-sensitive U.S. industries. These measures have failed to 
function as intended for Florida's producers.
    The fruit and vegetable industries in Florida and elsewhere 
in the United States argued strongly during the negotiation 
phase of both the NAFTA and Uruguay Round that an effective 
price-based safeguard be provided for sensitive, perishable 
crops. The safeguard contained in the NAFTA is a volume-based 
tariff-rate-quota mechanism that restores the original tariff 
on a limited number of products if certain volume targets are 
reached. The mechanism has been entirely ineffective as a 
safeguard. Tariffs are restored only when the volume targets 
are reached--usually very late in the tariff rate period. By 
that time, the increased volume in the market has already 
depressed prices and injured domestic growers. The Uruguay 
Round Agriculture Agreement contained a price-based mechanism, 
but only for those products that had non-tariff border measures 
(quotas, etc.) in place prior to the implementation date of the 
agreement. No U.S. fruit or vegetable had such measures in 
place, so safeguard relief does not apply in these sectors. It 
does apply, however, to certain of our fruit and vegetable 
producing competitors, particularly in the European Union.
    Both the NAFTA and the Uruguay Round agreements also 
contemplated that existing trade remedies such as Section 201/
202 of the Trade Act of 1974 would provide temporary adjustment 
relief to industries seriously injured by increased imports 
caused by the reduction and/or elimination of trade barriers. 
The NAFTA implementing legislation reinforced this by requiring 
the International Trade Commission (ITC) to monitor the impact 
of trade in the domestic tomato and bell pepper industries for 
15 years after enactment. These monitoring and safeguard 
mechanisms were supposed to expedite the filing of an import 
relief action should any U.S. industry find itself in jeopardy. 
In application, however, Section 201/202 and the monitoring 
provision have failed to provide relief for the Florida 
industry, largely because the law does not adjust for the 
unique seasonal and perishable nature of fresh fruit and 
vegetable production. As a result, it has been impossible for 
the ITC to find serious injury on seasonal industries. 
Florida's vegetable industry has twice made extremely expensive 
attempts at seeking relief under these provisions with no 
success. The Clinton Administration is on record supporting 
amendments to Section 201/202 that would address the 
inadequacies. We urge this Subcommittee to support such changes 
in the law before further Hemispheric access to the U.S. market 
is allowed.
    Even in the area of antidumping remedies, which have been 
used to assist the Florida tomato industry, Chile and other 
countries in the Hemisphere are now seeking to eliminate that 
remedy in favor of a more general competition policy. This 
provides all the more reason why FFVA is concerned about future 
FTAA negotiations.

C. Neither NAFTA Nor The Uruguay Round Has Created Sufficient 
Disciplines Governing Sanitary And Phytosanitary Restrictions.

    In addition to the inadequacies of the safeguard 
mechanisms, the sanitary and phytosanitary provisions (SPS) of 
the NAFTA and the World Trade Organization (WTO) have not lived 
up to expectations. SPS obstacles are now the non-tariff 
barrier of choice of many countries.
    Progress on many plant quarantine issues, such as Florida 
citrus access to Mexico and access for Florida citrus to Chile 
and Argentina, has been excruciatingly slow since the enactment 
of both the NAFTA and Uruguay Round agreements. In many cases, 
countries have simply had no incentive to move quickly to 
resolve these problems. It remains highly uncertain whether the 
WTO's SPS Agreement will help in the resolution of such 
disputes. The EU has made clear, for example, that it will 
maintain its beef hormone ban despite a WTO ruling against it. 
Hence, before pushing forward with yet another trade agreement, 
which would be patterned largely after NAFTA and Uruguay Round 
SPS disciplines, the United States must make sure that existing 
agreements on the issue of how better to clarify and enforce 
the principles of ``sufficient scientific evidence,'' ``risk 
assessment,'' and other related benchmarks actually work.

 III. Existing Trade Agreements, On Which the FTAA Is To Be Based, Do 
  Not Establish Adequate Disciplines For Settling Commercial Disputes.

    NAFTA failed to establish a system for the prompt and 
effective resolution of private commercial disputes in 
agricultural trade, opting instead to create a joint 
government/private sector advisory committee to develop 
recommendations on this matter. The continuing absence of such 
a system has become another problem for Florida producers, who 
need a viable commercial dispute settlement mechanism to handle 
the unique marketing characteristics of perishable crops. The 
Perishable Agricultural Commodities Act (PACA) in the United 
States provides such a system for the domestic industry and for 
international traders who market their products in the United 
States, but no such system is in place for U.S. exports 
marketed in other Western Hemispheric countries. Before another 
trade agreement is forged, FFVA recommends that the 
implementation of the voluntary dispute settlement process 
recommended by the NAFTA Advisory Group be closely monitored to 
determine if it functions as envisioned.

   IV. NAFTA Has Not Adequately Harmonized Disparities in Pesticide 
                              Regulations.

    In the Canada/U.S. Free Trade Agreement (CUSTA), the two 
countries agreed to seek the harmonization of pesticide 
regulations in order to reduce non-tariff trade barriers. That 
led to the creation of a bilateral pesticide working group, 
which was expanded to include Mexico following the passage of 
the NAFTA. Although some progress has been made in identifying 
issues to be resolved in this area, significant differences in 
the pesticide regulatory framework remain between the three 
countries. These differences have adverse competitive and trade 
implications for Florida's producers. Here as well, before new 
agreements are created that will only compound the pressures 
created by existing regulatory inconsistencies, substantially 
more should be done by the NAFTA working group to harmonize 
disparities and inequities with those countries for which 
agreements have already been reached.

                             V. Conclusion

    In short, many of the future FTAA countries in the 
Hemisphere pose competitive threats to the Florida industry 
similar to those already experienced with Mexico under NAFTA. 
Brazil, Argentina, and Chile are highly competitive producers 
of fruits and vegetables and enjoy competitive advantages over 
their counterparts in the United States. Those advantages 
include significantly less restrictive and less costly labor 
and environmental requirements.
    Before an FTAA is reached that would only aggravate the 
pressures, inequities, and remedial defects created by NAFTA 
and the Uruguay Round, FFVA growers ask that the concerns 
identified above first be corrected by internal U.S. actions, 
or through the review mechanisms of NAFTA and the Uruguay 
Round, so that Florida's import-sensitive fruit and vegetable 
producers do not continue to lose competitive ground as a 
result of Hemispheric initiatives.
      

                                

                International Trademark Association        
                         1990 M Street, N.W., Suite 340    
                                     Washington, D.C. 20035
                                                     April 14, 1998
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

    Dear Mr. Chairman:

    The International Trademark Association (INTA) is pleased to submit 
the following comments for the record of your March 31, 1998 hearing on 
the status and outlook for negotiations aimed at achieving a Free Trade 
Area of the Americas (FTAA).
    INTA is a 119-year-old, worldwide membership organization with over 
3,400 members in 120 countries. We represent trademark owners, as well 
as those who serve trademark owners. INTA's members, which cross all 
industry lines and include both manufacturers and retailers, are united 
in our goals of supporting the essential role trademarks play in 
promoting effective commerce, protecting the interests of consumers, 
and encouraging free and fair competition.
    FTAA negotiations in the intellectual property area continue to 
proceed at a painfully slow pace. In fact, there has been little, if 
any, progress since the Subcommittee's last hearing in July. Despite 
this slow beginning, INTA believes the FTAA process is an important 
vehicle to move recalcitrant nations more quickly towards compliance 
with the Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS) and other ``TRIPS-Plus'' goals. That is why it is 
critical for the FTAA intellectual property discussions to be 
accelerated--both to ensure TRIPS compliance by the year 2000 and to 
stimulate consideration of ways in which the nations of the Western 
Hemisphere can go beyond the minimum requirements of TRIPS.

                    The Role of Trademarks in Trade

    Trademark rights are an essential element of trade and 
development. INTA believes that trademarks in the Western 
Hemisphere must be viewed in terms of:
    protecting the public;
    protecting the valuable rights of owners; and
    developing the political, legal and administrative 
infrastructure appropriate to each nation of the region that 
will encourage investment and trade.
    INTA recognizes that the nations of the Western Hemisphere 
are developing at different rates and in different ways. We 
nevertheless believe that all FTAA nations must meet certain 
minimum standards of trademark protection. This is essential to 
secure the rights of trademark owners, to avoid public 
confusion and deception about the products being purchased, and 
to enhance trade and investment in the nations of Latin 
America.

          Existing Protections of Intellectual Property Rights

    The greatest impediment to trade and investment in a number 
of Latin American countries is their inadequate protection and 
enforcement of intellectual property rights (IPR). Companies--
particularly pharmaceuticals, telecommunications, electronics 
and other technology-based companies--will continue their 
reluctance to provide their latest and best efforts to the 
Latin American market unless the IPR regimes in those nations 
are significantly and dramatically improved, both prior to and 
as a result of the FTAA. Thus, inadequate IPR protection not 
only deters domestic incentives to develop new technology and 
create products and services, but will also result in a loss of 
access to foreign know-how and capital.
    At the ever-increasing rate at which investment capital 
flows from place-to-place, the nations of Latin America cannot 
afford to wait until the year 2000 or thereafter to begin fully 
integrating into the established norms of intellectual property 
protection, as set out in the TRIPS agreement under the World 
Trade Organization (WTO). If the Latin American nations do not 
act effectively and soon to fully protect intellectual 
property, the current growth they are experiencing will slow, 
and the knowledge-based businesses which are the future of the 
developing nations will pass them by.

                  Trademark Issues In the FTAA Process

    INTA recognizes the significant changes that have occurred 
in the political, social and economic landscape of Latin 
America in the last decade. Democratic institutions have 
continued to grow in virtually every nation. Both promise and 
challenge are presented by these changes. We are, therefore, 
enthusiastic about the opportunities that the FTAA offers for 
strengthening the protection of trademark rights in the Western 
Hemisphere.
    From the perspective of trademarks, INTA has identified the 
following specific issues as the most important as the FTAA 
negotiations proceed:
    1. Protection of ``Well-Known'' Marks: Many companies in a 
variety of industries face enormous problems in stemming the 
rising tide of piracy and counterfeiting throughout Central and 
South America. The problem is especially severe for the owners 
of ``well-known'' marks (those that are most distinctive, 
enjoying widespread consumer recognition and the goodwill 
created by the associated product or service), particularly 
those that may not have been registered in a Latin America 
country before they were pirated.
    Countries that are members of the Paris Convention should 
implement Article 6bis, which provides that the Member Nations 
protect well-known marks. Moreover, these countries should 
begin to move towards the broader protection afforded to well-
known marks by Article 16(2) and (3) of the TRIPS Agreement. 
Effective implementation of Article 6bis should be a condition 
placed on FTAA membership.
    2. Effective Enforcement: A corollary to the protection of 
well-known marks is timely and effective enforcement of 
trademark rights. Even the most well-crafted treaties and laws 
are of little value if trademark owners cannot obtain prompt 
action by customs authorities, the courts and other agencies of 
Latin American governments. Many nations have no effective 
border enforcement. Also exacerbating enforcement efforts is 
the extreme inefficiency of many courts in processing even the 
most blatant cases of counterfeiting. In many instances, the 
courts have permitted the illegal activity to continue or 
resume pending trial (which may be three to six years after the 
action is filed). Effective preliminary relief, in the form of 
injunctions and seizure orders, is necessary for all nations of 
the Americas if intellectual property rights are to be 
adequately enforced.
    3. Barriers To The Full Use Of Trademark Rights: Certain 
Latin American countries have erected barriers to the full use 
and enjoyment of trademark rights. For example, some countries 
require mandatory recordal of trademark license contracts 
which, in turn, disclose to the public highly confidential 
business information between a trademark owner and its 
licensee. Even worse in some nations, if a U.S. trademark owner 
fails to record its license, the trademark registration will be 
canceled, thus exposing valuable trademark rights to be 
misappropriated by trademark pirates. INTA takes the position 
that trademark license recordal should be voluntary, not 
mandatory, and that this principle should be part of any FTAA 
intellectual property agreement. Further, the FTAA negotiating 
process should result in an end to these and other 
inappropriate barriers to the full use and protection of 
trademark rights.
    4. Implementation of GATT-TRIPS And Other Trademark 
Agreements: The FTAA process should emphasize full and timely 
implementation of GATT-TRIPS. Also important is the adoption of 
the Trademark Law Treaty, which is intended to reduce the 
burden of disparate and seemingly endless requirements and 
formalities to authenticate filings and perfect trademark 
rights in most Latin American countries.
    Similarly, adoption of the Madrid Protocol--an 
international agreement which will greatly enhance timely, 
efficient and cost-effective international registration of 
trademark rights--should be a centerpiece of the FTAA process. 
There has been some discussion within the FTAA working groups 
of a ``trademark application mailbox'' and other means for 
facilitating trademark registration within the Western 
Hemisphere. While such discussions help to focus attention on 
the benefits of easy registration across national 
jurisdictions, the Madrid Protocol's registration system, which 
is administered by the World Intellectual Property 
Organization, already exists. Accordingly, the Madrid Protocol 
should be an essential building block for IPR infrastructure 
improvements in the hemisphere and thus is essential to the 
success of the FTAA initiative.

                               Conclusion

    INTA fully supports the FTAA process. To facilitate the 
improved protection of trademarks in Latin American countries, 
we have developed Model Trademark Law Guidelines that 
incorporate TRIPS-compliant provisions. We are willing to 
provide these guidelines to any nation of the hemisphere and 
work with the executive, legislative, judicial and 
administrative branches of the governments of these nations to 
assist them in adopting and implementing TRIPS-compliant laws 
and regulations.
    In addition, INTA continues to work with the U.S. 
government and other interested groups, to explore possible 
funding sources to help countries develop the infrastructure to 
implement effective IPR protection regimes. Our goal is to 
eventually work with the governments of interested countries to 
develop grant and loan packages that will build the legal 
frameworks and institutions necessary to enforce their IPR 
protection laws.
    Thank you for your consideration of INTA's comments. INTA 
would be pleased to provide this Subcommittee with any 
additional information you would find helpful. We look forward 
to working with you in the months ahead as the FTAA negotiating 
process continues.

            Sincerely,
                                           David C. Stimson
                                                          President
      

                                


Statement of Dr. Richard L. Bernal, * Ambassador, Government of Jamaica 
[By Permission of the Chairman]

    Thank you for providing me an opportunity to submit 
testimony on the participation of the smaller economies in the 
Free Trade Area of the Americas (FTAA).
---------------------------------------------------------------------------
    * Ambassador of Jamaica to the US, Permanent Representative to the 
OAS and Chairman of the FTAA Working Group on Small Economies.
---------------------------------------------------------------------------

                              Introduction

    The world is involved in a profound process of 
globalization that is both requiring and creating multi-
country, transnational economic spaces. At the same time that 
there is expansion to larger units in the global economy there 
is the complementary and simultaneous contradictory process of 
political fragmentation, resulting in smaller states. The 
number of countries/states has increased significantly in 
recent decades in particular there has been a proliferation of 
small countries/states. At the time of the First World War 
there were 62 independent countries. By 1946 there were 74 
countries but this has grown to 193 at the present time. Most 
of these are small states. Indeed 87 countries have a 
population of less than 5 million, 58 have fewer than 2.5 
million people and 35 with less than 500,000 people.
    The majority of countries are small countries and therefore 
this issue is one which must be addressed both at the political 
and economic levels. It is a particularly important in 
international groupings that include both large and small 
states. For example, the Commonwealth maintains a Ministerial 
Group on Small States. In their most recent report they 
emphasized ``the need for the international community to 
recognize the multidimensional nature of the vulnerability of 
small states'' and called for ``action to ensure that small 
states fully shared in the benefits from globalisation, 
regionalism and international trading arrangements, and were 
not marginalized.''
    The majority of countries in the Western Hemisphere are 
small countries/economies, hence their participation in the 
FTAA is an issue which must be examined and accommodated in any 
hemispheric wide political organization or economic integration 
arrangements. The issue of the integration of small economies 
into the Free Trade Area of the Americas (FTAA) is a complex 
one which must be addressed if all countries in the Hemisphere 
are to participate in the FTAA in a way which is beneficial to 
themselves and to the process as a whole.
    This statement examines this issue and makes 
recommendations on what constitutes a small economy and what 
measures should be included in the FTAA, to address the 
disparity in size between participating countries and 
adequately take account of the characteristics of small 
economies. Part I examines the question of what is a small 
economy and discusses the implications of small size for 
economic growth and participation in trade arrangements with 
larger economies. Part II makes recommendations on how the 
interests and concerns of small economies can be incorporated 
into the design of the FTAA.

                                 Part I

A. Defining a Small Economy

    There is no single definition of small economy, indeed, any 
definition in quantitative terms would be unscientific as size 
is a relative concept. The question of defining a small economy 
is not a new one, and definitions have varied widely. A small 
economy is conceptualized as an economy that is a ``price-
taker'' in the world market/international trade, i.e. it cannot 
influence world prices for goods, services and assets. This is 
too vague and all encompassing because in some situations, even 
the largest, most developed economies are price-takers. 
Definitions based on quantitative criteria vary considerably, 
as they employ different criteria and exhibit a significant 
arbitrariness in the selection of cut-off points. Kuznets and 
Streeten used population as the criterion, selecting an upper 
limit of 10 million, while Chenery and Syrquin used 5 million. 
A recent ECLAC study chose Gross National Product of less than 
$15 billion. Demas opted for a population of 5 million or less, 
and less than 20,000 square miles of usable land. The extent of 
the arbitrariness can be reduced by examining a distribution of 
economies based on a particular quantitative measure and 
identifying a cluster at the ``small'' end of the spectrum. 
Another problem is that the definition of small economy/state 
may have to be revised over time, if GDP or population are 
employed as measures. For example, the Commonwealth Secretariat 
in 1985 used the cut off point of 1 million but by 1997 had 
revised the upper limit to 1.5 million.
    Various international organizations classify countries into 
categories according to selected indicators for operational and 
analytical purposes. The classifications used by international 
organizations mainly relate to per capita income levels, 
indicators of development status, and some selected concept of 
``size.'' While the main classification criterion used by 
institutions such as the International Monetary Fund, the World 
Bank, and the United Nations for establishing country 
categories is that of per capita income levels, these 
institutions also classify countries by aggregate income 
levels, by the type of goods exported (e.g. fuels, non-fuel 
primary products, manufactures or services) and by fiscal 
structure. The World Bank also groups economies with 
populations fewer than one million in a separate table of the 
World Development Report. Along with basic economic indicators, 
particularly per capita income, the United Nations categorizes 
countries according to an additional human development 
indicator. The U.N. ``human development index'' (HDI) combines 
various economic and social indicators in order to achieve a 
more comprehensive measure of development.
    Under the GATT system and now under the World Trade 
Organization (WTO), the principle of ``self-selection'' is 
applied, i.e. members themselves choose their development 
status. However, in their publications the WTO follows the UN 
country classification and for budget purposes also makes use 
of the income criterion adopted by the World Bank. Under the 
WTO classification, countries with less than US $1,000 of 
income per capita may consider themselves as falling in the 
``least developed'' category in terms of the obligations and 
disciplines set out in the Uruguay Round Agreement.

B. Indicators of Economic Size

    The definition of the concept of ``small'' in relation to 
economic size, is usually based on one or more of the following 
criteria; population, land area, Gross Domestic Product are 
commonly used. These indicators relate to the measurement of 
the magnitude of an economy, in terms of its fundamental 
resources: human, land, and capital.
    1. Population.--The most commonly-used indicator is the 
size of a country's population. More than three quarters of the 
people in the Western Hemisphere live in five countries. Nine 
countries account for nearly ninety percent of the Hemisphere's 
population. The largest economy in terms of population is over 
6,000 times more populous than the smallest. Of the countries 
with less than 1.5 percent of the Hemisphere's population, 15 
are the islands of the Caribbean and the Central American 
countries. Four South American countries--Uruguay, Paraguay, 
Bolivia and Ecuador--also fall into this category. These South 
American countries are those which are considered relatively 
less-developed within their respective subregional integration 
schemes (Mercosur and the Andean Group). Thus, the countries 
which are shown here to be small in population terms correlate 
with those countries which are generally considered to be the 
smaller countries of the Western Hemisphere.
    2. Land Area.--The second commonly used indicator is the 
size of a country's territory. Land mass may be used as a proxy 
for both the amount and diversity of natural resources. The 
five largest countries comprise over 82 percent of the 
territory of the Hemisphere, and the ten largest countries 
cover over 95 percent of the land of the Western Hemisphere. 
The largest country of the Hemisphere, Canada, is over 30,000 
times as large as the aggregate land mass of the fifteen 
smallest. With the exception of Bolivia, which is the eighth 
largest country in terms of land size, the smallest countries 
are the same as those ranked smallest according to population: 
the countries of the Caribbean and Central America and the 
ALADI members which are considered relatively less developed.
    3. Gross Domestic Product (GDP).--A third indicator of 
economic size, the level of Gross Domestic Product (GDP), 
measures the aggregate wealth or aggregate output produced in 
an economy. GDP measures the magnitude of a country's domestic 
market, thereby offering some indications as to the possible 
limitations to specialization of production and exploitation of 
economies of scale. The data used here is the level of GDP 
normalized for exchange rate fluctuations. GDP figures are 
expressed in 1990 US dollars.
    The two largest countries comprise 85 percent of the 
Hemisphere's GDP; the five largest countries make up 96 percent 
of the Hemisphere's GDP and 99 percent of the Western 
Hemisphere's GDP is generated in nine countries. The largest 
economy, which is ten times larger than the second largest 
economy, is over 850 times larger than an aggregate of the ten 
smallest countries' GDP. Not surprisingly, countries that are 
small in terms of population and land size also tend to be 
small in terms of GDP. Thus, the same Caribbean and Central 
American countries, as well as the four smaller South American 
countries have the lowest gross domestic product.

C. Characteristics of Small Economies

    Small economies have certain characteristics such a high 
degree of openness, limited diversity in economic activity, 
export-concentration on one to three products, significant 
dependency on trade-taxes and small size of firms.
    1. High Degree of Openness.all economies are characterized 
by a degree of openness, i.e. external transactions are large 
in relation to total economic activity. Smaller economies tend 
to rely heavily on external trade as a means of overcoming 
their inherent scale limitations, i.e., a narrow range of 
resources and an inability to support certain types of 
production given the small scale of the market. Economic 
openness is measured by imports and exports of goods and 
services as a percentage of Gross Domestic Product (X+M/GDP). 
This measure indicates the proportion of the economy which is 
involved in external trade.
    Three of the largest countries in land area, the U.S., 
Argentina and Brazil, exhibit the lowest reliance on external 
trade and the least openness, less than 5 percent trade/GDP. 
Canada, which is the largest territorial entity, the second 
largest in GDP terms and in the top six in terms of population 
is the eighteenth most reliant on external trade. Chile, also 
not among the smallest in the previous three categories, is a 
very open economy with a 57 percent trade/GDP ratio. Haiti, 
which is among the smallest in the other three categories, has 
low dependence on trade because of poverty. Two other 
countries, Uruguay and Guatemala, which are relatively small in 
terms of the size indicators, exhibit a relatively low 
dependence on trade. Otherwise, there appears to be a nearly 
perfect correlation between countries of the Caribbean and 
Central America and a high openness to trade. Twelve countries 
have trade dependency ratios of over 100 percent, ten from the 
Caribbean.
    2. Limited Diversity and Export Concentration.--This 
limitation in the range of economic activity is mirrored in the 
concentration on a one to three exports. Accompanying this 
characteristic is the relatively high reliance on primary 
commodities in the economy. Most of the economies which exhibit 
the characteristics of small economies are relatively 
undiversified in terms of their exports, and exports are 
concentrated on one or two products for over one quarter of 
their total exports. In extreme cases, one primary product 
export accounts for over 50% of exports, e.g. bananas in 
Dominica, St. Vincent, and St. Lucia.
    3. Dependence on Trade Taxes.--Smaller economies, which a 
lack economic diversity, tend to have a high dependence on 
trade taxes as a percent of government revenue. Larger 
economies measured by population size rely more heavily on 
forms of tax such as income tax rather than trade taxes such as 
customs duties, and this pattern is not related to income 
levels. Those countries which are small in population, land, 
and GDP terms, and which depend heavily on external trade, also 
rely heavily on external trade taxes for government revenue. 
There is a relatively strong correspondence between the 
countries which could be considered small and a high reliance 
on revenues from import duties. All of the Central American and 
Caribbean countries, with the exception of Barbados, El 
Salvador, St. Vincent, Trinidad and Tobago and Panama, obtain 
more than 20 percent of their government revenues from trade 
taxes. Trade taxes account for more than one half of government 
revenue in St. Lucia, Belize and the Bahamas and over one-third 
of government revenue in Guatemala and the Dominican Republic.
    . Small Size of Firms.--It is not countries that trade, it 
is firms which conduct international trade, including a 
substantial amount which is intra-firm transfers. Nationally 
owned firms from small countries are small by global standards 
and by comparison with firms in large economies and 
multinational corporations owned and/or based in large 
countries. Except for a few sectors where economies of scale 
are not a significant factor, size of firm makes a significant 
difference in the ability of firms to survive and compete in 
the global marketplace. Small firms are at a disadvantage 
because they cannot realize economies of scale, are not 
attractive business partners and cannot spend significant funds 
on marketing, market intelligence and research and development. 
This is reflected in an examination of the huge difference 
between the top 20 Companies in the United States and those in 
the English-speaking Caribbean. Wal-Mart stores, the largest 
employer in the United States has a staff complement of 675,000 
compared to the Caribbean's top employer, Lascelles Demercado 
(Jamaica) which employs 6,800. Total sales of General Motors is 
328 times larger than that of Neal & Massey (Trinidad & 
Tobago). The seven largest US companies each have sales revenue 
which is larger than the combined GDP of the 21 Caribbean and 
Central American countries.
D. Size and Development

    A direct relationship cannot be established between size 
and development. More specifically, small economies exhibit a 
range of development levels, from relatively poor to highly 
developed, using GDP per capita and the United Nations' human 
development index as an indicator of level of development. 
Similarly, there is no direct correspondence between small 
economies and level
    1. GDP per Capita.--The most widely used indicator of or 
proxy for development is the GDP per capita, which converts the 
aggregate level of output into the monetary wealth per 
individual. When ranked by the level of Gross Domestic Product 
per capita, there is no direct correlation between GDP per 
capita and indicators of economic size. Some of the countries 
which are small in terms of population, land and level of 
aggregate national product rank highly when ordered according 
to the level of GDP per person. The ten countries with the 
highest per capita GDP include five of the islands of the 
Caribbean, while two countries, Colombia and Peru, which are 
relatively large in other indicators rank relatively low on 
this list. Per capita GDP in the Bahamas (0.16% of Brazil's 
land area) is three times larger than GDP per capita in Brazil.
    2. Index of Human Development.--Along with basic economic 
indicators, the United Nations Development Programme (UNDP) 
categorizes countries according to an additional human 
development indicator--a basket measure of wealth, education 
and health. The Human Development Index (HDI) measures the 
average achievements in a country in three basic dimensions of 
human development--life expectancy, educational attainment and 
literacy, and real GDP per capita. Several of the countries 
considered small in population, land, and aggregate GDP terms 
are highly ranked in their level of education, health and 
standard of living, while some of the larger countries occupy 
lower rankings in terms of this indicator. Among the 15 lowest-
ranked countries, 12 would be considered small according to 
population and size criteria.
    3. Implications of Small Size.--There is no direct 
correspondence between size and the level of development 
attained by a country and no correlation between size of 
economy and growth rates. This fact is often used as a basis 
for the erroneous proposition that size has no significant 
impact on growth or development. Srinivasan argues that many of 
the problems which small economies are ``alleged to confront 
are either not unique to them or can be adequately addressed 
through suitable policy measures.'' However, more penetrating 
analyses have revealed that size is an additional dimension to 
economic growth and development which give these processes a 
qualitatively different character, indeed, some have argued 
that small size is an additional constraint on growth.
    The implications of small size for growth and the capacity 
to adjust to economic change include the following:
    1. Small economies have severe constraints on their 
material and labor inputs both in amount and variety, because 
of their limited land area and small populations. These 
constraints prevent the attainment of economies of scale for a 
wide range of products and lead to high unit costs of 
production. Small economies tend to have a narrower range of 
domestic and export production because of the small size of the 
market and the limited range of resources. Small market size 
also tends to cause high costs because there is often a lack of 
competition, in fact, in many instances the market can only 
support a single producer i.e., monopoly.
    2. There is a high degree of openness, i.e. trade/GDP ratio 
is high. Several important consequences follow from such a high 
degree of openness to trade. These include (a) The overall 
domestic price level is dominated by movements in the price of 
imports. The prices of non-traded goods also tend to adjust 
rapidly through the impact of foreign prices on wage and other 
cost movements. (b) Exchange rate changes tend to produce 
immediate effects, similar to those of foreign price changes, 
on domestic prices.
    3. The high degree of openness and the concentration in a 
few export products, particularly some primary products and 
agricultural commodities, whose prices are subject to 
fluctuations in world markets, makes small economies vulnerable 
to external economic events and exposes small economies to real 
shocks of an intensity unparalleled in larger countries. This 
concentration of export production exposes small economies to 
real shocks of an intensity unparalleled in larger countries. 
Economic vulnerability can be a feature of an economy of any 
size and level of development, but is compounded by size, 
proneness to natural disasters, and remoteness and insularity. 
Briguglio in a recent study constructed a ``vulnerability 
index'' encompassing all three aspects. His calculations reveal 
that there is a direct relationship between vulnerability and 
size, with the smallest countries being the most vulnerable. 
Canada, Brazil, Argentina and the United States have 
vulnerability indices of 0.2 or less, while Caribbean and 
Central American economies exceed 0.4. The 10 smallest 
economies range from 0.595 for Barbados to 0.843 for Antigua
    4. Trade theory as explained in textbooks assumes that 
international trade takes place between countries in an 
environment of perfect competition and trade occurs because of 
differences in comparative advantage which in turn derive from 
differences in resource endowment or technology. All firms are 
price-takers i.e. each firm is too small to influence price in 
the world market, therefore, international trade is due to 
differences between countries but size of country does not 
matter. By taking account of economies of scale i.e. increasing 
returns to scale, size of country and size of firm become 
important considerations. When there are economies of scale, 
large firms have an advantage over small firms, resulting in 
imperfect markets, including oligopoly and even monopoly market 
situations.
    Small firms in small economies, especially small developing 
economies are at a major disadvantage. These firms cannot 
attain either internal economies of scale i.e. where unit cost 
is influenced by size of firm or external economies of scale, 
i.e. where unit cost depends on the size of the industry, but 
not necessarily the size of any one firm. Small size of 
economy, and thereby small size of industries, including export 
sectors is unlikely to foster the competitive dynamic necessary 
for firms in small economies to achieve competitive advantage. 
This is more likely where the economy is large enough to 
sustain ``clusters'' of industries connected through vertical 
and horizontal relationships. Krugman and Obsfeld warn that 
``trade in the presence of external economies may not be 
beneficial to all countries,'' and ``it is possible that trade 
based on external economies may actually leave a country worse 
off than it would have been in the absence of trade.''
    Small firms in small, developing countries have severe 
difficulties in attaining ``economies of scope'' i.e. economies 
obtained by a firm uses its existing resources, skills and 
technologies to create new products and/or services for export. 
Exposure to global competition requires small firms to invest 
heavily just to survive in their national market, and more so 
in order to export. Larger firms are better able to generate 
new products and sources from existing organization and 
networks. Very large firms such as multinational corporations 
(MNCs) operate internationally in ways very different from 
small firms. Most of the trade of MNCs is intra-firm trade, 
rather than traditional ``arm's length'' international trade 
conducted by smaller firms. It is estimated that intra-firm 
trade accounts for 50 percent of the trade of the United 
States, and is also significant in developing countries.
    5. Small economies pay higher transportation costs because 
of the relatively small volume of cargo, small cargo units and 
the need for bulk breaking. Small economies pay an average of 
10% of the value of merchandise exports as freight costs 
compared to a world average of 4.5% and 8.3% for developing 
countries.
    6. The public sector in small economies account for a 
larger share of GDP, which reflects a certain indivisibility of 
public administration structures and functions e.g. every 
country no matter how small has a prime minister, parliament, 
police force, etc. The growth of the public sector has been due 
in part to an enhanced role for public sector investment in the 
economy, which has however been associated with reduced growth.
    7. Small economies have traditionally experienced export 
instability because they depend on a few primary product 
exports. It could be argued that many small economies have 
reduced the export instability associated with dependence on 
primary product exports by shifting to services, in particular, 
tourism and financial services, e.g. the Bahamas and Barbados. 
However, some studies have indicated that the change in the 
composition of exports toward a dominance of services has been 
accompanied by higher instability in export earnings. e.g. in 
Jamaica.
    8. The process of adjustment in small economies is more 
difficult, larger relative to GDP and of necessity slower, 
because of the undiversified economic structure.

                                Part II

A. The Issue of Small Economies in the FTAA

    The Summit of the Americas Declaration of Principles, which 
launched the Free Trade Area of the Americas (FTAA) process, recognized 
that the formation of a free trade area among thirty-four countries 
would be a complex and unprecedented undertaking, ``particularly in 
view of the wide differences in the levels of development and size of 
the economies existing in our Hemisphere.'' Recognizing the need to 
address this issue in the design of the FTAA, the heads of state/
government committed the participating countries to ``facilitate the 
integration of the smaller economies and increase their level of 
development.''
    Subsequent Ministerial Declarations have noted the necessity of 
facilitating the integration and the importance of increasing the 
opportunities for the smaller economies to participate fully in the 
FTAA in a manner which promotes their growth. This reflects an extended 
debate regarding the characteristics of small economies and factors 
affecting their participation in the FTAA. For the Working Group on 
Smaller Economies, whose principal mandate is to ``identify and assess 
the factors affecting the participation of smaller economies in the 
FTAA and the expansion of trade and investment stimulated therefrom'' 
this is a core issue.
    One of the issues, which proved difficult to decide, was the 
definition of a ``small economy.'' This is not surprising, as within 
the extensive literature and among the international organizations that 
categorize economies using various economic indicators, the definition 
of what constitutes a ``small'' economy is one which has not been 
empirically determined in a universally accepted manner, and it is 
widely accepted that no single indicator can fully describe a country's 
size. This dilemma was recognized by heads of state and government when 
they referred to the concerns of ``smaller economies'' rather than 
``small economies.''
    The FTAA Working Group on Smaller Economies held eight meetings 
since it was first convened in Kingston, Jamaica in August, 1995. The 
activities of the Working Group were supported by the technical 
expertise of the Organization of American States, the Inter-American 
Development Bank, the United Nations Economic Commission for Latin 
America and the Caribbean, the World Bank and the Sistema Economico 
Latinamericano. The discussions in the Working Group also benefited 
from submissions by the governments of Caricom and Central America as 
well as from a study by a group of independent experts. The Working 
Group completed its deliberations in September, 1997 having executed 
its work programme, which consisted of:
    1. Preparation of a bibliography of existing studies on smaller 
economies.
    2. Examination of the current treatment of smaller economies in 
integration systems: (a) a survey of existing international, regional, 
and sub-regional agreements and arrangements to assess their treatment 
of smaller economies, e.g. transitional measures; (b) a comparative 
compendium of the treatment of smaller economies in such agreements and 
arrangements.
    3. Identification of the characteristics of smaller economies that 
could affect their effective participation in the Free Trade Area of 
the Americas (FTAA).
    4. Evaluation of the effect of size of economy on trade 
liberalization and economic growth.
    5. Identification of the specific problems faced by smaller 
economies that might affect their integration into the FTAA, e.g. 
technical barriers to trade, lack of transparency, inadequate human and 
financial resources, lack of physical infrastructure and transport, 
fiscal dependence of smaller economies on tariff revenues, external 
debt, participation of small and medium enterprises.
    6. Examination of opportunities to facilitate integration of the 
smaller economies and to increase their level of development: (a) The 
internal adjustments that smaller economies might undertake to prepare 
for full participation in a hemispheric free trade area; (b) Identify 
the mechanisms/measures that might be considered to facilitate the 
participation of smaller economies in the process of integration, e.g., 
the pace of the process.
    7. Evaluation of the technical assistance requirements of smaller 
economies to: (a) Facilitate their participation in the FTAA process; 
(b) Ensure their integration in the FTAA.
    8. Examination of the need for and feasibility of a regional 
integration fund.

B. Ensuring Effective Participation of Small Economies in the 
Negotiation Process

    As stated in the Summit of the Americas Declaration of 
Principles, and reiterated in the Denver Ministerial Joint 
Declaration, one of the main objectives of the FTAA 
negotiations should be ``to provide opportunities to facilitate 
the integration of the smaller economies and to increase their 
level of development.'' This mandate reflects insistence of the 
Caribbean and Central American governments that small economies 
do not suffer adverse consequences from participation along 
with larger, in some cases more developed economies in the 
FTAA. In order to ensure that this issue was kept under review 
and recommendations made, the Working Group on Smaller 
Economies was established.
    The concerns of the small economies must be kept under 
continuous review during the negotiating stage of the FTAA, 
because small economies constitute the majority of the FTAA 
participants and small economies are a particular genre of 
national economy. Given the uniqueness of the subject matter, 
it does not seem appropriate for the Working Group on Smaller 
Economies to transform itself into a negotiating group during 
this negotiation phase of the FTAA process. However, there is a 
need to devise an appropriate mechanism that will periodically 
review and assess the negotiation process from the standpoint 
of the smaller economies. This could be achieved by:
    1. Placing the issue of small economies permanently on the 
agenda of the body which will have the main responsibility with 
regard to the negotiating process.
    2. Establishing a consultative or advisory committee of 
smaller economies with formal lines of reporting within the 
negotiation process.
    (a) Whose functions would be to:
    (i) follow the FTAA process, keeping under review the 
concerns and interests of the small economies;
    (ii) bring to the attention of the supervisory body of the 
negotiations, issues of concern to the smaller economies and 
proposals to address these issues;
    (iii) provide a forum for small economies to discuss the 
negotiations as a whole.
    (b) The rationale for the consultative/advisory committee 
is to:
    (i) ensure a forum, which can permit (as far as possible) a 
common position of this constituency. This would simplify and 
make more expeditious the negotiations since it could reduce 
the number of negotiating positions and perspectives.
    (ii) many small countries cannot afford to attend all the 
meetings given the duration of the negotiation (possibly even 
beyond the projected deadline of 2005), the number of meetings 
and multiple locations of meetings. The consultative/advisory 
committee is very likely to be the principal institutional 
forum in which many of the smallest countries will participate. 
This of course is not a precedent, e.g. the procedure was 
employed by the African countries during the Uruguay Round 
negotiation. This approach proved to be both cost-saving and 
successful for this group of countries as well as contributing 
to the overall negotiation process.
    Meetings of the consultative/advisory group would be 
convened at specific intervals, to evaluate the progress within 
the FTAA process with regard to the smaller economies. For 
example, periodic reviews could be held to assess the work done 
to take into account the needs and interests of the smaller 
economies and to make recommendations where and when necessary.
    3. Ensuring that adequate technical assistance is provided 
to smaller economies to strengthen their participation in the 
negotiations and to increase their capability to implement the 
objectives and disciplines of the FTAA. Smaller economies 
should make their needs known and identify the specific areas 
in which they will require technical assistance. The FTAA 
process should include a mechanism or mechanisms on which the 
smaller economies will be able to rely for the provision of 
such technical assistance. Such technical assistance could be 
made available from multilateral institutions and bilaterally.
    4. Agreeing on the general principles which will guide the 
negotiations in all areas under consideration in the FTAA, 
these tenets must include the following:(a) participation in 
the negotiation must be open to all countries that are 
participating in the Summit of the Americas process; (b) 
negotiations will be transparent; (c) decision-making will be 
on a consensus basis; (d) the outcome of the negotiations will 
constitute a comprehensive, single undertaking which embodies 
the rights and obligations mutually agreed upon; (e) results of 
the negotiations will be consistent with the WTO; (f) countries 
may participate individually or as groups, whether as members 
of sub-regional trade agreements, e.g. MERCOSUR or by 
commonality of interests, e.g. small economies; (g) negotiators 
will take into account, in their deliberations, the needs and 
circumstances of the smaller economies.

C. Recommendations for Integrating Small Economies into the 
FTAA

    Every effort should be made to ensure that the FTAA is 
truly hemispheric; including all countries whatever the size of 
their economy. In order to integrate small economies the 
following measures are recommended:
    1. Smaller economies should have the scope to negotiate as 
a group, if they so desire, as this would allow them to pool 
scarce human and material resources.
    2. Smaller economies, in particular, should consider early 
implementation, to the extent possible, of internal adjustments 
such as stable macroeconomic policies and measures to promote a 
business climate that encourages local and foreign investment.
    3. In the negotiating stage of the FTAA, the smaller 
economies may require additional assistance with respect to the 
issues under negotiation.
    4. Smaller economies should examine their special 
vulnerabilities and needs, with a view to formulating specific 
requests for technical assistance.
    5. The proposals for the negotiations and construction of 
the FTAA should recognize the vital importance of technical 
assistance and technical cooperation, depending on the 
country's requirements, for full and effective integration of 
smaller economies into the FTAA. This would include measures 
to: (a) develop appropriate legislation; (b) strengthen 
national institutions/agencies; (c) conduct public workshops on 
key issues in the WTO and related international organizations, 
and possibly the FTAA.
    6. The needs of smaller economies, both in terms of 
technical assistance and in measures to facilitate their 
implementation of an FTAA, should form part of the work program 
of each negotiating group that will ultimately be established.
    7. Negotiations and other consultations should be organized 
in a manner which economizes on human and financial resources.
    8. Measures that may be accorded or negotiated to 
facilitate the participation of the smaller economies in the 
FTAA process, should be transparent, simple and easily 
applicable, yet should recognize the degree of heterogeneity 
among them.
    9. All countries will share the FTAA's rights and 
obligations. In order to provide opportunities to facilitate 
the integration of the smaller economies into the FTAA, during 
the negotiations various measures could be included, on a case 
by case basis, such as: Technical assistance in specific areas 
such as intellectual property and technical standards; rules of 
origin and customs documentation which should be as simple, 
clear and transparent as possible for all FTAA countries; 
longer periods for implementing obligations; possibility of 
implementation at the regional or subregional level to save on 
scarce human/financial resources, e.g. technical standards 
bodies.
    10. In the design of the FTAA, efforts should be made to 
reduce the transitional costs and minimize internal dislocation 
in the smaller economies. Smaller countries should be expected 
to implement all the provisions contained in the FTAA. However, 
suitable transitional arrangements (in the form of longer 
periods for the implementation of general rules and disciplines 
applicable to all) must be designed for those smaller economies 
which are not yet ready for immediate and full assumption of 
FTAA provisions, having not yet attained the level of 
development or level of liberalisation commensurate with the 
far-reaching obligations that are likely to be part of the 
FTAA. This asymmetrically-phased assumption of universally 
applicable obligations and disciplines is compatible with the 
evolving environment in which trade relations between larger 
and more developed countries and smaller developing nations has 
been taking place, both at the multilateral level (as was the 
case in the Uruguay Round), and in the context of regional and 
subregional trade arrangements in the Western Hemisphere. It is 
not desirable to apply ``special and differential treatment'' 
to all countries across all sectors and products. All economies 
will need differentiated treatment on some products and in 
regard to some sectors. The application of this principle will 
provide the flexibility necessary to accommodate the concerns 
of smaller economies.

D. Preparation by Small Economies for the FTAA

    Smaller economies should not simply view the FTAA in 
isolation, but as part of their global strategic repositioning 
plans. The objective is repositioning a country in the global 
economy by proactive strategic adjustment in anticipation of, 
and in response to, global changes in demand and technology. 
Such plans must be designed to consolidate and improve existing 
production lines while reorienting the economy toward new types 
of economic activity aligned to global trends. Among other 
things, this includes producing what is demanded globally; 
pursuing structural transformation to achieve economic 
diversification; revitalizing traditional exports (i.e. looking 
downstream in traditional commodity production), and 
modernizing international marketing techniques to keep abreast 
of world demand. Smaller economies must undertake global 
strategic repositioning in response to developments such as 
globalization. This, in addition to helping them to avoid 
becoming marginalised from the world economy, will allow them 
to prepare themselves for the FTAA, to better participate in 
the FTAA, and to benefit from the FTAA. FTAA participation, in 
turn can act as a catalyst for the adoption of global strategic 
repositioning policies by smaller states.

                              Conclusions

    The issue of integrating small economies into the FTAA must 
be addressed, if not there will not be a genuine FTAA. Small 
economies make up the majority (25 by some estimates) of the 
countries in the Hemisphere, hence their absence would make it 
impossible to have a seamless hemispheric economic space. There 
is no single, universally accepted method for classifying 
economies as small or large. Different methods yield different 
definitions of what is a small economy. Some indices suggest 
that certain countries within the Western Hemisphere most often 
exhibit the characteristics usually associated with being 
small. These are the countries of the Caribbean and Central 
America. It is therefore suggested that when dealing with this 
issue, the smaller economies be thought of as the countries in 
the Caribbean and Central America as well as those other 
countries that consider themselves small and expressly declare 
their status as such. In permitting self-selection, the FTAA 
would be following an approach applied in the GATT and now the 
WTO, whereby members select their own development status. 
Special measures will have to be included in the design of the 
FTAA to accommodate small economies and allow their 
participation to be beneficial to themselves and the process of 
free trade as a whole. The necessity for these measures arises 
from the characteristics of small economies and their 
implications from the growth and development of this type of 
economy. Certain principles, as well as technical assistance 
will ensure meaningful participation by small economies in the 
negotiation process. The FTAA must include appropriate 
treatment of small economies based on the principle of 
``differentiated treatment.'' This will permit a process of 
asymmetrically-phased assumption of disciplines in which small 
economies must have longer adjustment periods. Meanwhile, given 
the high degree of openness, undiversified structure and export 
concentration, small economies must immediately commence a 
preparatory process of strategic global repositioning.
      

                                


National Association of Manufacturers

                              Introduction

    The National Association of Manufacturers (NAM) supports 
the goal of attaining a Free Trade Agreement of the Americas 
(FTAA), as first set forth at the Miami Summit of the Americas 
in January 1995.
    At the Miami Summit of the Americas, it was not only agreed 
to target the conclusion of negotiations for 2005, but the 34 
participating countries also collectively agreed ``to make 
concrete progress towards the attainment of [a Free Trade 
Agreement of the Americas] by the end of this century.'' In 
order to maintain the momentum of long-term negotiations and to 
achieve interim concrete results, the notion of attaining an 
FTAA ``early harvest'' has been discussed.
    The NAM supports the concept of an early harvest, as set 
forth below. Moreover, NAM strongly recommends that the 
Ministers at the March 1998 San Jose Ministerial formally agree 
to pursue an early harvest strategy and that they make the 
issues listed below part of the formal FTAA early harvest 
agenda.

                        Early Harvest Generally

    ``Business facilitation issues'' have been a central theme 
of early harvest discussions. These proposals are considered 
realistic and achievable as they do not require formal 
negotiation or legislation, but instead lend themselves to 
voluntary adoption unilaterally or collectively by businesses 
and governments alike. Even if negotiations or legislation are 
required, these issues are generally not considered 
controversial and thus implementation should not be hindered. 
In fact, their implementation is key to the facilitation of 
international business transactions and the NAM urges that they 
be pursued with vigor. NAM-supported business facilitation 
issues are detailed below.
    An early harvest strategy should definitely focus on more 
than just business facilitation, however. For example, to 
advance concrete and integrated economic development in the 
region, transparent investment rules, regulations and practices 
are a must. Latin America should not be painted with the 
``Asian flu'' brush, but must demonstrate discipline and 
transparency in this area to assure its trading partners of 
liquidity, stability and predictability.
    In order to anchor actual trade negotiations, a formal 
Standstill Agreement should be reached immediately to ensure 
there is no backsliding as formal negotiations begin in 
earnest. In addition, de minimis duties (2 percent or lower) 
could be eliminated as a show of good faith. Finally, 
hemispheric adoption of multilaterally agreed zero-for-zero 
commitments, as well as a balanced and early duty reduction and 
elimination package, would be instrumental in shoring up FTAA 
progress. (See further details below.)
    As transparency is one of the most important issues for 
trading partners, one goal might be to agree to hemispheric 
adoption of an FTAA provision mandating transparency in all 
participating countries' administrative and regulatory 
procedures (e.g., something striving to encompass such core 
principles as those embodied in, for example, the US 
Administrative Procedures Act).
    Another early harvest item might include a hemispheric 
agreement regarding public procurement that incorporates the 
core elements of the WTO Government Procurement Agreement and 
the NAFTA Chapter 10 government procurement provisions. 
Adoption of the Reference Paper on basic Telecommunications 
would be another important step towards early liberalization in 
the hemisphere. Finally, recognition and ratification of the 
OAS convention, and adoption of the OECD convention (following 
the example set by Argentina, Brazil and Chile) on anti-bribery 
would be a key hemispheric early harvest item.
    A defined and useful role for the Private Sector should be 
set forth as soon as possible. The business sector obviously 
has the hands-on experience of hemispheric transactions and has 
much to contribute to the process. Furthermore, formal and 
productive hemispherically-integrated discussion and submission 
of business proposals will not only strengthen the content of 
any final FTAA agreement, but produces its own early harvest of 
closer hemispheric business ties.

                      Business Facilitation Issues

    The following is a non-exclusive list of business 
facilitation issues that US manufacturers would like to see 
pursued in an FTAA early harvest:
    *Distribution of Information: NAM supports the compilation 
and publication of as much information as possible to enhance 
the ability to conduct free and fair hemispheric transactions. 
That information should be made available through a myriad of 
mediums, including an FTAA homepage. The information should be 
as comprehensive as possible and up-dated regularly to make it 
useful. Information to be disseminated should include:
     data regarding hemispheric trade flows, foreign 
direct investment flows, tariffs (for individual countries and 
for hemispheric regional blocs), non-tariff barriers, subsidies 
and national payment instruments for commercial transaction;
     guidelines for customs procedures;
     an inventory of hemispheric laws and regulations 
regarding competition;
     an inventory of regulations and a list of agencies 
responsible for public sector procurement, and a list of goods 
and services frequently purchased by governments;
     an inventory of hemispheric consumer-based market-
research, and market-needs analysis for goods and services;
     an inventory of regulations and a list of agencies 
responsible for administering dumping and countervailing laws 
and regulations;
     an inventory of regulations and a list of agencies 
responsible for intellectual property rights;
     an inventory of regulations pertaining to, and a 
list of agencies responsible for, electronic commerce;
     an inventory of regulations and a list of agencies 
responsible for industrial standards and sanitary and 
phytosanitary regulations;
     an inventory of regulations and a list of agencies 
responsible for foreign direct investment;
     an inventory of corporate tax policies, updated 
regularly to reflect any changes made thereto;
     an inventory of regulations and a list of agencies 
responsible for environmental policies, updated regularly to 
reflect any changes made thereto;
     a progress report on WTO rules compliance by the 
34 participating countries within the hemisphere;
     a continually updated inventory of infrastructure 
projects and invitations to international tenders;
     official written comments on the progress, 
including recommendations and conclusions of, the governmental 
Hemispheric Working Groups (HWGs), as they proceed with formal 
negotiations, and in response to proposals of the Business 
Forum of the Americas; and
     the effective date and details for operation of 
any business facilitation measures generally agreed to.
    *Education: US manufacturers support the promotion of a 
symposium on business facilitation with international 
organizations (including the UN), governments (including 
customs agencies) and the private sector to update the 
participants on developments and present suggestions on 
business facilitation, and to promote increased cooperation 
between sister agencies such as customs and standards 
certification entities.
    *Customs Procedures: NAM supports a harmonized, efficient, 
hemispheric customs system. To that end, NAM supports early 
hemispheric agreement on the following:
     collective adoption of the WCO Harmonized System;
     collective adoption of internationally accepted 
customs forms and procedures;
     agreement to harmonize and simplify customs 
procedures on the basis of the Kyoto convention;
     collective adherence to the UN Electronic Data 
Exchange System (EDE) that includes the exchange of structured 
message EDIFACT/UN;
     collective adoption of an advanced classification 
ruling system providing certainty regarding classification 
information prior to importation;
     collective adoption of customs rules and 
procedures to speed processing and effectively facilitate 
voluntary compliance, including electronic filing and pre-
shipment clearance;
     the establishment of simplified customs procedures 
for low-cost shipments;
     collective adoption of simplified customs 
procedures, including the ATA CarnetConvention, for temporary 
duty-free importation of products;
     adoption of the principles of the WTO Intellectual 
Property Agreement (TRIPS) to implement border enforcement of 
standard procedures for administering intellectual property 
rights;
     agreement to implement the Agreement on 
Interpretation of Article VII (Customs Valuation) of GATT 1994 
to prevent against the burgeoning of differing import-price 
determining regimes;
     collective agreement to facilitate the creation 
and use of free trade zones and bonded warehouses; and
     collective adoption of a clear appeals provision 
to provide a means for business to challenge Customs decisions 
which they feel are erroneous or inequitable;
    *Public Procurement: Government procurement practices 
throughout the hemisphere should be non-discriminatory, 
transparent in their administration, and free from corrupt 
practices. To that end, the NAM strongly urges:
     adequate notice for evaluating projects and 
preparing bids, and in large or complex contracts, pre-
qualification of bidders;
     the use of neutral or internationally recognized 
standards wherever possible, and the use of performance 
standards to ensure that equivalent products are treated 
equally;
     that objective criteria should be specified, as 
should be the formula by which they will be applied, which 
formula should be ascertainably followed in the selection 
process;
     that bids should be opened in public, in the 
presence of all bidders;
     that contracts should be awarded to the lowest 
compliant bidder on the basis of objective criteria, or in 
appropriate sectors (e.g., control processes, measurement and 
medical equipment), on the basis of a ``best overall value'' 
approach anchored by transparent criteria and evaluation 
procedures;
     that contracting agencies should provide 
unsuccessful bidders access to independent review of the bid 
process and its compliance with these principles, including 
adequate remedies for non-compliance by such agencies with such 
principles; and
     that the rights of the seller in its technical 
data and patents are considered and respected as is necessary 
in any fair and open government procurement process.
    *Standards, Testing and Conformity Assessment: NAM 
supports:
      where applicable or appropriate (e.g., the 
computer industry), promoting regulatory structures which 
reference: internationally-accepted standards or suite of 
standards; one test or suite of tests to meet those standards; 
acceptance of a supplier's or third-party's test results; and 
acceptance of a supplier's declaration of conformity, without 
precluding the supplier from choosing the third-party 
certification route;
     the adoption of international standards, where 
they exist, or standards widely accepted within an industry;
     pursuit of sector-specific hemispheric Mutual 
Recognition Agreements (e.g., telecommunications), not as an 
end in themselves, but as an interim step towards regional 
harmonization;
      basing all standards on sound scientific research 
and evidence;
      the establishment of a hemispheric central 
registry to which existing, proposed, and newly created 
standards would be notified; and
     the reduction of product marking/labeling 
requirements to a single hemispheric system for demonstrating 
conformity.
    *Services: NAM supports the following:
      collective adoption of international accounting 
standards for use in the preparation of financial statements;
      improved hemispheric securities market clearance 
and settlement procedures;
     streamlined procedures for the unrestricted 
provision of financial information, particularly on a cross-
border basis;
      streamlined procedures for the approval of 
foreign mutual fund investment;
     eliminating economic means tests and publishing 
clear, transparent rules for the establishment of financial 
entities;
     increasing the number and types of financial 
services that can be provided or consumed on a cross-border 
basis; and
     open participation in distribution services within 
and between countries.
    *Other: NAM supports early hemispheric agreement on the 
following:
     simplification of visa issuing procedures for 
business travelers, including not requiring visas for short 
visits;
     the expedition of immigration procedures for 
business visitors;
     hemispheric participation in institutions such as 
ISO, Codex Alimentarius and the Pacific Economic Consultation 
Council (PECC);
     the adoption of ``Principles for International 
Contracts'' developed by the International Institute for the 
Unification of Private Legislation (UNIDROIT);
     the adoption of informal mechanisms to mediate and 
arbitrate trade disputes;
     requesting the Inter-American Development Bank 
(IDB) to prepare a ``White Book'' showing the deficiencies of 
existing hemispheric infrastructure, including regional 
transportation difficulties and energy integration issues, 
outlining the investment needed to solve them, and listing the 
agencies responsible for project management and construction; 
and
     strengthening institutional consultation 
mechanisms between the HWGs and Ministerials and the private 
sector, by channeling information through a formal organization 
such as the BNHI.

              Additional Details for Early Harvest Issues

    *Investment: It is critical that Western Hemispheric 
investment regimes be non-discriminatory and transparent. 
Financing strategies must be based upon sound investment 
criteria. To avoid unfair competition in the attraction of 
international direct investment, there should be hemispheric 
agreement to only use incentives accepted by the WTO. Finally, 
intra-hemispheric investment flows should be supported by 
principles of MFN, national treatment, fair and equitable 
treatment and impartial and fair dispute settlement.
    *Tariff and Non-Tariff Measures: As was suggested in the 
Business Forum recommendations from Belo Horizonte, a 
hemispheric Standstill Agreement, covering both tariff and non-
tariff measures, should be reached as soon as possible. 
Additionally, NAM urges early commitment to duty elimination 
through the adoption of GATT ``zero-for-zero'' packages 
(currently in effect for medical devices and semiconductor 
fabrication equipment). Such agreement could be part of a 
larger balanced duty reduction or elimination package comprised 
of the following type of concessions: undertakings to consider 
reducing high tariffs to levels which do not exceed a maximum 
duty rate or to levels to at least allow a minimal amount of 
trade to flow; elimination of ``nuisance duties'' (de minimis 
duties of 2 percent or below); and hemispheric adoption of 
multilaterally agreed zero-for-zero commitments. An early 
package could tackle tariffs in each of the three categories, 
and seek to achieve hemispheric results modeled after 
agreements such as the ITA.
    Such an early package could be agreed to on a non-
contractual basis, providing that the country be bound only in 
the final FTAA package. The major contributions of countries 
such as the United States and Canada would be in the 
elimination of nuisance duties. The major contributions of 
countries such as Brazil would be in reducing some of their 
high duties. If actual implementation was prevented by the free 
rider problem associated with MFN requirements, it could be 
agreed early on that such reductions would be implemented as 
soon as the FTAA went into effect or as soon as third countries 
agreed to pay for their implementation.
    *Role of the Private Sector: Establishing the role of the 
private sector should be done as soon as possible. It is 
important to define specific mechanisms for full private sector 
participation that provide a regular, predictable and useful 
framework for input. While it is recognized that formal trade 
negotiations are conducted on a government-to-government basis, 
parallel business community input will enhance both the content 
and the implementation of an FTAA.
    To that end, at the national level, the NAM endorses 
regular and continuous briefings for the business community on 
the status of FTAA negotiations, and recommends that the views 
of all private sector advisors, official and otherwise, be 
taken into consideration. At the hemispheric level, the NAM 
endorses the continuation of the Business Forum of the 
Americas, understanding that it may have to be modified to 
reflect that the FTAA process is entering the formal 
negotiating stage. NAM would be interested in seeing procedures 
for formal government responses to consensus forum 
recommendations, perhaps through set briefings from, or 
meetings with, Chairpeople of the HWGs, and at intervals of 
less than 12 months.

                               Conclusion

    The NAM supports the launching of formal hemispheric trade 
negotiations at the Second Summit of the Americas to be held in 
Chile in April 1998. It is hoped that such negotiations will 
based upon WTO disciplines and agreements as the floor for 
further progress.
    The NAM strongly supports the concept of an FTAA early 
harvest to move the region concretely and progressively towards 
the goal of hemispheric trade integration. To that end, NAM 
urges the Ministers to explicitly direct the Vice Ministers to 
define and pursue an early harvest agenda by mid-1998, with 
first concrete results to be achieved by 2000 at the latest. 
Should early harvest issues be achievable before and after the 
year 2000, NAM supports a ``rolling harvest'' scenario as well.
    It is hoped that all 34 participant countries will be 
diligent and creative in pursuing business facilitation and 
other easily achievable early harvest items. Hemispheric 
private sector participation is crucial to this goal, and the 
NAM stands ready to assist in the endeavor.
    This paper was prepared by Dianne Sullivan, director of 
international trade policy, of the NAM's Economic Policy 
Department, in close coordination with the NAM's member 
companies and the following associations: American Electronics 
Association, American Forest and Paper Association, American 
Iron and Steel Institute, Chemical Manufacturers Association, 
Coalition of Service Industries, Distilled Spirits Council of 
the United States, Grocery Manufacturers Association, 
Information Technology Industry Council, JBC International, 
Motor and Equipment Manufacturers Association, National 
Electrical Manufacturers Association, Telecommunications 
Industry Association, Transparency International USA, and the 
United States Council for International Business.
    This paper was also prepared closely in conjunction with 
the North-South Center of the University of Miami and its 
Adjunct Senior Research Associate, Stephen Lande.
      

                                


Statement of Rubber and Plastic Footwear Manufacturers Association

    On July 14, 1997, the Rubber and Plastic Footwear 
Manufacturers Association (RPFMA), the spokesman for 
manufacturers of most of the rubber-soled, fabric-upper 
footwear, waterproof footwear and slippers made in this country 
submitted a Statement to the Trade Subcommittee in connection 
with the hearing the Subcommittee was then conducting on 
negotiations for a free trade area in the Americas. The 
concerns we expressed in that Statement remain valid today and 
this submission, responding to the Subcommittee's request for 
testimony on ``the anticipated impact of expanding trade in the 
hemisphere on United States'... industries....'', is 
essentially the same as our Statement of July 14, 1997.
    Rubber footwear is a labor-intensive, import-sensitive 
industry: Labor constitutes more than 40 percent of total cost, 
and imports of fabric-upper footwear and of slippers take in 
excess of 80 percent of the U.S. market and imports of 
waterproof footwear in excess of 40 percent. These imports come 
from countries where wages are from one-fifteenth to one-
twentieth of the level in the domestic industry.
    In December 1997, the United States Department of Commerce 
issued a report on trends and trade issues affecting the 
domestic rubber footwear industry. In its overview of that 
report the Department stated ``[b]oth rubber-canvas and rubber 
protective footwear are standardized products that are produced 
using mature, labor-intensive technologies commonly available 
throughout the world. Capital requirements are low and 
production requires no unusual skills or education. These 
economic characteristics make it difficult for U.S. producers 
to compete with producers in lower-wage countries.''
    A free trade agreement with Latin America is unlikely to 
enhance export opportunities for the products of this domestic 
industry because of the difficulty of competing anywhere in the 
world with such low-wage producers as China, Indonesia, 
Malaysia, and now Vietnam. On the other hand, the elimination 
of duties on imports of rubber footwear and slippers from Latin 
America would cause havoc to what is left of this domestic 
industry, particularly since countries like Chile, Brazil and 
Argentina already have a significant number of rubber footwear 
and slipper plants. Duties on fabric-upper footwear with rubber 
soles average in excess of forty percent and duties on 
protective footwear and slippers are, for most products, 
thirty-seven and half percent. The elimination of these duties 
would have a more serious impact than in the case of the 
elimination of virtually any other duty.
    In the early 1970s, there were some 26,000 production 
employees making rubber and plastic footwear and 10,000 making 
slippers in the U.S. By the end of 1996, these figures had 
shrunk to 4,500 and 2,100 respectively. This downsizing is 
attributable to the growth of the industry abroad.
    The dozen or so rubber footwear and slipper companies left 
in this country represent survival of the fittest. These 
companies believe that they can continue to survive if there is 
no further erosion in the present levels of their tariff 
protection. Although they have already found it necessary to do 
a significant amount of importing in order to remain 
competitive, a majority of their production still occurs in 
this country.
    A dramatic example of the effect on this industry of duty-
free trade is what has happened in the Caribbean. Until 1990, 
rubber footwear was excepted from duty-free treatment under the 
Caribbean Basin Initiative. The 1990 amendment to the CBI 
eliminated the exemption for footwear when that footwear is 
made with American components. As a result of that elimination 
of duties, rubber footwear imports from the Caribbean rose from 
200,000 pairs in 1990 to in excess of 12 million pairs in 1996.
    Accordingly, any agreement for a free trade area in the 
Americas should provide for an exception for the very few 
domestic industries, such as rubber footwear and slippers, 
whose continued survival would be endangered by the elimination 
of duties. Surely it was a recognition of the need for such 
limited exceptions which accounted for the language of 
paragraph eight in article XXIV of the GATT which defines a 
free trade agreement as one where ``the duties and other 
restrictive regulation of commerce ... are eliminated in 
substantially all the trade between the constituent territories 
or products originating in such territories'' (emphasis added). 
The benefits which accrue from a free trade agreement would not 
be diminished by protecting the minuscule fraction of one 
percent of the country's trade represented by rubber footwear 
and slippers.
    RPFMA urges the Trade Subcommittee, in its report on the 
current hearings, to adopt a view that the negotiation for a 
free trade area in the Americas should have as its objective 
the elimination of substantially all duties and that exceptions 
may be made in those extraordinary situations where the 
survival of domestic industries are at stake.
      

                                


 Appendix I. Rubber and Plastic Footwear Manufacturers Association

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

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

Draper Knitting Co.
28 Draper Lane
Canton, MA 02021

Genfoot
673 Industrial Park Road
Littleton, NH 03561

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

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

Kaufman Footwear
Batavia, NY

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

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

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

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

Spartech Franklin
113 Passaic Avenue
Kearney, NJ 07032

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

                                


Statement of U.S. Express Integrated Transportation Services Sector

                            I. Introduction

    This statement is submitted on behalf of the following 
companies who are members of the U.S. express integrated 
transportation services sector (``ExITS'').
     Airborne Freight Corporation
     Burlington Air Express, Inc.
     DHL Worldwide Express
     Emery Worldwide Express
     Federal Express Corporation (FedEx)
     TNT Express Worldwide
     United Parcel Service (UPS)
    These companies comprise a large majority of the U.S. 
express integrated transportation services sector, representing 
more than ninety percent (90%) of the value of trade provided 
by the U.S. companies making up this industry. In addition, 
this statement is submitted on behalf of the Air Courier 
Conference of America and the Cargo Airlines Association, two 
related U.S. trade associations.

                              II. Summary

    The U.S. ExITS sector has been actively involved in the 
FTAA process and its experiences to date have been positive. 
Through the Americas Business Forum process, and the Joint 
Meeting of the FTAA Working Group on Services and Private 
Sector (Santiago Chile, Oct. 1998), the U.S. ExITS sector has 
been instrumental in the development of a series of sector 
specific recommendations for consideration in the FTAA process. 
If adopted, those recommendations would result in meaningful 
trade liberalization for the sector, and a quantifiable 
positive economic benefit to the U.S. companies of the ExITS 
sector.
    One recommendation of the ExITS sector represents an area 
where early concrete progress may be had. At the IV Americas 
Business Forum held at Costa Rica in conjunction with the 
fourth FTAA Ministerial Meeting, industry representatives from 
throughout the Western Hemisphere (including MERCOSUR) 
recommended by unanimous consent that the FTAA countries adopt 
and fully implement by June 1999 the so-called Cancun Accords. 
The Cancun Accords is a document that sets forth a 
comprehensive model of customs related procedures for express 
integrated transportation services. Customs officials, and 
industry representatives, from 16 Latin American countries 
signed the Cancun Accords. The Cancun Accords precisely 
represent the type of business facilitation measures that upon 
early adoption in the FTAA process would expand trade, promote 
economic prosperity throughout the hemisphere, and facilitate 
across the board trade in goods and services. The U.S. ExITS 
sector is eager to work with Congress, the U.S. Administration, 
and governments and industry throughout the Western Hemisphere 
towards the early adoption of the Cancun Accords.
    The U.S. ExITS sector recognizes that USTR representatives, 
in particular those involved in the FTAA and trade in services, 
have been particularly instrumental in creating opportunities 
for private sector input.

                       III. Purpose of Submission

    In its March 17, 1998, notice, the Subcommittee announced a 
hearing ``on the status and outlook for negotiations aimed at 
achieving a Free Trade Area of the Americas (FTAA).'' The 
Subcommittee noted that it was interested in examining the 
``progress in the FTAA negotiations and how these talks affect 
the national economic and security interest of the United 
States,'' as well as the ``anticipated impact of expanding 
trade in the hemisphere on United States workers, industries, 
and other affected parties.''
    The U.S. ExITS sector has been actively involved in the 
FTAA process, including in several of the Americas Business 
Forum meetings that have convened in conjunction with FTAA 
Trade Ministerial Meetings. Given its interest and active 
involvement, the U.S. ExITS sector appreciates the opportunity 
to submit this statement to address the issues identified by 
the Subcommittee, and to provide the Subcommittee its views 
concerning its experience and vantage point as both a 
participant in, and potential beneficiary of, the FTAA process.

                   IV. Overview of U.S. ExITS Sector

    The U.S. express integrated transportation services sector 
is made up of companies that provide express integrated 
transportation services (``ExITS''), that is, the provision of 
fast, efficient, and reliable pick-up, transport, and delivery 
of a wide variety of goods of all sizes, shapes, and weight. 
The distinguishing characteristic of the service provided by 
the sector is the just-in-time shipment of goods and services. 
The ``just-in-time'' concept not only implicates the timely 
delivery of goods to production facilities, it also encompasses 
the ``time-definite'' needs of the customer--either the 
shipper, the recipient, or both. Every day in the United States 
and around the world, consumers determine for a variety of 
reasons to pay a premium for either shipping or receiving goods 
or services on a just-in-time basis. U.S. ExITS companies 
transport and deliver on a time sensitive basis such items as 
business, commercial, educational and official documents; 
packages; finished goods; parts and components necessary for 
the manufacture of industrial goods; raw materials; high-value 
items; perishable goods; and emergency supplies and medical 
equipment.
    The U.S. ExITS sector is a key contributor to the economic 
prosperity of the United States. The ExITS sector employs more 
than 400,000 people and has a combined annual revenue of more 
than $45 billion. One of the U.S. ExITS companies is the fifth 
largest private employer in the United States. The ExITS 
companies operate more than 1,000 aircraft and 184,000 vehicles 
in providing express integrated transportation services. On a 
daily basis, they deliver more than 4.1 million packages by air 
to more than 211 countries. The U.S. ExITS sector also 
significantly contributes to the economies of other countries. 
The two largest ExITS companies employ more than 50,000 people 
outside the United States.
    The ExITS sector involves more than just simple ``courier'' 
or freight services. What distinguishes the service provided by 
ExITS companies from that of regular freight companies is that 
the ExITS sector offers door-to-door, integrated, time-
sensitive shipment of goods and services. To provide this 
service, ExITS companies handle all aspects involved in the 
express shipment, including pick-up of the item, ground and air 
transport, delivery, warehousing, distribution, customs 
brokerage and customs clearance, and the completion of all 
types of required administrative and customs procedures. With 
the increase in the ``just-in-time'' method of manufacturing, 
the services provided by ExITS companies will become even more 
essential in the future. As discussed below, the service 
provided by the ExITS sector is both essential and necessary to 
the conduct of international trade and commerce.

         V. The Benefits of Trade Liberalization Under an FTAA

    The services provided by the express integrated 
transportation services sector are a key facilitator to 
international trade. The world trading community is 
increasingly bound together by international aviation. On a 
value basis, thirty seven percent (37%) of the goods and cargo 
in world trade are transported by means of air express. If bulk 
commodities such as oil and agricultural products are excluded 
from this calculation, nearly fifty percent (50%) of all global 
trade (by value) is transported by air. It is expected that the 
importance of air cargo transport will increase in the future. 
Industry analysts have estimated that the growth rate for air 
cargo (measured in revenue ton miles) will exceed the growth 
rate of world passenger traffic (measured in revenue passenger 
miles) over the next twenty years.
    As the world advances into the twenty-first century, more 
and more of world trade will be represented by the kind of 
goods transported by the ExITS companies, high-value items such 
as electronic goods, computers and computer parts, optics, 
precision equipment, medicine and medical supplies, 
pharmaceuticals and chemicals, aircraft and auto parts, 
avionics, fashions, high-value agricultural and perishable 
goods, and intellectual property. Thus, the services provided 
by the ExITS sector are vital to trade liberalization and trade 
expansion in the Western Hemisphere and throughout the world, 
and will be increasingly essential to the future growth of 
international trade and commerce.
    Unfortunately, the ability of the ExITS sector to provide 
efficient and reliable service is impeded and adversely 
affected by a large number of governmental measures applied to 
services other than so-called ``courier'' services. In order to 
provide its service, the ExITS sector performs a large number 
and variety of services, such as, air and ground 
transportation, air auxiliary services, distribution, 
warehousing, customs brokerage, telecommunications, and freight 
forwarding. Thus, effective trade liberalization for the sector 
necessarily involves the reduction or elimination of all trade 
restrictions and trade-distorting measures applied to various 
services performed by the ExITS sector in providing express 
integrated transportation services.
    Under the FTAA process, the removal of trade barriers and 
other impediments to the efficient operation of ExITS services 
will stimulate trade expansion and have a dynamic effect on 
other international business sectors in the Western Hemisphere. 
Meaningful trade liberalization in the ExITS sector will act as 
a catalyst in encouraging small and medium-sized businesses to 
grow through expanded exports by freeing them from the burdens 
associated with otherwise arranging for the transport and 
delivery of their goods in international trade.
    In addition, U.S. ExITS companies doing business in Central 
and South American countries expand the economies of those 
countries through the local sourcing of goods and services, 
e.g., fuel, equipment, telecommunications, and technical labor. 
Hence, the express integrated transportation service sector is 
important because it does more than just facilitate trade, it 
also acts as an expander and promoter of international trade. 
Consequently, the elimination and reduction of trade 
impediments and other measures restricting the services 
provided by the ExITS sector should be a primary objective in 
the FTAA process.

              VI. Major Goals for ExITS Sector in an FTAA

    As noted in detail below, the U.S. ExITS companies have 
been actively involved in the FTAA process. The U.S. ExITS 
sector has advanced the following major objectives and 
principles.

A. All pertinent services should be included in negotiations in 
the express integrated transportation services sector.

    The FTAA negotiations should address all measures which 
affect and encumber trade in express integrated transportation 
services. As noted above, in order to provide their service, 
ExITS companies must undertake activity in a number of service 
sectors and sub-sectors. Hence, meaningful trade liberalization 
cannot be achieved only by addressing, for example, ``courier'' 
services. Instead, trade restrictions applied in all services 
performed in the provision of express integrated transportation 
services must be addressed in order to achieve meaningful trade 
liberalization for the ExITS sector. For this reason, all 
pertinent services should be included in negotiations in the 
ExITS sector.

B. The FTAA process should conduct sector specific examinations 
in the context of negotiations on services.

    As noted above, as a facilitator and promoter of 
international trade, the ExITS sector plays a key role in trade 
expansion in the Western Hemisphere. As the ExITS sector must 
perform a wide variety of services in order to provide express 
integrated transportation services, the trade restrictions 
encountered by the sector represent governmental measures 
applied in an equally broad segment of service sectors and sub-
sectors. As in other service sectors, e.g., financial services 
and telecommunications, the governmental measures that restrict 
trade in express integrated transportation services are of such 
a diverse and complex nature that meaningful trade 
liberalization will occur only to the extent that sector 
specific rules and principles are developed for the ExITS 
sector. This means that the sector must receive sector specific 
treatment/examination during the negotiations.
    A sector specific approach for the ExITS sector would 
accord with the structure of the FTAA negotiations agreed to at 
the most recent FTAA Trade Ministerial Meeting, held in San 
Jose, Costa Rica in March 1998. In the Joint Declaration issued 
at that meeting, the Trade Ministers established nine 
negotiating groups, including one for services, and stated that 
each of the negotiating groups may establish ad hoc working 
groups with respect to issues that it determines are deserving 
of focused consideration. The express integrated transportation 
services sector merits, and should be accorded, such 
concentrated treatment within the services negotiating group. 
Specifically, Congress should require as a U.S. negotiating 
objective that the U.S. Administration ensure negotiations for 
the ExITS sector be undertaken on a sector specific basis.

C. The FTAA process should immediately address certain business 
facilitation measures.

    The trade ministers of the 34 countries engaged in the FTAA 
process have recognized that certain business facilitation 
measures that enhance trade may, and should, be agreed to and 
implemented in advance of the conclusion of the FTAA process.
    At the third FTAA Trade Ministerial Meeting, held in May 
1997 at Belo Horizonte, Brazil, the trade ministers directed 
their vice-ministers to ``review the reports of the [FTAA] 
Working Groups and approve as appropriate their recommendations 
on work programs, areas for immediate action and business 
facilitation measures.'' Joint Declaration (May 16, 1997) at 
para. 7 (emphasis added).
    In their Joint Declaration issued at the fourth FTAA Trade 
Ministerial Meeting, the trade ministers declared that the FTAA 
process, which envisions the conclusion of negotiations by the 
year 2005, should achieve concrete progress by the year 2000, 
especially in the area of business facilitation measures. The 
Joint Declaration of the San Jose Ministerial (at para. 18) 
states:
    We reaffirm our commitment to make concrete progress by the 
year 2000. We direct the negotiating groups to achieve 
considerable progress by that year. We instruct the TNC [Trade 
Negotiations Committee] to agree on specific business 
facilitation measures to be adopted before the end of the 
century, taking into account the substantive work that has 
already emanated from the FTAA process.
    In the field of international trade, ``business 
facilitation'' is similar to ``trade facilitation,'' which has 
been defined as the systematic rationalization of procedures, 
information flows, and documentation to facilitate 
international trade. In concept, ``business facilitation'' 
measures include trade facilitation measures, but also cover a 
broader field of measures. Thus, business facilitation measures 
would not focus merely on trade in goods alone, but would 
include any measure that facilitates international transactions 
and the cross-border movement of goods and services.
    One obvious application of a business facilitation measure 
that would expedite the import, export, and trade of goods and 
services would be the simplification and harmonization of 
customs procedures and other measures that regulate 
transportation procedures. For the ExITS sector in particular, 
such business facilitation measures would represent a means for 
effecting immediate trade liberalization. The implementation of 
relevant business facilitation measures, such as the Cancun 
Accords described below, which expedite the clearance of 
express shipments would represent meaningful trade 
liberalization for the ExITS sector.
    1. Cancun Accords.--In October 1997, following the Belo 
Horizonte Summit of the Americas Trade Ministerial Meeting, the 
FTAA Working Group on Services and the private business sector 
held a joint meeting in Santiago, Chile. At that meeting, a 
sectoral commission focused on the ExITS sector issued specific 
recommendations to the FTAA Working Group on Services, which 
included the following recommendations regarding customs 
procedures:
    Customs procedures for express integrated transportation 
services should be elaborated in the FTAA process based on the 
International Customs Guidelines of the International Chamber 
of Commerce, the Customs Guide of the World Customs 
Organization, the Columbus Accords, the Cancun Accords, and the 
Kyoto Convention.
    The U.S. ExITS sector believes that the relevant customs 
provisions contained in the referenced guidelines and 
arrangements, in particular the Cancun Accords, constitute 
business facilitation measures relevant to the FTAA process. 
The Cancun Accords is a document that resulted from a meeting 
of Customs Directors and private sector representatives of 16 
Latin American countries held in June 1996 at Cancun, Mexico. 
At that meeting, the customs officials from the 16 Latin 
American countries signed a Memorandum of Obligation on Latin 
American Customs Procedures for International Express Service 
Companies, which is known as the ``Cancun Accords.'' The Cancun 
Accords is a comprehensive regulation of ``the work of express 
service companies.'' It addresses, inter alia, the type of 
merchandise that may be transported by express services, the 
modalities of transport used, the formalities to be complied 
with, authorization to operate as an express service company, 
and the customs procedures required to enter express service 
shipments.
    Given that the Cancun Accords were agreed to and adopted by 
private sector representatives and customs officials of a 
majority of the Latin American countries, the U.S. ExITS sector 
strongly urges that the Cancun Accords be adopted and 
implemented by the FTAA countries at the outset of the FTAA 
negotiations as business facilitation measures manifesting 
concrete progress in trade liberalization within the FTAA 
process.

D. Prior work of the ExITS sector in the FTAA process.

    The establishment of an FTAA would result in the world's 
largest free trade area. Given the FTAA's huge scope and 
potential implications for trade, the leaders of the Western 
Hemisphere have foreseen from the very beginning of the FTAA 
process the need to fashion a partnership with the private 
sector in order to achieve a meaningful and beneficial result. 
Consequently, the trade ministers of the 34 nations 
participating in the FTAA process have expressly solicited and 
welcomed the participation of the private business sector.
    At the First Summit of the Americas held in Miami, Florida 
in December of 1994, the leaders of 34 Western Hemisphere 
nations issued a declaration of principles and objectives that 
included the establishment of a free trade area by the year 
2005. In an action plan accompanying the declaration, the 
leaders stated that they would ``strive to maximize market 
openness'' and ``strive for balanced and comprehensive 
agreements,'' including agreements that addressed ``tariffs and 
non-tariff barriers affecting trade in goods and services.'' In 
addition, the leaders noted that while the ``primary 
responsibility for implementing'' the Action Plan would fall to 
the governments, they also declared that it was their intention 
that ``some of these initiatives be carried out in partnerships 
between the public and private sector.''
    Subsequently, at each of the four FTAA Trade Ministerial 
meetings which have been held so far since 1994, the trade 
ministers have endorsed the participation of the private sector 
in the FTAA process. At the First Trade Ministerial, held at 
Denver, Colorado, in June 1995, the trade ministers announced 
that they would establish a Working Group on Services at the 
second ministerial meeting and welcomed the participation of 
the private sector:
    We are committed to transparency in the FTAA process. As 
economic integration in the Hemisphere proceeds, we welcome the 
contribution of the private sector ....'' \1\
---------------------------------------------------------------------------
    \1\ Summit of the Americas, First Trade Ministerial Meeting, 
Denver, Colorado, Joint Declaration (June 30, 1995) at para. 11 
(emphasis added).
---------------------------------------------------------------------------
    At the Second Trade Ministerial Meeting, convened at 
Cartagena, Colombia, in March 1996, the trade ministers 
reiterated the importance of the private sector's input in the 
FTAA process:
    We recognize the importance of the role of the private 
sector and its participation in the FTAA process. We have also 
agreed on the importance of Governments consulting their 
private sectors in preparation for the Trade Ministerial 
Meeting to be held in 1997. We reaffirm our commitment to 
transparency in the FTAA process.\2\
---------------------------------------------------------------------------
    \2\ Summit of the Americas, Second Trade Ministerial Meeting, 
Cartagena, Colombia, Joint Declaration (March 21, 1996) at para. 15 
(emphasis added).
---------------------------------------------------------------------------
    Similarly, at the Third Trade Ministerial Meeting in May 
1997, at Belo Horizonte, Brazil, the trade ministers again 
recognized the importance of the private sector's 
participation, noting that:
    We received with interest the contributions for the Third 
Business Forum of the Americas relating to the preparatory 
process for the FTAA negotiations, which we consider may be 
relevant to our future deliberations. We acknowledge and 
appreciate the importance of the private sector's role and its 
participation in the FTAA process.\3\
---------------------------------------------------------------------------
    \3\ Summit of the Americas, Third Trade Ministerial Meeting, Belo 
Horizonte, Brazil, Joint Declaration (May 16, 1997) at para. 14 
(emphasis added).
---------------------------------------------------------------------------
    Most recently, at the Fourth Trade Ministerial, held at San 
Jose, Costa Rica in March 1998, the trade ministers again 
declared that the private sector has played, and should 
continue to play, a valuable role in assisting development of 
an FTAA:
    We recognize and welcome the interests and concerns that 
different sectors of society have expressed in relation to the 
FTAA. Business and other sectors of production, labor, 
environmental and academic groups have been particularly active 
in this matter. We encourage these and other sectors of civil 
societies to present their views on trade matters in a 
constructive manner. ...
    In this regard, we value the contributions made by the 
business sector through the Business Fora of the Americas of 
Denver, Cartagena, Belo Horizonte and San Jose.\4\
---------------------------------------------------------------------------
    \4\ Summit of the Americas, Fourth Trade Ministerial Meeting, San 
Jose, Costa Rica, Joint Declaration (March 19, 1998) at para. 17 
(emphasis added).
---------------------------------------------------------------------------
    As shown, the trade ministers engaged in the FTAA process 
have repeatedly recognized that the private sector plays an 
integral role in trade liberalization in the Western 
Hemisphere, and have thus welcomed and encouraged the input and 
participation of the private business sector in the development 
of an FTAA.
    The U.S. ExITS sector, among others, has taken up this 
invitation and has worked to assist the FTAA process make 
measurable advances by addressing pertinent issues, including 
sector-specific issues, approaches to the negotiations, trade 
principles and obligations, and the structure of the free trade 
agreement. The following describes the progress of the ExITS 
sector in the FTAA process.
    1. Santiago, Chile.--In October 1997, following the Belo 
Horizonte Trade Ministerial meeting, the FTAA Working Group on 
Services and the private business sector held a joint meeting 
in Santiago, Chile. This meeting was significant for two 
reasons. First, it was the first official joint meeting between 
the private sector and an FTAA Working Group. Second, the joint 
meeting involved examinations of seven specific service 
sectors, including the express integrated transportation 
services sector.
    At the Santiago meeting, sector-specific commissions were 
established for the seven sectors examined. The Sectoral 
Commission for the ExITS sector developed detailed sector-
specific recommendations which were then presented to the FTAA 
Working Group on Services. The ExITS Sectoral Commission was 
composed of representatives of companies and regional and 
national trade associations of the ExITS sector and, as such, 
reflected the interests of the ExITS sector throughout the 
Americas. The following are excerpts from the Preamble to, and 
a summary of, the recommendations developed by the ExITS 
Sectoral Commission at the Santiago joint meeting:

                                Preamble

    The express integrated transportation service sector more 
than facilitates trade: it expands and promotes both trade in 
goods and trade in services. The hallmark of the service 
provided by the sector is the just-in-time shipment of goods 
and services. . . . Government regulations that impede the 
just-in-time nature of the service effectively prevent the 
provision of the service.''
    Due to the door-to-door and integrated nature of this 
sector, a large number of service sectors are involved in the 
supply of just-in-time shipments, including air and ground 
transportation, air auxiliary services, distribution, 
warehousing, Customs brokerage, telecommunications, and freight 
forwarding. . . . [L]iberalization of international trade in 
the express integrated transportation sector necessarily 
involves addressing the issues of trade restrictions and trade 
distortive measures that are applied in all pertinent service 
sectors.'' \5\
---------------------------------------------------------------------------
    \5\ First Services Business Forum of the Americas, Sectoral 
Commissions Recommendations to the FTAA Services Working Group, 
Santiago, Chile (Oct. 1997) at 15.
---------------------------------------------------------------------------

                            Recommendations

    1. the sector should be defined as the ``Express Integrated 
Transportation Service Sector,'' not as ``courier services'';
    2. the FTAA negotiations should be conducted on a negative 
list approach;
    3. the FTAA services agreement should contain a national 
treatment provision as well as transparency and most-favored-
nation obligations, which specifically address services;
    4. Customs procedures for express integrated transportation 
services should be elaborated in the FTAA process based on the 
International Customs Guidelines of the International Chamber 
of Commerce, the Customs Guide of the World Customs 
Organization, the Columbus Accords, the Cancun Accords, and the 
Kyoto Convention;
    5. the Services Working Group should create a liaison with 
the Working Group on Customs in the elaboration of customs 
procedures;
    6. the FTAA Services Agreement should contain the following 
disciplines with respect to postal services and the ExITS 
sector: elimination of price regulation, discriminatory taxes 
and fees, abusive monopoly practices, cross subsidization, and 
preferential customs agreements, binding of government postal 
services to the same measures applied to the private sector; 
and requiring government postal authorities to maintain 
separate fiscal organizations with respect to revenue from 
postal business and revenue from express transport services;
    7. the FTAA Services Agreement should apply the same rights 
and obligations contained in the WTO Agreement on Subsidies and 
Countervailing Measures;
    8. the FTAA should contain disciplines on postal services 
to eliminate unfair trade practices and trade distortion 
resulting from the use of exclusive service providers;
    9. the FTAA should contain disciplines to eliminate 
discriminatory treatment with respect to ground transportation 
regulations and the ExITS sector, in particular, regulation of: 
vehicle weight and size, number of shipments, shipment weight 
and size, use of highways and roads, documentation, type of 
goods that may be shipped, parking, operating hours, and price 
regulation; and that FTAA countries should strive to achieve 
harmonization with respect to these areas;
    10. the FTAA should contain a mechanism for the effective 
protection and enforcement of intellectual property rights in 
services, in particular, service marks;
    11. the express integrated transportation service sector 
should be the subject of sectoral negotiations in the FTAA 
process.\6\
---------------------------------------------------------------------------
    \6\ Id. at 16-17.
---------------------------------------------------------------------------
    12. San Jose, Costa Rica.--The Fourth Americas Business 
Forum was held in March 1998 at San Jose, Costa Rica, in 
conjunction with the Fourth FTAA Trade Ministerial meeting. As 
in prior Forums, workshops were for various trade areas, 
including international trade in services. The services 
workshop was divided into seven service sector workshops, one 
of which was devoted exclusively to express integrated 
transportation services. Representatives from the ExITS sector 
from throughout the Western Hemisphere met and developed the 
following recommendations.

               Express Integrated Transportation Services

    On the basis of the work undertaken by this sector in the 
FTAA process, including at the III Americas Business Forum, 
Belo Horizonte, Brazil, and the Joint Meeting of the FTAA 
Working group on Services and the Private Sector, Santiago, 
Chile, the representatives of the express integrated 
transportation service sector at the IV Americas Business Forum 
recommend the following:

            Recommendations: Business Facilitation Measures

    1. As there exists an accord on customs procedures for this 
sector signed by all 16 of the FTAA countries present at 
Cancun, Mexico, in June 1996, it is strongly urged that the 
Cancun Accords be implemented by the FTAA countries prior to 
June 1999, and that future revisions to the Cancun Accords be 
incorporated within one year from the date of revision, and 
that the express clearance guidelines of the WCO (World Customs 
Organization) and the international customs guidelines of the 
ICC (International Chamber of Commerce) be implemented on a 
scheduled basis.

                        General Recommendations

    2. The members of the FTAA should eliminate anti-
competitive measures applicable to the international 
transportation and delivery of goods and services, including 
anti-competitive practices by customs and postal authorities, 
and eliminate taxes and fees used to subsidize government owned 
or operated services. Specifically, it is recommended that the 
laws, regulations, and governmental practices related to the 
aforementioned measures and practices be amended prior to 
January 1, 1999, to ensure the elimination of such measures and 
practices by January 1, 2000.

    VII. The U.S. Should Adopt As a FTAA Negotiating Objective That 
 Negotiations for the ExITS Sector Be Undertaken on a Sector-Specific 
                                Approach

    In the case of previous multilateral trade negotiations in 
which the United States has participated, such as NAFTA and the 
GATT Uruguay Round, Congress has in the course of granting 
fast-track authority to the President outlined and issued 
specific negotiating objectives and principles to guide the 
trade negotiations. Congress should follow this practice with 
respect to the FTAA and require that the Administration pursue 
as a U.S. negotiating objective that a sector-specific approach 
be undertaken with respect to the ExITS sector.

                            VIII. Conclusion

    The U.S. ExITS sector has been actively involved in the 
FTAA process and its experiences to date have been positive, 
including in the development of business facilitation measures 
which represent an area where early concrete progress may be 
established in the FTAA process.
    The U.S. ExITS sector appreciates the opportunity to 
present this statement of its views and recommendations to the 
Subcommittee on Trade with respect to the progress and 
potential impact of the FTAA negotiating process.

            Respectfully submitted, By:

                               Airborne Freight Corporation
                               Burlington Air Express, Inc.
                                      DHL Worldwide Express
                                    Emery Worldwide Express
                        Federal Express Corporation (FedEx)
                                      TNT Express Worldwide
                                United Parcel Service (UPS)
                          Air Courier Conference of America
                                 Cargo Airlines Association
      

                                


Statement U.S. Integrated Carbon Steel Producers

    This statement sets out the views of five 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., and National Steel Corp.--on the 
ongoing negotiations aimed at achieving a Free Trade Area of 
the Americas. We commend the Subcommittee for holding this 
hearing and appreciate the opportunity to express our views.
    We support the concept of free trade in the hemisphere, so 
long as the proper safeguards, trade remedies, and dispute 
procedures are included to ensure that U.S. industries have 
both effective access to the markets in the hemisphere and 
recourse in the event of unfair trade practices.
    Many different aspects of the FTAA will affect trade in 
steel, as well as downstream products such as automobiles and 
oilfield equipment. This submission addresses only those FTAA 
issues that we consider most significant. If these issues are 
properly handled during the negotiations and at the 
implementation stage, we believe that the resulting FTAA will 
be one our industry can support.

                 Antidumping and Countervailing Duties

    An acceptable FTAA must not create new restrictions on the 
use of WTO-authorized trade remedies. There is no reason why a 
regional free trade agreement, such as the FTAA, should contain 
``GATT-plus'' rules on AD and CVD. In fact, there are sound 
policy reasons why the negotiation of such rules should not 
even be attempted. These remedies are inherently multilateral 
in their application, and applying different standards to 
different exporting countries (e.g., special rules for FTAA 
partners) would not only lead to massive confusion, but also 
undermine the enforcement of the laws. For example, authorities 
performing an injury analysis could be inappropriately 
precluded from cumulating imports from different exporting 
countries if a free trade agreement provided special injury 
standards for some of those countries.
    Furthermore, the multilateral rules regarding AD/CVD were 
just recently renegotiated, and a new institutional structure 
was established within the WTO for ongoing review of AD/CVD 
measures and policies. These new arrangements must be given a 
chance to work. In the future, it may be appropriate to 
consider new proposals relating to AD/CVD rules, but only on a 
multilateral, rather than regional, basis.
    ``Convicted'' dumpers and subsidizers of steel in the 
Western Hemisphere include Brazil, Argentina, Venezuela, and 
Trinidad and Tobago, as well as our NAFTA partners Canada and 
Mexico. As shown by experience under the CFTA and NAFTA, a 
``free trade'' agreement will not by itself eliminate the 
underlying causes of all this unfair trade. Unfortunately, as 
discussed below, the U.S. has given other FTAA governments 
reasons to believe it is willing to negotiate over antidumping 
rules on a regional basis. This would make it impossible for 
domestic industry to support an FTAA.
    Finally, the United States should learn from past mistakes 
and block any adoption or extension of NAFTA Chapter 19-type 
dispute settlement procedures. Just as there is no need for 
GATT-plus substantive rules in a free trade area on AD/CVD, so 
there is no need for GATT-plus dispute settlement procedures on 
AD/CVD--especially when those procedures are used, as in the 
case of Chapter 19, only to decide questions of national rather 
than international law, which are more appropriately 
adjudicated by national courts. In practice, the Chapter 19 
mechanism has failed its most important tests, and the problems 
that have surfaced--panelist bias, improper refusal to apply 
national law, failure to implement, inconsistent decisions, 
etc.--will only increase if additional countries are brought 
into this deeply flawed system.

                           Competition Policy

    The FTAA parties should strive to make affirmative progress 
to curb private trade restrictions that distort trade in 
industrial goods like steel. Private restraints are a 
significant source of trade problems in the steel sector, and 
in other sectors as well. Accordingly, we recommend that 
measures be adopted in the FTAA to identify, and provide 
recourse to those industries harmed by, such restrictions. 
Given the significance of private restraints outside this 
hemisphere that have caused steel trade problems, the precedent 
established by such provisions would be beneficial.
    However, FTAA competition policy discussions must focus on 
trade restraints resulting from private conduct, and not on 
public measures taken by governments that may affect 
competition within their markets. It is particularly important 
that competition policy be kept separate from antidumping, as 
the issues raised in each sphere are fundamentally separate. 
Unfortunately, recent developments apparently are inconsistent 
with the Administration's commitment to prevent trade-and-
competition discussions from becoming a forum for attacks on 
antidumping.\1\ The starkest example appears in the March 1998 
FTAA Ministerial declaration, in which Ministers agreed ``to 
give the mandate to the relevant negotiating groups to study 
issues relating to: the interaction between trade and 
competition policy, including antidumping measures . . . .''
---------------------------------------------------------------------------
    \1\ Regarding the WTO trade and competition program, USTR Charlene 
Barshefsky has stated:
    [T]his is not an appropriate forum in which to discuss the 
legitimacy or application of WTO-sanctioned trade remedies, such as 
antidumping. . . . [W]e will block any attempt to use this as a vehicle 
to renegotiate or weaken the WTO's rules against dumping.
---------------------------------------------------------------------------
    Written Response to Questions from Senator Rockefeller: WTO 
Trade and Competition Policy Working Party (Feb. 1997).
    Unfortunately, it puts the United States in an 
unnecessarily difficult position from the outset of the FTAA 
negotiations, and it creates an inaccurate expectation on the 
part of FTAA participants that the United States will entertain 
proposals to subject antidumping rules to antitrust standards 
which were designed to address altogether different problems. 
Antidumping is not a competition policy issue. The 
Administration should reaffirm this and should refuse to 
countenance any further misuse of international competition 
policy discussions.

                               Subsidies

    The FTAA countries should consider strict new hemispheric 
disciplines on subsidies. While national CVD remedies should, 
as discussed above, remain in place, the FTAA partners should 
seek to add new international disciplines as well. As a general 
matter, FTAA members should eliminate existing, and commit not 
to institute any new, subsidy programs. Any sectoral 
derogations from this principle should be narrowly confined, 
and should certainly not include steel manufacturing. The 
United States does not subsidize its manufacturers, and other 
countries participating in the FTAA should agree not to do so 
either.

                            Rules of Origin

    Finally, we recommend that the FTAA not undermine the 
special rules adopted under the NAFTA for automobiles. These 
rules require that a significant amount of the value of an 
automobile be attributable to components originating in North 
America in order for the automobile to qualify for duty-free 
treatment under the NAFTA. The rules therefore encourage the 
use of North American-made components, including U.S. 
manufactured automotive steel products. These rules, which help 
to ensure that the free trade area benefits its participating 
members, should not be undermined as the free trade area 
expands.

                               Conclusion

    Carbon steel producers welcome the Subcommittee's active 
oversight of what promises to be one of the most significant 
U.S. trade policy initiatives over the next several years. As 
stated above, we support the concept of free trade in the 
hemisphere, so long as the proper safeguards, trade remedies, 
and dispute procedures are included to ensure that U.S. 
industries have both effective access to the markets in the 
hemisphere and recourse in the event of unfair trade practices.
      

                                


West Indies Rum and Spirits Producers Association

        I. Rum Exports Are Critically Important to the Caribbean

    Rum is a product of special importance for many Caribbean 
Basin Initiative (``CBI'') countries. Rum has been produced in 
the Caribbean for centuries, providing important contributions 
to local economies as well as to the culture and folklore of 
the region. Under the CBI, Caribbean rum producers have 
increased their U.S. market penetration, earning much-needed 
foreign currency and creating new jobs for the region. In no 
small part, this success reflects substantial Caribbean 
investments which were made in reliance on the CBI tariff 
structure--and with a long-term perspective, given the time 
required to establish such beverages in the U.S. market. The 
U.S. International Trade Commission (``ITC'') has identified 
rum as one of the products benefiting most from duty-free 
treatment under the CBI, although some CBI suppliers have only 
recently established a foothold in the large U.S. rum market. A 
very substantial percentage of CBI rum imports are in the low-
valued segment of the market.

II. U.S. Trade Policy Has Long Recognized the Unique Status and Special 
                  Needs of the Caribbean Rum Industry

    Since 1984, the United States has enjoyed a special 
relationship under the CBI with the Caribbean and the small 
countries of Central America. This relationship has served 
important U.S. foreign policy interests while providing 
valuable trade preferences to the CBI nations.
    The initial decision to include rum in the CBI was not an 
easy or automatic one. The sensitivities of producers in the 
U.S. territories (Puerto Rico and the U.S. Virgin Islands 
(``USVI'')) led not only to a restructuring of the excise tax 
arrangement between the territories and the U.S. Government (as 
discussed below), but also to a request for annual rum market 
monitoring by the ITC \1\ coupled with a grant of authority to 
the President to re-impose controls on CBI rum if necessary.\2\ 
In actuality, Caribbean suppliers have utilized CBI duty-free 
status to gain a foothold in the U.S. market without generating 
any disruptive import surges or negative consequences for the 
economies of Puerto Rico or the USVI.
---------------------------------------------------------------------------
    \1\ The Senate Finance Committee requested annual monitoring under 
section 332(b) of the Tariff Act of 1930. On January 13, 1984, the ITC 
instituted investigation No. 332-175, Rum: Annual Report on Selected 
Economic Indicators. This investigation terminated in 1995 at the 
request of the Senate Finance Committee.
    \2\ Section 214(c) of the Caribbean Basin Economic Recovery Act 
provides that ``[i]f the sum of the amounts of taxes covered into the 
treasuries of Puerto Rico or the United States Virgin Islands . . . is 
reduced below the amount that would have been covered over if the 
imported rum had been produced in Puerto Rico or the United States 
Virgin Islands, then the President shall consider compensation measures 
and, in this regard, may withdraw the duty-free treatment on rum 
provided by this title.'' 
[GRAPHIC] [TIFF OMITTED] T6186.006

    In the 14 years since that initial CBI debate, Congress and 
the Executive Branch have continued to recognize the unique 
role that rum plays in the legal, economic and political 
relationship between the United States and the Caribbean. On 
several occasions, they have acted to protect Caribbean rum 
producers from competitive harm. In 1987 and 1990, for example, 
the Administration rejected petitions submitted under the 
Generalized System of Preferences for duty-free entry of rum 
originating in non-Caribbean countries.
    Similarly, in 1991, rum was specifically excluded from the 
list of eligible articles under the Andean Trade Preferences 
Act, which contemplated duty-free access to the U.S. market for 
a number of other products originating in Bolivia, Ecuador, 
Colombia and Peru. This outcome reflected the considered 
judgment of both Houses of Congress as well as the 
Administration. In explaining the exclusion of rum, the House 
Committee on Ways and Means stated:
    The Committee added rum to the list of articles that would 
be ineligible for duty-free treatment under the Act in order to 
preserve the benefits that the Congress has provided to Puerto 
Rico, the Virgin Islands, and the Caribbean Basin countries. 
Rum is a product which the ITC has identified as benefiting 
most from duty-free treatment under the CBI. . . . Andean rum 
producers have significant natural resources and cost 
advantages over their Caribbean and U.S. Territorial 
counterparts as well as large excess production capacity. H.R. 
Rep. No. 102-337 at 15 (1991) (emphasis added). The concern 
over ``cost advantages'' and ``excess production capacity'' in 
the case of the Andean countries is heightened several fold 
when one looks at some of the other, much larger South American 
countries such as Brazil and Venezuela.
    This concern over rum also extended into the North American 
Free Trade Agreement (``NAFTA''), where rum was one of products 
designated by the U.S. Government for an extended duty 
phaseout.
    More recently, the unique concerns and vulnerabilities of 
the Caribbean rum industry were recognized in a U.S.-EU tariff 
agreement executed in connection with the December 1996 WTO 
Ministerial in Singapore. The agreement initially contemplated 
would have quickly eliminated both territories' tariffs on all 
white spirits. However, after focusing on the negative 
implications for the Caribbean of such a drastic change, 
negotiators fashioned a tariff phaseout package that more 
appropriately balanced trade liberalization with regional and 
developmental concerns. Specifically, a pricing mechanism was 
developed that preserves MFN tariffs on (and thus the duty 
preference for Caribbean suppliers of) inexpensive bulk and 
bottled rum. This price mechanism limits displacement of 
Caribbean exports, which continue to enjoy duty-free access to 
both markets (under CBI in the United States and under LOME in 
Europe).

     III. U.S. Rum Trade Is Also Critically Important to the U.S. 
                      Territories in the Caribbean

    The governments of Puerto Rico and the USVI are dependent 
upon the continuing health and vigor of their rum industries 
for their financial self-sufficiency. Congress has provided 
that federal excise taxes collected on rum manufactured in 
Puerto Rico or the USVI shall be returned to the treasury of 
the appropriate territory. This special treatment was 
reinforced and expanded as part of the 1983 CBI legislation 
when Congress provided that rum excise taxes would be covered 
over to Puerto Rico and the USVI whether the rum was produced 
in the territories or imported (e.g., from CBI beneficiary 
countries.) This modification illustrates the history of 
sensitivity in U.S. tax and trade policy where rum is 
concerned, and the need for a careful approach that balances 
multiple policy goals.
    Today, the excise tax cover-over accounts for nearly 10% of 
the total budget of the USVI government (about $44 million 
annually) and nearly 7% of the total budget of Puerto Rico 
(about $220 million annually). But the impact of these funds is 
not limited to the actual dollars transferred. Particularly in 
the USVI, cover-over revenues have been pledged as security for 
much larger amounts of public borrowing, so that they 
indirectly finance a variety of construction projects including 
schools, health care facilities, airports and much of the 
island's capital infrastructure.\3\ The number of direct jobs 
generated by these capital expenditures runs into the 
thousands--far outpacing the number of jobs in the rum 
industry, which is itself one of the largest export industries 
in the territories. As such, the rum industry remains one of 
the most important sources of revenue for the governments of 
the USVI and Puerto Rico.
---------------------------------------------------------------------------
    \3\ Estimates of the public debt secured by cover-over revenues as 
high as $300 million in the USVI alone.
---------------------------------------------------------------------------

    IV. Hemispheric Trade Discussions Should Not Be An Occasion to 
Eliminate What Has Been So Painstakingly Accomplished--Deference to the 
          Traditions and Economic Importance of Caribbean Rum

    The Singapore tariff package containing the price mechanism 
for rum is the result of intensive diplomatic negotiations and 
represents a balanced accommodation which should be preserved. 
This balance--between the goal of trade liberalization and the 
equally important goal of developing and sustaining unique 
regional industries, such as the Caribbean rum industry--should 
not be lightly abandoned in FTAA discussions or new WTO 
discussions.
    Yet, this balance will be destroyed if rum does not receive 
careful treatment in the FTAA. South American producers enjoy 
tremendous cost and competitive advantages--including plentiful 
raw material supplies and low energy prices--over their 
counterparts in the Caribbean. In fact, if one excludes the 
NAFTA countries (Mexico, Canada and the United States), the 
hemisphere's 11 largest economies in terms of gross domestic 
product are South American countries, led by Brazil, while the 
smallest are all Caribbean island nations. The combined gross 
domestic product of the large South American countries exceeds 
that of even the largest CBI countries by a factor of more than 
47 to 1.


[GRAPHIC] [TIFF OMITTED] T6186.007

    As a result, South American producers will quickly 
overwhelm Caribbean producers of low-valued rum if the existing 
U.S. tariffs on such rum are eliminated under the FTAA. The 
U.S. duty has been critical to the continued viability of 
producers of low-valued rum in CBI beneficiary countries and in 
the USVI in particular. Because low-valued rum generally lacks 
name brand identification and a well-developed distribution 
network, it must compete almost exclusively on the basis of 
price. In this segment of the rum market, pennies can literally 
make or break a sale. If displaced by South American rum 
producers, Caribbean producers will lose their foothold in the 
U.S. market, and important aspects of Caribbean economic 
stability will be jeopardized. The following chart demonstrates 
the impact on the U.S. rum market of the potential diversion of 
just 2% of current Brazilian production into the U.S. market.
[GRAPHIC] [TIFF OMITTED] T6186.008

    For CBI rum producers, such a blow would be particularly 
difficult as it would coincide with potential disruptions in 
the EU, where the current LOME arrangement, which provides the 
Caribbean its duty-free status, is set to expire on January 1, 
2000. One lesson of the Singapore tariff negotiation and other 
recent events is that U.S. and EU authorities must take care to 
coordinate their approach to all trade initiatives affecting 
such sensitive Caribbean products as rum--ensuring policy 
coordination even though the United States is not a formal 
participant in LOME discussions nor the EU in FTAA discussions.
    For the Caribbean governments, any developments relating to 
rum will naturally be seen in the context of other recent U.S. 
trade policy actions widely believed to undermine the special 
U.S.-Caribbean relationship that has developed over many years. 
In particular, U.S. credibility in the region is suffering from 
the failure to extend NAFTA-like trade benefits to the 
Caribbean, and from the recently concluded WTO dispute 
settlement case against a European Union banana import regime 
benefiting Caribbean banana production. In light of these 
recent developments, it is especially important that the United 
States approach the FTAA/rum issue with great sensitivity. In 
addition, there has always been a strong bond between the 
allure of the Caribbean as a tourist attraction and the cachet 
of its rum industry. Tourism remains the most critical of 
Caribbean industries both for jobs and currency, and, in many 
ways, the vitality of these two industries will always be 
intertwined.
    Finally, for the U.S. territories, and especially the USVI, 
an increase in U.S. imports of low-end rum would have a 
profound negative impact. The USVI relies on cover over of 
federal excise taxes on low value rum for a significant portion 
of its annual budget. To the extent that USVI shipments are 
replaced by imports, the net cover-over payment to the USVI 
will be sharply reduced since the USVI gets only a small share 
of the cover-over on non-USVI rum. Removal of the price 
mechanism would create severe budget problems for the USVI.

  V. Conclusion--The Existing U.S. Tariff Structure for Rum Should Be 
                               Preserved

    The United States has long recognized the unique status and 
economic importance of Caribbean rum exports. U.S. trade policy 
toward the Caribbean generally reflects the need to balance 
trade liberalization goals with other legitimate regional, 
political and developmental goals. Rum is a particularly 
deserving candidate for application of that enlightened policy.
    The recent Singapore tariff package was a watershed event, 
when officials of all concerned governments focused closely on 
the issue and fashioned a creative and balanced solution. That 
solution--a pricing mechanism that preserves the Caribbean duty 
preference at the low-priced end of the market while phasing 
out tariffs in the higher-priced market segment--allows both 
large and small producers in all producing regions to benefit. 
It should not be undermined in the context of FTAA discussions. 
Furthermore, the commercial value of this negotiated agreement 
should be protected, through indexing, from eroding over time 
as a result of inflation.
    While standing by the Singapore price mechanism and the 
important principle it represents, the United States can 
continue to phase out its tariffs on high-priced rum from all 
sources, both within and outside the Western Hemisphere, as 
called for in the Singapore agreement. This approach is 
consistent with WTO rules, since a free trade agreement that 
leaves tariffs in place on low-priced rum can still qualify 
under the GATT Art. XXIV test for liberalizing ``substantially 
all'' trade. Meanwhile, preserving the rum duty structure will 
maintain continuity with current U.S. trade policy and will 
avoid delivering yet another economic blow to the fragile 
economies of the Caribbean.

                                   - 
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