[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
TRADE RELATIONS WITH EUROPE AND THE NEW TRANSATLANTIC ECONOMIC
PARTNERSHIP
----------
TUESDAY, JULY 28, 1998
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11 a.m., in
room 1100 Longworth House Office Building, Hon. Philip M.
Crane, (Chairman of the Subcommittee) presiding.
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Chairman Crane. Will everybody please take a seat so we can
get underway here? We are going to be on an irregular and
somewhat tight time constraint because of the services over in
the Capitol Building.
Our first witness that I want to welcome is our chairman of
the House Agriculture Committee, Bob Smith, from the State of
Oregon, and we will have you on, Bob, until they break us for
that forum in the Capitol, which I think is going to be about
11:30.
And I want you to know that you have my admiration for your
leadership in reducing trade barriers to U.S. agriculture
exports and for the key role you're playing in maintaining the
pressure for fast-track trade legislation. I know that we both
agree that the trade agenda with the European Union,
particularly in the agriculture arena will be severely damaged
if Congress and the President aren't successful in enacting
H.R. 2621, the Ways and Means fast-track bill. You have been
working diligently, I know, to bring more of your committee
members onboard, and we applaud your efforts.
The focus of today's hearing is trade with Europe and the
new transatlantic economic partnership initiative, which was
announced by the two trading partners at the May 18 summit
meeting. Europe is not quite our largest export market, but the
totality of the bilateral trade and investment relationship
makes Europe perhaps our most important economic partner.
The reality of globalization and economic independence is
illustrated by the large two-way flow of investment dollars
between the U.S. and Europe. Three million U.S. workers are
employed in European-owned factories, while another 1.1 million
U.S. workers manufacture products that are directly exported to
Europe.
Witnesses today will address prospects for further trade
liberalization under the auspices of the new Transatlantic
Economic Partnership, TEP, and the companion private sector
initiative, the Transatlantic Business Dialogue. Much of the
potential for success, it seems to me, lies in the area of
achieving harmonization of standards and mutual recognition
agreements for regulatory procedures.
Later, I will also welcome Ambassador Barshefsky, who will
testify after you, Bob, and after our break. I appreciate her
desire to keep the U.S. trade agenda moving forward in the
absence of fast-track negotiating authority.
However, I would caution that we must not let the TEP or
any other bilateral talks deflect attention from the primary
need to secure fast-track negotiating authority. Nor should we
allow leverage to be diverted from our goal of achieving a
successful result in the WTO negotiations on agriculture, which
are set to begin in December of 1999.
And with these comments, I will yield to our Ranking
Member, Mr. Matsui.
Mr. Matsui. Thank you very much, Mr. Chairman. I have a
statement, and because of the time constraints and the fact
that we will have a vote, or at least a call of the House, in
about a half hour, I'd like to submit my statement for the
record, and just welcome, obviously, Chairman Smith from the
Committee on Agriculture and, of course, USTR Ambassador
Barshefsky and David Aaron, as well.
Thank you, Mr. Chairman.
Chairman Crane. And with that then, we shall yield to you
for your presentation, Bob.
STATEMENT OF THE HON. ROBERT F. SMITH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON, AND CHAIRMAN, COMMITTEE ON
AGRICULTURE
Mr. Smith of Oregon. Thank you, Mr. Chairman, and
gentlemen. It is a privilege to be here to say hello to you and
discuss for a moment agriculture's thoughts about the European
Union and international trade.
Mr. Chairman, as you well know, in 1996, the Congress
changed agriculture from the previous 60 years of support and
subsidy to a program of marketplace. And it was significant
that we now are going to challenge farmers in America to use
the marketplace to sell their goods and not the government. In
doing that, of course, there were in this case, this year,
great problems that developed, because commodity prices are
down and there are all kinds of discussions about what we
should do about low commodity prices. Should we revive the old
subsidy idea, or should we stay on the track that we have
established? And that is to find markets for our farmers'
production.
Now, heretofore, farmers relied on two markets. One was a
subsidy from the government and the other was, of course, what
they could get from their product. But since we have deprived
them and we are phasing them out over the years--in the year
2002, there will be no more subsidies--then it becomes our
responsibility in government to provide them with the markets,
which they are not capable of doing, nor should they.
So it was part of our bargain in 1996 that the government
provide the market and the farmers produce as best they could
do so. That brings us to this whole question of what do we do
about trade and markets for farmers. And I want to emphasize
the essential responsibility for this Congress not only to pass
fast track, but to pass full funding of IMF, and as we did,
lift sanctions on Pakistan and India, as well as normal
relations with China.
But on fast track especially, historically this country has
been a leader in international trade. And we believe in free
trade principles. In the Uruguay Round, it was the United
States that led the argument that there should be no barriers
against products flowing from one country to another, no trade
barriers. And we should go to tariffication rather than other
problems we had in trade. So we were the leader.
Now it becomes our responsibility to pass fast track, it
seems to me, and give this President the opportunity to enter
into agreements with other countries and to open trade for our
products. It is happening all around us. Bilateral negotiations
are going on. MERCOSUR is working out programs in South
America; the European Union is identifying bilateral
relationships with countries. Canada is doing so; so is Mexico.
If we do not pass fast track, we will certainly injure this
country's opportunity in the 1999 revisitation of the WTO to
act for agriculture, certainly, but for the rest of this
country in a positive manner.
The European Union, Mr. Chairman, having taken my committee
to Germany and Belgium and France recently, the European Union
is our second-largest agricultural partner. In fact, last year
we did about $10.5 billion with them, and we imported about
$7.5 billion from them. It's a good market for agricultural
products, but it still has very, very many problems and many
barriers to our exports.
For instance, it's a well-known fact that the European
Union subsidized heavily. I always carry this chart with me,
Mr. Chairman and members, wherever I go, be it Europe or Asia
or anywhere else, because it shows graphically the difference
between subsidization of the European Union and our own subsidy
programs.
In fact, it shows about $47 billion of European subsidies
to agriculture products, while our subsidy program is $5.3
billion and then phases out totally in the year 2002. So if we
continue on, we can see that the European Union has huge
subsidies and ours are phasing out. That gives us a strong
position in the 1999 revisitation, but it is still a fact.
And any way you want to cut it, we are suggesting to the
European Union that rather than subsidize their crops and their
commodities heavily, which distorts the world price and the
market internationally, we don't want to quarrel with them
about how much money they send to farmers, if that means that
they maintain the environment that they have been farming for
thousands of years, as they say. They have a greater
sensitivity than we, they say, to the land.
I point out to them our CRP programs and others, but we
suggest that they decouple the program and pay their farmers as
much as they want to pay them for the protection of the land
and let the commodity go on the world market. That does two
great things for Europe, the European Union. It takes care of
their farmers and it reduces the cost of living in Europe
dramatically. And then it gives the rest of the world an
opportunity to compete in a world free trade system.
So we have suggested that to them, and Mr. Fisher, by the
way, has attempted to start down that line not totally, but he
is considering it, at least. I must say, he is not too popular,
by the same token.
Any way you want to divide it up, the European Union
heavily subsidizes against our products. For instance, there is
another way of measuring this thing. It is the Organization for
Economic Cooperation and Development, another measurement. By
this measure, the European Union outspends the U.S. by more
than three and a half to one for products.
We know that exports currently are 30 percent of the United
States farm cash receipts. We produce more than we can consume
in this country and therefore, exports, we know, are essential
to not only prosperity, but success of U.S. farmers and
ranchers.
When we look to the WTO decisionmaking in 1999, we know
that it's an important precedent for TRQ's, for tariff rate
quotas, as well, another problem that we face, of course, in
international trade. In 1999, we believe with the proper tools,
the United States can negotiate for further reduction of
tariffs. We think we can open new markets, we can address
unfair trade practices around the world. Of course, other
issues that we have in great debate these days are
biotechnology products that you know about, BT corn, Roundup
Ready soybeans, et cetera. And future negotiations depend upon
our ability to give ourselves the proper tools like fast track
and other opportunities.
So, Mr. Chairman, I thank you for this brief moment with
you. I think it is important to remember that basically our
opportunity to import is very little or restricted. In other
words, there are very few barriers against products coming into
the United States. The barriers we have are with our trading
partners, and we still have problems with Canada and Mexico,
but especially with the Europeans.
And the European Union is a very, very large market and we
ought to be tough in negotiating in 1999 to open the markets to
not only agriculture products, but all the products we produce
in this country. I thank you very much for the time.
[The prepared statement follows:]
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Chairman Crane. Thank you very much, Mr. Chairman. Let me
ask you a question, though, upfront about that $47 billion
subsidy of agriculture in the European Union. If you'll just
put those farmers on a direct pay dole and eliminate their
subsidies, aren't all of our consumers buying their
agricultural products taking that hit?
Mr. Smith of Oregon. Well, we don't think so, because we
believe, for instance, that we are the most competitive nation
in the world in foodstuffs. Let me give an example. Today,
wheat is probably worth $3 a bushel. If you were in France at a
farm that I visited within the last few months, you would be
receiving about $8 a bushel. If you had a cow in the United
States worth $600, that cow is worth $1200. We don't mind the
competition, Mr. Chairman. We just want the chance.
I'd like to distribute this, Mr. Chairman, if I may, or ask
the clerk to leave in front of the members----
Chairman Crane. Are those extra copies that you have there,
Bob?
Mr. Smith of Oregon. Yes.
Chairman Crane. Oh, yes, please. Will one of the staff do
that?
Is there a danger that negotiating with the EU on standards
in the transatlantic economic partnership could diminish our
leverage for achieving a successful launch of the WTO
agriculture negotiations?
Mr. Smith of Oregon. I don't think so. I don't mind a
bilateral discussion with the emphasis as long as agriculture
is included. If you recall, the first discussion we had in a
bilateral basis with the European Union did not include
agriculture. I don't think that you strain our opportunity in
the WTO by talking to the European Union independently at all,
as long as everybody is at the table.
Chairman Crane. The U.S. has won two landmark WTO dispute
settlement cases against the EU on beef hormones and bananas.
In my view, a failure by the EU to implement these decisions
would undermine the credibility of the WTO dispute settlement
system to the detriment of the U.S. and the EU. Are we seeing a
disturbing pattern on noncompliance on the part of the EU?
Mr. Smith of Oregon. Well, I'm glad you mentioned that, Mr.
Chairman. I have that in my prepared remarks, and I hope you
emphasize and reemphasize that with Ms. Barshefsky because you
are absolutely correct. If the WTO doesn't follow through with
finality on beef hormones and bananas, then there is no purpose
for a World Trade Organization whatsoever.
They've ruled; they've found in all their judicial capacity
that the European Union is violating these two issues. It has
to come to finality, otherwise, as you intimate, the review of
the Round will simply be a review of what hasn't happened. And
we certainly don't need that. We don't need to look back and
rehash these things that have already been decided. We ought to
be looking ahead to the future.
So you are right on point and I hope you will emphasize
that with Ms. Barshefsky.
Chairman Crane. Thank you. Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman. I just want to follow
up to Mr. Smith on your question. Bob, how are the discussions
going with the EU now on the beef hormone issue and the issue
of bananas. Are you satisfied at this time in terms of whether
they are going to implement or not?
Mr. Smith of Oregon. No, I am not satisfied at all. In
fact, I raised my voice when I was in Paris and Berlin and
Belgium to those officials in the European Union because they
seemed to continue to delay the implementation by one hook or
another.
Now, the banana issue we understand will be resolved by
January of 1999. The hormone issue, they say, well, we have to
have a new review which may take two to three years. We don't
understand that. So I think we must keep the pressure on,
because that is unacceptable. And I mentioned it, and I think
we ought to say as a government, that is unacceptable.
Mr. Matsui. Well, thank you, I appreciate this. Obviously,
we have a lot of work to do. We have attempted to abide by the
WTO rulings. The Fuji film case is a great example of that.
Obviously, Kodak is being hurt by that, but we are doing
certain things and we are certainly not violating the terms of
the ruling. We would hope that the EU would follow the same
kind of provisions we are. But thank you.
Mr. Smith of Oregon. I thank the chairman.
Mr. Matsui. Thank you.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman. Bob, good to see
you.
Mr. Smith of Oregon. Thank you.
Mr. Houghton. Just two questions. One, if you were given a
fair chance, literally, in terms of this market, what would
this mean in terms of dollars? What are we talking about? Is it
billions? Is it hundreds of millions?
Mr. Smith of Oregon. Are we talking about the European
Union now?
Mr. Houghton. Yes, right, EU.
Mr. Smith of Oregon. Well, as I mentioned, we are selling
them about $10 billion in agricultural products. They are
buying about $7.8 billion from us. The European Union is
largely self-sufficient. They export very small amounts, maybe
in the neighborhood of 10 percent.
Because they think they are so self-sufficient, they raise
these barriers. They are doing what we did 60 years ago with
Smoot Hawley and others. They think they are self-sufficient,
therefore, there is no reason to reduce barriers to incoming
products. Well, they'll find out they are wrong. It is costing
them a huge amount of money.
So the amount of money that is a possibility to export to
the European Union is in the billions. We export about $60
billion worth of goods today in agriculture. That could
possibly double if they would allow us to be competitive.
Mr. Houghton. It would double just in the EU.
Mr. Smith of Oregon. I think it could be very, very
important.
Mr. Houghton. All right. Now, let me just ask you the
second question. We were meeting with a group of English and
German parliamentarians and talking about science in general.
We talked about information technology, environment. One of the
things was genetic engineering, and I think you mentioned this
before. It seems as if we are brewing for a trade war over
that.
Do you have any other comments you'd like to make?
Mr. Smith of Oregon. Well, they are very sensitive about
anything ``genetically modified.'' Genetically modified
organisms are being debated today. In fact, France brought two
genetically modified corn programs forward and they're arguing
and debating today whether they should continue to do that.
We say to them simply, look, defend whatever right your
consumer has and you believe they have. We have been debating
the question of labeling. I think the ultimate answer for the
European Union and others who are sensitive is some sort of a
fair kind of labeling. We know that, for instance, a tomato
paste that was labeled ``may have genetically modified
organisms,''--something like that, I don't know the language
exactly--but it was offered in England and the GMO had no legs.
The tomato paste, in fact, sold in more volume than it did
before.
So I think there are ways to do this without interrupting
what we know is great progress. I mean, biotechnology has
improved volume some 30 percent in the generation of products,
so it is the future.
Mr. Houghton. I guess, Bob, the thing I am worried about is
they have taken sort of an idealistic stance on genetically
manufactured products, that you could see that $7 billion
evaporate just on ideology.
Mr. Smith of Oregon. Well, we are not sending them any----
Mr. Houghton. No, but the way we are going now.
Mr. Smith of Oregon. Oh, the future may look very dismal,
you are correct. But they are going to have to cope with this
issue, and they are going to do it, because as I mentioned to
Mr. Fisher, I said, look, I hope you go about doing exactly
what you are doing because we'll outcompete you, we'll outsell
you, and you're going to be in the dark ages of food production
in the world. And he smiled at me and agreed, because that is
the future and they know it.
Mr. Houghton. Thank you very much.
Chairman Crane. Mr. McDermott.
Mr. McDermott. Thank you, Mr. Chairman. Do I understand
that under the WTO, the agricultural subsidies will phase out
by 2002?
Mr. Smith of Oregon. That's correct.
Mr. McDermott. So it's a fait accompli; it's going to
happen.
Mr. Smith of Oregon. Well, not under the WTO. Under our
passage of the bill in 1996, that phased out all subsidies by
the year 2002.
Mr. McDermott. But that's really coincident with----
Mr. Smith of Oregon. Coincident with it, yes.
Mr. McDermott. Okay. Now, I listened to your talk about the
need for fast track, and not understanding the mind set of
people who voted against it from agricultural areas in the
first place, I wonder what argument you would make to them that
would change their point of view.
I mean, I find it difficult philosophically to deal with
the idea that you want the government out of everything but at
the same time you want the government to create markets where
they go out and negotiate for you. So I am interested in how
you make that argument to those people in agricultural areas
who turned fast track down in the past.
Mr. Smith of Oregon. Well, as the chairman has agreed and
Mr. Archer, I approached that issue like you did, and I
realized that agriculturists are very suspicious of what has
happened in the past. If you have bad markets, you blame NAFTA
and you blame the WTO, and how could we bring them along.
I have suggested, and the chairman has agreed, that
language be added to the authorization for fast track which
will allow the Agriculture Committee of the House and of the
Senate and anyone else who is interested to be brought along,
as is the Ways and Means Committee of the House and Finance
Committee of the Senate, to be brought along in these
negotiations as they are building so that no one is left in the
dark. It will not be done in the dark of night, as is
suspicioned, and then dumped on us in the last minute.
Beyond that, the Agriculture Committee of the House and the
Senate will have an opportunity to see the agreement before it
is finally penned, before it is finally completed and signed.
Therefore, if it is alien to agriculture, then likely no
administration will bring an agreement to this Congress for
confirmation if the agriculture community isn't satisfied with
it, because they'll defeat it.
Therefore, for the first time, agriculture people in
America have a chance to be brought along, to watch as the
negotiation is taking place and to view the document before it
is penned, which gives them a great deal of satisfaction and
protection that they have never had before so that they can
come along today and say, yes, we can support fast track under
those conditions and we do. That is why you'll see a big
difference there. There are only 12 members of my committee
that were supporting fast track last year when we finally
dumped it. Now there are many more.
Mr. McDermott. So it's a kind of modified fast track in
that they would have the ability to say to the administration,
don't sign this agreement that you have worked out with the
WTO?
Mr. Smith of Oregon. As you do. The same language that
allows the Ways and Means Committee and the Finance Committee
would merely be offered to the Agriculture Committee, the same
language exactly.
Mr. McDermott. Explain to me the concept of how the
government creates markets. You sort of suggested that the
trade-off was you get rid of subsidies and the government will
provide markets.
Mr. Smith of Oregon. I meant that the government has to be
a representative of farmers in trade negotiations, in opening
markets for our goods around the world. That's our future.
Agriculture certainly does not want to take our domestic market
for granted, but the future for agriculture is in trade. The
future, because we are so efficient in our production, and we
have such safe food and it is soefficiently produced, we can
compete anywhere. All we need is an opportunity.
So the government must be our ambassador to open markets.
That's what I meant.
Mr. McDermott. Thank you.
Chairman Crane. Ms. Dunn.
Ms. Dunn. I am glad you are here, Chairman Smith. On behalf
of the wheat farmers in Washington State, we want to thank you
very much for your leading that effort to get rid of the
Pakistan sanctions. And I am very happy that we have decided
that we will have that vote on fast track this fall. I think
that is vitally important, certainly for your interest, but for
the interests of all of us who purchase products from other
nations.
We want to be able to buy at competitive prices and I think
fast track, in giving the President the negotiating authority
without the role of the Congress at the table, with the role of
the Congress to vote up or down on it, I think that is going to
be very important for us. And I believe that if we do this
right this time, we can come up with those six or seven votes
that we were not able to secure the last time and put fast
track back in action.
But in the area of sanctions, I did want to take advantage
of this opportunity, since we don't see you before this
committee too often, I would like to ask you to take a look at
the whole area of sanctions for us generally and tell us what
your sense is now on their effectiveness as a tool of foreign
policy, how they hurt or help the agriculture community and
where you would like to see us go.
Mr. Smith of Oregon. Well, thank you very much. I tend to
lean towards those who believe that sanctions against
agricultural products are not effective against governments.
They might be effective against allowing people to starve,
which I don't think is really any benefit from our policy point
of view.
So I am one of those who believes that we ought to
eliminate agricultural sanctions from any sanctions that this
government might use, because I don't think it is beneficial. I
don't see how depriving Pakistan, for example, of wheat,
advances our opportunity to punish them for setting off a
nuclear device.
It certainly punishes American farmers to be assistants of
Australians and Canadians who are standing there at the door to
take the market. But if you are really trying to punish a
nation, I don't understand why it is a punishment to a nation
to deprive them of agricultural products.
Ms. Dunn. Thank you very much. Thank you, Mr. Chairman.
Chairman Crane. Well, with that, we thank you very much,
Bob, for your presentation and appearance here today. This is a
quorum call and we will stand in recess subject to the call of
the Chair at a quarter to with our Trade Representative
Charlene Barshefsky.
[Recess.]
Chairman Crane. Would everyone please take seats. We shall
resume the committee hearing and we have with us now our next
witness, the Honorable Charlene Barshefsky, our noted U.S.
Trade Representative. We appreciate your being here with us
this morning. It is a little chaotic with scheduling, as you
know, because of the events planned over in the Capitol
Building, but we do certainly have time without interruption
for your presentation.
So I yield at this point to the distinguished Ms. Charlene
Barshefsky.
STATEMENT OF HON. CHARLENE BARSHEFSKY, U.S. TRADE
REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Ms. Barshefsky. Thank you, Mr. Chairman. Good morning. Let
me thank you for calling this hearing on American trade
relations with the European Union.
My testimony, which I will submit for the record, addresses
the state of our trade relationship with the EU today, the
transatlantic partnership launched by President Clinton, our
trade disputes with the EU, the EU's expansion, and other
issues.
But let me begin by putting these issues in some context. A
strong economic relationship with Europe is of fundamental
importance to American workers, businesses, and agricultural
producers. And in a larger sense, it is a necessary complement
to a strong security relationship with Europe if we are to
guarantee peace and prosperity in the next century.
Our trade and economic policy thus seeks the following
goals: A close strategic economic relationship with Europe;
fair market access in Europe for American companies; removal of
impediments to mutually beneficial trade and investment;
ensuring that the growth and deepening of the European Union
does not lead to the exclusion of American business; the
integration of new market democracies in Central Europe,
Southeastern Europe, and the former Soviet Union into the
regional and international economic institutions of the West;
further development of the multilateral trading system; and the
promotion of shared values.
In these areas, we build on an already strong relationship.
In 1997, our goods exports to the European Union were $141
billion, supporting 1.3 million jobs. Services exports to the
EU were $77 billion, nearly a third of our worldwide total. And
despite the perception of Europe as a mature market, our growth
opportunities remain high. In 1997, for example, our goods
export to the EU grew by $13 billion, more than our total goods
exports to China.
Our direct investment in each other's economies exceeds
$750 billion, almost perfectly balanced. The EU's investment in
America now supports three million jobs. This is particularly
important in manufacturing where one in every 12 U.S. factory
workers is now employed by a European firm.
Through the transatlantic agenda announced in 1995, we have
found ways to further improve this relationship, including the
negotiation of a mutual recognition agreement that will reduce
regulatory barriers facing sectors worth about $60 billion in
annual two-way trade, including medical devices, telecom
equipment, and pharmaceuticals. We have also concluded
agreements on customs cooperation and shortly, on veterinary
equivalency.
And at the U.S.-EU summit in London last May, we launched
an effort to bring this economic relationship to a new level,
the TransatlanticEconomic Partnership will address some of the
key problems in U.S.-European trade relations. It will seek to solve
problems that affect both partners, and it will find areas in which we
can cooperate at the WTO and in third markets.
Thus, the initiative will engage the EU pragmatically and
constructively to realize the remaining untapped potential of
transatlantic markets, head off disagreements before they
become crises, and enter into the new century with a further
strengthened and mutually beneficial trade relationship.
We have identified seven key areas on which to focus our
efforts. First, agriculture, including food safety procedures
and the transparency of regulatory processes in, for example,
the biotechnology area. The TEP is, of course, only part of our
efforts on behalf of agriculture.
If I might digress for a moment, as we approach WTO
negotiations in 1999 on agriculture, issues including
implementation of existing WTO commitments, State Trading
Enterprises, eliminating export subsidies, ensuring that
farmers and ranchers can use safe, advanced scientific
techniques, including biotechnology, transparency in regulatory
policy, and further market access commitments clearly need
attention.
The EU's common agricultural policy presents a major
challenge in a number of these areas, including extensive
import protection, direct commodity-specific price support
policies, and export subsidies.
Second, we will address in the Transatlantic Economic
Partnership, government procurement, a $200 billion market in
the EU where small and medium-sized businesses face particular
difficulties.
Third, technical standards, where we are examining ways to
reduce mutual barriers and standards while maintaining our high
level of health and safety protection.
Fourth, services, the area in which we can both expand
market opportunities and bring on small common interests to
boost the coming WTO negotiations.
Fifth, intellectual property rights, where we can work on a
number of areas, including worldwide enforcement. We have
already begun with a successful effort to raise patent
protection in Bulgaria and Cyprus.
Sixth, electronic commerce, a market projected to grow to
$300 billion in the U.S. alone by 2001; and finally, increased
public participation in debates on trade policy, including
labor, environmental, consumer groups and other important
interests with the aim of promoting shared values.
For example, we wish to seek common approaches to trade in
the environment and the international promotion of core labor
standards, as well as transparency at the WTO.
In the months to come, we--and the EU--in consultation with
Congress and other interested parties, will formulate a
specific action plan to achieve the Transatlantic Economic
Partnership's goals. This will include identifying specific
areas for negotiation, as well as areas for WTO cooperation.
At the same time that we announce this initiative, our
present relationship with the EU is by no means free of
disputes. We will not tolerate failure to comply with trade
agreements or WTO rules, and we will use our own laws and our
rights at the WTO to ensure that American trade interests are
respected.
Thus, for example, we have used special 301 procedures a
number of times this year against the EU to ensure protection
of our intellectual property rights, and we are effectively
using WTO dispute settlements.
Our active WTO complaints against Europe involve income tax
subsidy cases against five EU member states and intellectual
property rights against four member states. In two cases
involving agricultural policy, specifically the EU import
regime on bananas and the EU ban on beef from cattle grown with
bovine growth hormone, WTO dispute settlement panels and the
appellate body have ruled in favor of the United States. The
European Union has an obligation to respect these results and
we will insist on rapid and full implementation.
The European Union has likewise initiated WTO cases against
us. We will defend our interests in all of these. The challenge
to our FISC tax provision, for example, is extremely troubling.
The FISC rules were enacted over 14 years ago to settle a
dispute with the EU, and to conform U.S. tax rules to our
international obligations. In addition, there is no commercial
harm to the EU. This case, as in all others, will be defended
vigorously.
Let me conclude with two subjects we face in the future.
First, the EU is deepening its single market through the
adoption of the euro, and further regulatory harmonization and
expanding to take in new members.
With respect to the euro, we have a strong interest in a
stable and prosperous Europe. The more the single currency
helps ensure that stability and prosperity, the more welcome
that project will be. We support the integration of Central and
Eastern European countries into the Western political and
economic institutions.
However, we are in close contact with the EU and
bilaterally, with Central and Eastern European countries, to
ensure that the process of European integration does not reduce
market access for Americans.
Second, we will seek cooperation from the European Union as
the World Trade Organization admits new members and embarks on
new negotiations. We have had good cooperation thus far on
ensuring the accession of China and Russia to the WTO on
commercially meaningful terms. However, U.S. and EU interests
in future accessions may not always coincide, and we will
ensure that our rights and interests are fully protected.
The core of the negotiations to begin next year in the WTO
will be the WTO's built-in agenda. In this, as in all areas, we
will seek the cooperation of the EU as talks proceed.
Mr. Chairman, our trade relationship with Europe is already
one of the major forces for global prosperity. While we have
disputes with the EU, which we are working to resolve, this
should not obscure the bigger picture. Strengthening the U.S.
and EU relationship will open new opportunities to millions of
American workers, businesses, and agricultural producers; and
in the larger sense, it will ensure that the wise policies the
United States adopted after the Second World War remain in
place after the Cold War, laying the foundation for a more
peaceful and prosperous world in the next century.
Thank you very much, Mr. Chairman, for having this hearing,
and I look forward to your questions.
[The prepared statement follows:]
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Chairman Crane. Well, we appreciate your appearance here,
Madame Ambassador, and we are grateful to you. There is
something I would like to put to you that is not necessarily
immediately germane to your presentation, but it is something
that is a matter of concern to a lot of us. That has to do with
the renewal of fast track. You indicated that now is not the
time to consider fast track.
My concern, especially with regard to agriculture, is
whether it is fair to make U.S. farmers and ranchers wait until
next year before we start consideration of it. Secondly, I
think it is impairing our strength in international trade
relations for Congress not to have renewed that authority for
the President.
And as you know, there is a growing commitment on the part
of at least the House leadership, and hopefully the Senate too,
that we might bring fast track up. Chairman Bob Smith indicated
that if we make some accommodation to the Agriculture
Committee, that he thinks he can pick up roughly 24 to 30
Members of his members. Originally, the count there was only
about 12. And if that were so and we retained the numbers that
we had last year going into November, that would be enough to
put us over the top.
What are your views on that?
Ms. Barshefsky. Well, first of all, as you know, Mr.
Chairman, the administration strongly supports fast-track
authority. We were disappointed that the bill had to be pulled
in November, but that was the most prudent course at the time.
There is no question that fast track is essential and
vital. If we look at the European Union alone, we see that
Europe is now in the process of approving pre-trade agreement
negotiations to begin with MERCOSUR--that's Brazil, Argentina,
Paraguay and Uruguay, Chile and Mexico. This is obviously not
in our interest inasmuch as we will not be a member of any of
those pacts unless we have adequate authority to proceed with
our own array of free trade agreements in this hemisphere, as
well as around the world.
Having said that, we don't wish to see fast track be
brought up to lose. And at this juncture, we don't believe that
the votes are there either on the Republican side or on the
Democratic side. I appreciate the efforts that the Chairman of
the House Agriculture Committee is making, but at this point,
we don't perceive that the votes are there at this juncture.
From the administration's point of view, we would like to
see those pieces of trade legislation that can move forward
before the election move forward. For example, the Africa bill,
which you have cosponsored and been so instrumental on; CBI
parity, which you were also instrumental on; shipbuilding, and
several other areas; GSP, several other areas. We'd like to see
those move forward because we believe that there is quite
strong bipartisan support for those, and then take up fast
track post-election.
Chairman Crane. Well, I'm sure you followed our vote on
renewal of normal trade relations with China. Going into that
debate, we had a fear that while we were reasonably confident
we could prevail, we anticipated a dropoff in the vote totals
from last year. In the end, we actually got an increase.
And if the fast-track vote were taken up in September and
the primaries are essentially all behind us, those who are
paranoid about labor union money being poured into their
opponent's campaign kitty, except for general election fears,
should not be all that exercised, it seems to me.
And those that are going to anticipate that kind of
reaction in general elections are going to get it anyway. I
have talked to our ranking minority member on the Trade
Subcommittee, and he feels reasonably confident that he can
retain the numbers he had last year. Now, the burden then is on
us to try and increase the numbers that we had, and ideally Bob
can increase his a little, too. That would help.
But if we were to get a pretty strong head count that
looked like we could prevail, and we communicated that to you,
then you guys ought to make a full court press from your end of
Pennsylvania Avenue also. We will keep you updated on that and
let you know.
Let me ask you a question on the Transatlantic Economic
Partnership initiative. Are you certain that it won't diminish
leverage the U.S. will have in the WTO negotiations on
agriculture where we can discuss the reduction of export
subsidies in domestic support payments, something that when Bob
was making his presentation, he pointed out that the EU spends
almost $47 billion in agiculture subsidies, in contrast to our
$5 billion.
What Bob suggested is that they put all of their farmers on
a dole and make direct cash payments to them and eliminate
those subsidies, but I believe that stiffs us on any of their
subsidied agriculture products coming in here. We are going to
have to pay more, wouldn't we?
Ms. Barshefsky. Right. Well, let me just say that the
Transatlantic Economic Partnership and any talks under it will
in no way prejudice our leverage in agriculture discussions in
the WTO in 1999. And were we or I to perceive any remote
possible diminution in our leverage for WTO talks, we would not
negotiate those issues in the Transatlantic Economic
Partnership.
The 1999 WTO talks in agriculture are absolutely critical.
But at the same time, to the extent some of our bilateral
irritants can be resolved through the Transatlantic Economic
Partnership, I'd like to go ahead and try and resolve those or
try to reduce the nature of those disputes in advance of
heading into the 1999 talks.
Let me give you one example. We have a persistent problem
with Europe with respect to trade in bioengineered or
genetically-modified products. These disputes threaten to
impair the bilateral relationship to a significant degree. At
this juncture, we are awaiting approval from the French
government of certain GMO varieties of corn which the European
Union has already approved. And we have indicated to the French
government in the strongest terms, including by the President
and the Vice President, that undue delay by the French will not
be tolerated.
If we were able, in the context of the Transatlantic
Economic Partnership, to even reform the process by which the
regulatory process by which GMO varieties are considered, that
would go a long way to helping lessen the unpredictability
created by the current climate and the current lack of
discipline on the EU regulatory process.
That, it seems to me, would be worthwhile to try and
accomplish and would in no way endanger our leverage in the
1999 talks and would provide more immediate relief to our
farmers who everyday plant more and more using GMO's.
So we will not do anything that impairs our leverage, but
where we can resolve disputes that are essentially bilateral in
character, we'd like to move forward on those and successfully
pursue them in the context of the Transatlantic Economic
Partnership.
Chairman Crane. Given the similarity in our economies, it
has always been surprising to me how rarely the U.S. and the EU
are able to cooperate in the WTO. Where couldcoordination
between the U.S. and the EU and the WTO be improved?
Ms. Barshefsky. I think there are a number of areas. First
of all, your observation is very well taken. My observation is
that when the U.S. and the EU fight in the WTO, most of the
rest of the countries take a pass and just watch the fun.
That's terribly counterproductive. It disempowers the United
States, and it actually disempowers Europe.
So we do need to find ways to cooperate better since we do
share so many common interests. Certainly in services trade,
where the U.S. and Europe are the world's largest services
suppliers and largest services exporters, we should be doing
more to cooperate so that we set very high standards for market
openness in services trade through the WTO.
In areas of WTO transparency, that is, giving credibility
to the WTO through more open and transparent processes,
including the dispute settlement process, we and Europe have a
shared history of due process, of transparency in our legal
regimes. That shared history should be brought to bear on WTO
practices and on the practices of other large, multilateral
institutions.
Those are two examples of areas where we and Europe should
do much more to cooperate and much less to fight.
Chairman Crane. What's your timetable for agreeing on a
specific action plan for the TEP with the EU?
Ms. Barshefsky. I think we are looking at this fall. We
should have a specific plan in terms of areas for negotiation,
areas for cooperation, and so on, sometime in late September or
October. And that is our current scheduling.
Chairman Crane. Very good. I will now yield to our
distinguished colleague, Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman. I am a little out of
breath here, just having come back and I am sorry I did not
hear the testimony. But it is always good to see you, Ms.
Barshefsky.
I just wanted to ask you a particular question. We approved
here on the committee in October of last year a bill to extend
trade authorities procedures with respect to reciprocal trade
agreements. This was on fast-track legislation. And we offered
an amendment on ensuring that the administration--let me just
read this thing, because the question really is do you think it
is a good idea and whether we should reinsert it. ``Preserve
the ability of the United States to enforce rigorously its
trade laws, including the anti-dumping and countervailing duty
laws, and avoid agreements which lessen the effectiveness of
domestic and international disciplines.'' I won't go on.
But I have always felt that something like that is
important to at least inscribe in law. I don't know how you
feel about it.
Ms. Barshefsky. I think it is very important at every
opportunity to make clear to our trading partners that the U.S.
will vigorously enforce its trade laws, including the anti-
dumping and countervailing duty laws; but also, of course, the
full range of other laws that we have, whether super 301 or
special 301 or regular 301 or Section 1377 for
telecommunications and so on and so forth.
To the extent that there is any doubt about that at all,
then by all means, these issues should certainly be inscribed,
whether in fast-track legislation or elsewhere. This
administration, putting aside the anti-dumping and
countervailing duty laws, which tend largely to be private
remedies, has brought over 85 enforcement actions against our
trading partners, including 41 WTO cases.
So we are not at all shy about enforcing our trade laws. I
think it is absolutely critical that we use all the tools
Congress has given us, and reenforcing of that by Congress, I
think is a good idea.
Mr. Houghton. Thank you very much. Thank you, Mr. Chairman.
Chairman Crane. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman. I apologize for being
late, but the ceremony in the rotunda is just coming to
conclusion.
Ambassador Barshefsky, beyond the fact that I think there
is general agreement that you have done a terrific job during
your tenure as our Trade Representative in every quarter of the
globe, I have a specific question I would like to raise with
you.
It addresses the new transatlantic agenda. My question is
how can this new partnership help Northern Ireland, which Bill
Clinton has invested so much in, and many of us who have been
longstanding players in that conflict are so grateful to him
for. Do you have any specific recommendations?
Ms. Barshefsky. Well, this is an issue I think we will be
looking at. As you know, the Department of Commerce has been
heading an effort with respect to Northern Ireland--and perhaps
Under Secretary Aaron can testify to this when he comes on up--
but the Commerce Department has looked, for example, at
matchmaking between the U.S. and Northern Ireland companies to
try to spur investment in Northern Ireland and spur business
and strategic alliances.
In addition, the U.S. has been instrumental in setting up a
fund for new startup businesses for Northern Ireland, and there
are a number of other efforts that are ongoing, and I think
Under Secretary Aaron can speak to those.
The question from time to time has been raised, should the
U.S. do a free trade agreement of some sort with Northern
Ireland. I am not aware that the Irish government or the
government of the United Kingdom or the European Union have
expressed an interest in this. And of course, Northern Ireland
is a subcentral entity, if you will, which complicates the
situation.
But I think from our point of view, we are pleased to look
at all possible options. As you rightly point out, the
President has been very instrumental with respect to the peace
process in Northern Ireland. And to the extent that creating a
stronger economic base in Northern Ireland will help that
process, and we believe it will, we want to do everything that
we can to encourage that.
So we would look forward to working with you. Certainly, I
would suggest that perhaps Under Secretary Aaron can speak to
this issue also when he comes on up.
Mr. Neal. Again, a note of gratitude. It is this
administration that has elevated peace in Northern Ireland
internationally and drawn attention to it, again from every
sector of the world, and we are grateful for your interest.
Thank you, Mr. Chairman.
Chairman Crane. Well, again, I want to express appreciation
to you, Madame Ambassador, for appearing here today. Because of
the disruptions resulting from the murders that took place in
the Capitol, it has led to change in everybody's schedule, but
we felt that we probably ought to go forward with the hearing
because of people having made the accommodations to be here.
Wait a second. I have one more member here that I will
recognize before we say goodbye, and that is Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman, and thank you, Madame
Ambassador, for being here. I know this is a hard day for all
of us on this side, and for you not to have the attention of
the members, I apologize for that.
I did have a question. I am sorry I had to miss your
testimony, but I think I have a pretty good idea of what you
talked about in relation to WTO and the EU. It relates to the
beef hormone case, the banana case, to see where we are. I
apologize again if you have gotten into this in any detail.
But my question basically to you is where are we in terms
of our litigation against the EU. You and Peter Shear have done
a tremendous job, and I want to commend you publicly for that,
for your work in litigating against the banana policy of the EU
based on the WTO case and the two GATT cases which preceded it.
My sense is that the EU is almost institutionally unable or
unwilling to comply with the WTO case, and that this is indeed
a test case, and indeed has implications well beyond the
hormone issue or the banana issue. Both cases are test cases.
The banana case is sort of first-in, first-out, and therefore
needs a focus.
With all the important interests that are at stake in this
case, I guess my question to you is what can the U.S. do to
stop European implementation of their new proposed regime,
which I think is worse than the existing regime. Which is
ironic that after the WTO case, they then push through a regime
that is even more harmful to U.S. interests.
It is my understanding that there is an EU-WTO deadline of
January 1, 1999. How can Congress, this subcommittee in
particular, but Congress in general, help you to achieve our
objective of keeping the EU from implementing its new proposed
banana arrangement and ensure full compliance with the WTO
case?
Ms. Barshefsky. Let me respond to both the banana and the
beef hormone issue. You are quite right that the deadline for
compliance by the EU with the panel's ruling in the banana case
is January 1, 1999, and we expect full implementation by the EU
by that time, which means a WTO-consistent banana regime, first
off. That is most important. Second, and equally important,
assurances that the Lomay rights, or the rights granted under
the Lomay Convention, for example, for the Caribbean and
others, are fully respected.
The EU, as you know and as you have indicated, has come
forward with a new banana licensing regime which we believe to
be more discriminatory than the regime that it replaces. We
have told the Commission this. We have indicated this, and I
have indicated this personally to every one of the member
States.
The process we are now engaged in is to see if we can get
the original panel to reconvene in essentially emergency
session to take a look at this new regime and to render an
opinion before the deadline for compliance on its WTO
consistency.
We are very confident that in that proceeding, we will
prevail, and the regime as proposed will be viewed WTO-
inconsistent. We are holding Europe to the January 1, 1999
deadline for compliance. And we certainly hope Europe revisits
the regime it has put forward well before that date.
With respect to beef hormones, the EU has left on the clock
ten and a half months in which to comply. We have been working
very closely with our industry. The EU, as you know, wanted
four years to comply with a panel ruling indicating that its
ban on our beef exports was WTO-inconsistent. We went to
arbitration. This is after winning the panel decision and the
appellate body decision. We then went to arbitration because
the EU didn't get the point apparently the first two times, to
make clear that they had the normal 15-month period in which to
comply, which now on the clock leaves about 10 and a half
months.
That ban needs to be lifted. It is WTO-inconsistent. No
further scientific studies need to be done. Sufficient science
exists, both in the United States and in the EU, and it is time
for the EU to get on with the process of full compliance.
Here again, we are going to stick with the WTO-imposed
deadline of May 1999 for full compliance. Obviously, if there
is not full compliance, we will take action at that point.
Mr. Portman. Again, if you have any recommendations as to
how this Congress can be helpful, I think we would like to
entertain those. Personally, I am frustrated by both of those
cases, and I think the record is clear that the Europeans are
not likely to comply without the United States government
continuing to litigate it strongly, and in particular--and I
know this is something that makes some of your trade lawyers
shudder--but threatening retaliation.
I think the banana case, it is a 301 case, and the beef
hormone case has been dragged on. I personally believe that if
you were to come to this Congress and lay out your case, that
you would get strong support, not just for the compliance
procedures under the new WTO, which are rather muddled as I
read them, but for retaliation procedures.
I just think it is better to go ahead and make our case
very strongly. I commend you for your quote that was in your
most recent press release. ``The United States will not
hesitate to exercise its full rights under WTO. Our rights
include withdrawal of concessions on EC goods and services.'' I
think we have to not only make the threat, but I think we then
have to stand by it if the Europeans continue to be in
noncompliance, which is such an obvious position that they have
put themselves in with this latest proposal, particularly.
I would urge you to be aggressive on it, both with regard
to continued litigation, which you are doing, but also not to
be shy to come to this Congress. I think under 301--again, I
know that many in the trade community hesitate to exercise that
because it is unilateral, but sometimes you have to use
unilateralism in order to enforce multilateralism, which is
really what this is. I hope that you will do that.
Again, if you have any comments today as to how we could be
helpful, I would love to hear them. I know the chairman is a
strong free trader, as am I and most members of this
subcommittee and committee, thank goodness. But is tough for us
to always be out on point, whether China MFN, now China NTR, or
whether it is fast track or whether it is WTO, when in cases
like this, where we are so obviously in the right, we cannot
achieve our results.
It is going to be more and more difficult for those of us
who are free traders to prevail here politically. So if you
have any thoughts today as to what this Congress or this
committee could do to help you. And do you have any response to
my suggestion?
Ms. Barshefsky. Well, let me say simply at this point that
we would be very pleased to work with you. We have told Europe
that we will not hesitate to retaliate with respect to bananas
and with respect to beef hormones if we reach the point at
which they fail to comply on the deadline for compliance.
And let me make one comment about that. Under WTO
rules,countries normally are granted a period in which to comply with
WTO rulings. And that period is normally 15 months. The United States
was chief among those who argued for a period within which compliance
could take place because of our concerns that were we to lose a case,
and were we to have to come back to Congress for authority to undertake
an action or perhaps revise regulatory rules or such other activity, we
would need about that amount of time within which to complete our own
work.
So in the current case, the EU is not, in either bananas or
hormones, beyond its due date for compliance. In both cases, we
made clear the 15-month rule stands. In hormones, the EU
thought they should fall outside the general rule and instead
take four years. And of course, an arbitrator took our view and
said, no, 15 months is normal; you can do this within 15
months. And the clock on both bananas and hormones is ticking
under those rulings.
Because that time period within which to comply is one that
we ourselves have utilized for the full 15 months just
recently, it is my view that it would not be appropriate to
undertake retaliatory action during a ruled legal period of
compliance.
However, once that period of compliance is done, if there
has not been full compliance, then we should and will avail
ourselves of all tools, including very, very likely
retaliation.
Mr. Portman. Thank you very much, and thank you, Mr.
Chairman, for the indulgence. I would just make one final
point, which is once they implement this new regime, it may be
more difficult as a practical matter to alter that regime and
to get to a GATT and WTO compatible regime. Therefore, I feel
strongly that the threat of retaliation backed up by not just
press releases, but perhaps even some indication of what that
retaliation might be and therefore, a sense that it is real, is
going to be necessary.
I would hope that we go beyond the compliance procedures,
which as I read them, really could end up with us going back
full circle again through a process of appeals and almost a
never-ending series of European appeals, and instead move to a
much more aggressive threat of retaliation and then following
through on that threat if necessary. And I hope it would not be
necessary.
Thank you very much, Mr. Chairman, and again, Ambassador
Barshefsky, thanks for your outstanding work on this
litigation.
Ms. Barshefsky. Thank you.
Chairman Crane. Well, we thank you, Mr. Portman. Again, let
me express appreciation to you for being with us, Charlene, and
apologize for the circumstances, which are beyond our control.
But we appreciate your being here and spending the time
with us. And to follow up on what Rob Portman was talking
about, we look forward to working with you in all fronts
involving trade. But I'd like to sit down and talk to you
further, after Labor Day about fast track renewal.
And with that, we will let you be excused, and again, thank
you.
Ms. Barshefsky. Thank you so much, Mr. Chairman.
Chairman Crane. And our next witness is the Honorable David
L. Aaron, Under Secretary of Commerce for International Trade
with the U.S. Department of Commerce.
And it is my understanding that we don't anticipate
interruptions again until approximately 2:30. But we do have
two panels after the testimony of Mr. Aaron and we routinely
ask folks to try to summarize in their verbal presentation
within five minutes roughly, and then all written testimony
will be made a part of the permanent record.
With that, you may proceed, Mr. Aaron.
STATEMENT OF HON. DAVID L. AARON, UNDERSECRETARY OF COMMERCE
FOR INTERNATIONAL TRADE, U.S. DEPARTMENT OF COMMERCE
Mr. Aaron. Thank you very much, Mr. Chairman. Let me begin
by commending you for holding this hearing. The European Union
(EU) is one of our most important commercial partners, as
Ambassador Barshefsky pointed out. The EU buys over $1 trillion
of goods and services made by U.S. firms, making it more than
twice as large a market for American companies as Canada and
three times as large as Japan. Furthermore, the EU is an
important ally in opening markets to the rest of the world.
But, like all good things, there is room for improvement.
This hearing will help us focus needed attention on the
opportunities and the challenges of this critical relationship.
With your permission, I'd like to focus my remarks today on
Commerce's partnership with industry and the Transatlantic
Business Dialogue (TABD) and the commercial challenges we face
in the coming year.
As this committee is aware, the Commerce Department has
played a pivotal role in building government support for the
TABD, the unprecedented process of bringing U.S. and European
CEO's into a dialogue with top trade officials on both sides of
the Atlantic that has enormously contributed to reducing trade
barriers and to further opening markets.
Recent successes include the Mutual Recognition Agreements,
or MRA's, and the Information Technology Agreement. The TABD
has also been highly effective in increasing government
attention in areas such as the EU-specified risk material ban,
metric labeling, and electronic commerce.
I want to emphasize the strong and innovative leadership of
the TABD by the U.S. and EU chairs, Lodewijk deVink of Warner-
Lambert and Juergen Schrempp of Daimler Benz. Their leadership
has been the driving force for this year's successes.
Secretary Daley will lead the U.S. Government delegation to
the 4th TABD conference in Charlotte, North Carolina in
November. Three issues gaining momentum for this year's
conference are electronic commerce, implementing and concluding
additional MRA's, and metric labeling. These are all positive
developments.
But important issues remain to be resolved, including the
EU's implementation of its data privacy directive, its policies
on genetically-modified organisms, the accession agreements
with Central and Eastern Europe, and the third generation
wireless telecommunications equipment discussion.
Europe has been very active in developing its privacy
policy. Its directive on data privacy mandates acomprehensive
regulatory approach to privacy that applies to all industry sectors.
Were the EU under this directive to consider the United States' system
not to provide an adequate level of data protection, the effects on
data flows between the United States and Europe could be severe. For
example, a multinational company could be prohibited from transmitting
any data from its European operations to the United States and to other
overseas locations.
In March, I began bilateral discussions with my European
Commission (EC) counterpart, John Mogg. We established the twin
goals of ensuring effective data protection and avoiding any
disruptions in data flows. This dialogue is an important step
in avoiding any adverse effects of the EU directive that might
occur on trade when it is implemented in October.
With the announcement of the Online Privacy Alliance, the
Better Business Bureau Online, and Trustee last week, I believe
all the elements of effective private sector privacy policies
are in place. The way is now open for the EU to decide that
U.S. companies that sign on to those policies meet its privacy
requirements.
The marketing of genetically-modified organisms in the EU
is another important issue. The EU, the major market for U.S.
agricultural products, has a slow and unpredictable process for
approving products developed through advanced biotechnology.
Although technically a success, the delayed approval of
three corn products resulted in a loss of $200 million in U.S.
exports this year. The EC is trying to make up for lost sales
by opening up more corn tenders this year and next. We plan to
work closely with the EU in the coming months to develop a more
timely and transparent approval process.
As the EU expands, we are actively working to safeguard the
interests of U.S. companies. Two areas, broadcast quotas and
import tariff rates, are particularly troublesome. Some
countries have adopted the most restrictive interpretation of
EU broadcast directives. For example, all programming in Poland
must have at least 50 percent European content, and Romania's
draft legislation lacks any flexibility whatsoever.
On tariffs, the EU association agreements grant
preferential treatment to EU products, while maintaining the
higher MFN rates for U.S. products. This preferential treatment
calls into question the GSP eligibility of some Central and
Eastern European countries. We are working to identify the
products most directly affected, and look forward to the ITC
study due next year. We are also working bilaterally and
multilaterally to address these concerns.
In our meetings with the Europeans last week, we discussed
the EU's third generation wireless standards development in
Europe and its relationship to the International
Telecommunication Union's (ITU) third generation or 3(g)
standards development process. The EC assured us that they will
not preclude member States from licensing multiple 3(g)
technologies, though they clearly stated a preference and a
goal of having one common standard operating throughout Europe.
We intend to follow the EU process closely, as we are
concerned that it is premature to recommend any specific
standard for third generation at this time. Third generation
wireless standards are of critical importance to us, both in
regard to future technology, as well as their impact on the
current market for wireless technology. We believe that all ITU
members should support any and all 3(g) standards which meet
the ITU requirements.
These, Mr. Chairman, are just some of the priorities we see
for the near term to further build the transatlantic
marketplace. In addition to the TABD, Secretary Daley and I
have ongoing dialogues with trade officials from the European
Commission, Germany and France.
There is no question that the EU represents important
commercial opportunities for U.S. companies, and in general, we
can expect the EU to work with us productively in the world
economy. In many ways, this extended open-ended commercial
cooperation is a new way of opening markets and liberalizing
trade. We look forward to working with this committee to shape
the future of the U.S.-EU relationship.
Before closing, I'd like to call to the committee's
attention the ratification of the OECD Antibribery Convention.
This Convention will enter into force in 1998 only if it
ratified by five of the ten largest OECD economies. We hope to
have Senate ratification of the Convention in August and
congressional action on the implementing legislation in this
Congress. U.S. leadership is essential.
Thank you, Mr. Chairman. I'd be happy to answer any of your
questions.
[The prepared statement follows:]
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Chairman Crane. Thank you, Mr. Aaron. Does the
administration support Europe's move to a single currency, the
euro? Is this development in the interest of the U.S., and do
you see any downside? Is there any possibility that a single
currency will reduce the role of the dollar in the world's
economy?
Mr. Aaron. Thank you for that question, Mr. Chairman. We
think the advent of the euro is a very important step in
European unification, a process which we have supported for
several decades.
As for its effect on U.S. business, we think that there
will be important advantages for U.S. exporters, particularly
small and medium-sized exporters who will no longer have to
deal with a multiplicity of currencies and can price their
products not just in dollars, but in the local EU context.
This will also help them simplify their distribution
systems in Europe and perhaps rely on a single agent or
distributor instead of having to have multiple distributors for
different parts of Europe. So we see some particular advantages
in this as far as U.S. small- and medium-sized businesses are
concerned.
The Commerce Department is trying to help our small and
medium-sized businesses get prepared for the euro by holding a
series of conferences. We have 13 scheduled between now and the
end of October in different parts of the country to share with
our small and medium-sized business clients all ofthe details
of how the euro will go into effect, what they have to be thinking
about, what opportunities are presented to them by the advent of this
development.
As for its impact on the U.S. currency, the dollar, as a
reserve currency, we think that any change that takes place in
the reserve currency holdings of other countries will take
place only gradually; and our Treasury Department does not have
any undue concern about this process.
Indeed, there is a possibility that if other countries,
particularly Asian countries, move to adopt the euro as part of
their portfolio, our European countries will see with us a
greater coincidence of interest in opening up the Asian
markets. And the reason for that being, of course, that it
could have an impact on the euro's strength itself. If it
becomes a reserve currency for Asia, they will have an interest
in making sure those Asian markets are open too.
Chairman Crane. Are all of the members of the EU in favor
of the euro currency?
Mr. Aaron. Well, only 13 countries of the 15 are at the
present time planning to join the euro. At this stage, I
believe, in addition to the United Kingdom, I think Denmark is
standing aside. Of course, Switzerland will still have its own
currency because it is not a member of the EU. And the Eastern
European countries that are candidate members of the European
Union will continue to maintain their currencies.
But it will be an enormous internal market and we believe
that U.S. companies will be well-poised to take advantage of
it. In some respects, our companies may be better positioned to
take advantage of it than even European countries, because
we've been looking at Europe as a single market for a long
time. And just as we benefited enormously when Europe created
the so-called single market by means of reducing its various
barriers between trade among the countries, so we think
American companies stand to gain significantly from the
reduction of this remaining trade barrier which is the
different currencies that now exist in the EU.
Chairman Crane. Thank you. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman. Mr. Aaron, you heard Ms.
Barshefsky say you had all the answers in Northern Ireland.
Mr. Aaron. I wish she would say that more often, actually.
Mr. Neal. She was very skillful in suggesting that you were
the man that held that knowledge. Let's talk for a second, if
we can, about the Transatlantic Business Dialogue and economic
development in Northern Ireland.
I understood the point that she raised about some
resistance in the Republic of Ireland and in the United Kingdom
to a free trade accord similar to what is practiced in other
quarters. Are those problems that can be overcome, or should we
be looking past that to other solutions on how we might assist
this fragile peace agreement?
Mr. Aaron. Well, let me tell you what we are trying to do
about it since Secretary Daley visited there a month or so ago.
He brought 16 companies there, including 8 Fortune 500
companies and they have established, I think, a number of
important business leads that we believe will result in both
investment and business relationships between Northern Ireland
and the United States.
We are supporting the Northern Irish effort. They are going
to come to the United States and visit 11 different cities in
an effort to secure greater business relationships, including
investment, for Northern Ireland. We are facilitating that
through our domestic field offices here in the United States,
and believe that we can put together a really terrific program
for them. This is, of course, one of the most important things
that can happen, that this peace process be buttressed by
greater foreign investment.
We are also expanding our commercial service operation in
Northern Ireland. We will have a larger staff there so we can
both encourage and recruit more U.S. businesses to do business
in Northern Ireland.
In addition, while Secretary Daley was in Northern Ireland,
he signed some cooperative arrangements on the scientific side
with the Northern Irish authorities for monitoring the oceans
in the region. This will be a NOAA-related project from the
Department of Commerce that we think can be very important.
The thing that people have to recognize is that Northern
Ireland is superbly poised to be a high technology center. It
has terrific educational opportunities. They have strong
universities. They have a very well-educated population. And
not to make light of it, but the possibility of a sort of a
silicon bog in Northern Ireland is really a very realistic
possibility and we are looking for mechanisms to tie together
that interest in Northern Ireland with high tech cooperation
with our own Silicon Valley.
Finally, we will be establishing a trade mission with
software and high technology to support that effort which will
be taking place early next year. And of course, the President
will be visiting Northern Ireland in early September and
hopefully, we are looking for opportunities there as well to
bring some commercial support to that mission.
Mr. Neal. Thank you. Thanks, Mr. Chairman.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman. Mr. Aaron, good to
see you. Thank you very much for being here.
I'd like to hone in a minute on this MRA or the Mutual
Recognition Agreement. You know, for years, the basic barrier
has been one of setting standards, and it has been a real
problem and the Europeans have not given in to this. Now you
say that you have an MRA. First of all, is it working?
Secondly, it only involves certain products, computers,
telecommunications, pharmaceuticals, things like that. They are
a whole raft of other products outside that. What is going to
happen with them?
Mr. Aaron. Well, we believe that there is an opportunity
for further mutual recognition agreements to cover other areas.
In particular, we are moving forward with one on automobile
standards. As you probably know, our automobile industry has
been concerned about the potential for the proliferation of
standards which will keep our automobiles, our parts and so
forth, out of other countries.
In recent weeks, in the last month really, the United
States has come to an agreement in the UN context, but
supported by the Transatlantic Business Dialogue, to reach
agreement on automobile standards. So we are very encouraged by
this development and we see that as an important breakthrough
as well.
In addition to this, we see off-road equipment standards as
being very important. We think that there's an important
possibility in automobile tires. We think there are some
important opportunities in chemicals. So there is a whole range
of areas where mutual recognition agreements could be useful
and helpful to us.
For example, we think that the current mutual recognition
agreement, which covers computers and telecommunications
equipment, pharmaceuticals, medical devices, electrical
equipment, electromagnetic interference, and recreational boats
will be an enormous boon particularly to small and medium-
sizedbusinesses who have to depend on third parties to do their
certification.
What this means is that if U.S. businesses certify once in
the United States under a system that the Europeans accept,
then they don't have to do it again in Europe to gain access to
the Europe an Market. This also applies to European businesses
wanting to gain access the U.S. market. The can certify in
Europe to U.S. standards with no need to duplicate this testing
in the United States. As Charlene pointed out, this covers $60
billion in trade across the Atlantic, and will probably reduce
the cost of products on both sides by about $1 billion a year.
So these are what I call the homely issues of international
trade, but as homely as they are, they are extremely important
from the standpoint of serving our consumers.
Mr. Houghton. Well, what you are saying is it is working,
it will be expanded, and it will help the United States?
Mr. Aaron. I believe that's correct, sir.
Mr. Houghton. Good. Thanks very much.
Chairman Crane. Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman. In an effort to
overcome U.S. export regulatory access problems to EU, we've
negotiated some Mutual Recognition arrangements under which the
EU certifies or inspects or tests products and sends them to
us, and we do the same thing to them on a mutually agreeable
basis. What insurances do we have, really, that they will test,
inspect, and certify products and send to us in which will be
comparable to what our internal agencies would require of
products that go on the market for safety and quality and
whatever?
Mr. Aaron. Right. I think it's very important to recognize
that these mutual recognition agreements do not constitute any
lowering of our standards whatsoever, and, indeed, in sensitive
areas of health and safety, laboratory testing for
pharmaceuticals and so forth, we have arrangements for us to
actually inspect and, in effect, certify for ourselves that the
procedures and the medical and pharmaceutical laboratory
practices that are going on, are, in fact, up to our standards.
So, I think that there's a very strong built-in safeguard here
which our FDA insisted upon.
Mr. Jefferson. So, you say you set standards, and you make
sure that the testing facilities are up to our standards, but
can you be sure that the day-by-day testing that is done, is
there some random way to look at the results of what the EU
inspectors and testers actually do?
Mr. Aaron. Yes. This inspection of the laboratories,
doesn't just happen once--it continues. I'm not an expert in
FDA procedures, but my understanding is that European products
will be treated the same as U.S. products. That would fall
outside the scope of this agreement and would be conducted the
way the FDA believes is appropriate.
Mr. Jefferson. Well, you know, there's a big preoccupation
with, as there should be, with food safety, and that's a
question that I guess you've answered as best you could, but it
still leaves lingering doubts in the mind of the public, and I
think it needs some reassuring there.
But let me ask you something else. Do you believe----
Mr. Aaron. Let me add that we do not have an MRA on food
safety. We have an MRA on pharmaceuticals, and we have one on
biologics safety and health issues.
Mr. Jefferson. There are some what? I missed what you said
at the end, I'm sorry. There are some what sort of
certification processes with respect to food.
Mr. Aaron. For phytosanitary regulations that we have
between the United States and Europe.
Mr. Jefferson. Do you believe that the Transatlantic
Economic Partnership will help facilitate our negotiations with
the EU on the broader U.S.-EU trade agenda issue?
Mr. Aaron. Yes, I do. I think that we have set up a
monitoring and coordinating process within our own government
here, which I share, which looks at all the issues and
proposals that the TABD has put forward, and at last year's
Rome conference the TABD put forward about 130 proposals. By
the end of this year, TABD wants the U.S. Government to have
implemented about 50 percent of them. We will have about 30
that we've, frankly, told them are non-starters; that just are
either impractical or they off the list. And that leaves a
residue of a number of important suggestions that we will be
working on, many of them in the context of the new
Transatlantic Economic Partnership. Others we will continue to
work bilaterally the way we did the MRA under the New
Transatlantic Agenda. We're going to keep all of them very
active, and the TABD is making an important contribution to all
of it.
Mr. Jefferson. The last thing, of the items you have
concluded, the 50 or so, which are the biggest ones you think
will have the greatest impact for our country? And of the ones
you think you may not get done, which of those do you think
would make the biggest difference if you were to get them done?
Mr. Aaron. I think the most important issues that we have
on the table now relate to recognition of genetically-modified
organisms. And there, we really have to go to the larger
question of the role of science-based decisions in dealing with
scientific progress as it affects food, pharmaceuticals, and
all sorts of areas where public health and safety are involved.
There is an increasing tendency in Europe to not regard science
as even a relevant consideration in these decisions. It's sort
of policy by public opinion. We recognize the trauma that the
Europeans went through over the Mad Cow disease issue, and we
realize the impact that this had on public opinion, especially
with regard to the scientific community and the regulatory
community in Europe. But, nonetheless, the fact of the matter
is that public policy decisions ought to be based on sound
science as best as possible. Right now that's not happening,
and it's not happening in a transparent manner.
So, I think the most important thing we can do given the
size of our agricultural trade and the impact on everything
from food to cosmetics to medical devices that are implanted in
people's bodies, is to get a more regularized and sensible
arrangement to deal with these issues. Establishing such an
arrangement would have the most positive impact.
I would note that we have a series of negotiations coming
up in the WTO as well as in our bilateral relationship with the
Europeans that ought to significantly liberalize trade across
the Atlantic. This is the largest trading relationship. It is
the most important trading relationship in the world. We and
the Europeans are more alike than anybody else, and we ought to
be able to come toimportant agreements where we have erased
almost all of the barriers to trade across the Atlantic. That's the
objective in the New Transatlantic Agenda, and I hope that can be
fulfilled.
Chairman Crane. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman, and a couple of quick
questions. One, just building on the standard setting that has
already been discussed by Mr. Houghton and others. It has to do
with standard setting on wireless technology. The WTO, as you
know, has an agreement; a number of States are all committed
not to pass laws that create technical barriers to trade and
particularly not allow their standard setting body to set
standards that are designed, in fact, to create barriers to
trade.
In the case of wireless technology, ETSI, which is the EU
standard setting body for this technology, has come up with one
standard, I understand. It's a single standard that effectively
shuts out many of the American or other technologies from the
European marketplace, and it's difficult to see, other than for
trade reasons to protect their own wireless market, why they
would do that. Has this been investigated? Are you all looking
into whether they've violated the WTO agreement on technical
barriers to trade through the ETSI standard setting?
Mr. Aaron. Yes, we are looking into that quite carefully,
and, indeed, we have been in the process of negotiating and
discussing this issue with the EU including in discussions just
last week. The EU would like to have a single standard, but
they are not going to require that their member States have
only a single standard. That's their position at the present
time.
Our view is that multiple standards should be allowed, and
the marketplace should decide which of these standards is
sufficient or appropriate. There are several different
standards. As you know, there are several second generation
standards--GSM, TDMA and CDMA--and there's the advanced third
generation standards, which are being discussed. Competitive
business pressures are being brought to bear on the European
standard setting organization, ETSI. We are in the scrum
dealing with these issues as well; trying to keep this process
as open as possible.
At this point, we are not taking the position that setting
a single standard would be a violation of a WTO obligation, but
we are looking at that carefully to make sure that this
standard-setting process is not creating a barrier to trade.
American businesses are taking a number of different
positions on these standards issues. From a governmental
standpoint, we want to press for the most open arrangement
possible.
Mr. Portman. With regard to the Central European accession
negotiations ongoing--I understand those are your phase-out of
tariffs over time--does that concern you as it relates to U.S.
exports that those Central European countries would be getting
preferential treatment as compared to U.S. products coming in,
and is that something that the U.S. Government should be
involved with?
Mr. Aaron. Yes. We have taken this issue up both with the
European Commission and with the countries concerned. These
countries have all signed association agreements with the EU.
Each of these agreements has a schedule of tariff reductions
that will bring the affected countrys tariffs in line with the
European common external tariff.
We have no objection to that, but we do have an objection
to these countries giving the Europeans a tariff preference
before they are members of the European Union. Ironically, once
these countries become members of the European Union, they'll
be bound by the European Union's tariffs which are quite a bit
lower than their own. The only interests advantaged by this
process are European businesses which are given lead time to
consolidate their position in the market before they face
outside competition. This is unfair, and we have raised this
with these countries. Also, it may not be possible for them to
receive GSP if they continue these kinds of preferential
tariffs.
Mr. Portman. And that's a decision made by those individual
countries and not by the EU?
Mr. Aaron. That's correct. In other words, what they do
with their own external tariff, apart from the EU, is at the
purview of these countries.
Mr. Portman. That's something that they would have the
power to act on in order to sustain their GSP treatment of the
United States, but that's a lever we have.
Mr. Aaron. That's right. They have the power to not
discriminate against us.
Mr. Portman. I want to thank you for your testimony.
Chairman Crane. Mr Aaron let me say that you are
particularly adept at using the acronyms of trade.
Mr. Aaron. I'll go through the ABC's of that with you, Mr.
Chairman, any time you'd like.
Chairman Crane. That's quite alright, Mr. Aaron.
[Laughter.]
We thank you for your testimony here today. We appreciate
your responses and, again, apologize for the irregularities in
our proceedings. We will excuse you now and invite our first
panel, P. Vince LoVoi, vice president, government affairs and
public policy, Warner-Lambert; Isabel Jasinowski, vice
president, government relations, Goodyear Tire and Rubber;
Ellen Frost, Senior Fellow, Institute for International
Economics; Willard M. Berry, president, European-American
Business Council; Mary Sophos, senior vice president,
government affairs, Grocery Manufacturers of America.
And if you folks will take seats, we will follow our five-
minute rule and that is if you will please try and hold your
oral presentations to five minutes. All written statements will
be made a part of the permanent record, and, with that then, we
shall proceed in the order I introduced you. Mr. LoVoi.
STATEMENT OF P. VINCENT LoVOI, VICE PRESIDENT, GOVERNMENT
AFFAIRS AND PUBLIC POLICY, WARNER-LAMBERT CO.; AND U.S. WORKING
CHAIR, TRANSATLANTIC BUSINESS DIALOGUE; ACCOMPANIED BY ISABEL
JASINOWSKI, VICE PRESIDENT, GOOD YEAR TIRE AND RUBBER CO.; AND
GROUP ONE WORKING CHAIR, STANDARDS AND REGULATORY POLICY,
TRANSATLANTIC BUSINESS DIALOGUE
Mr. LoVoi. Thank you, Mr. Chairman. Mr. Chairman, members
of the subcommittee, I am Vincent LoVoi, vice president of the
Warner-Lambert Company. I'm testifying today as the U.S.
working Chair of the Transatlantic Business Dialogue. I am
accompanied by Ms. Isabel Jasinowski, vice president of the
Goodyear Tire and Rubber Company who manages the TABD Standards
and Regulatory Policy Group. I ask that her prepared comments
be entered the record immediately following mine.
Mr. Chairman, the TABD is a unique business-like process
where American and European business leaders develop joint
policy recommendations to improve the U.S.-EU marketplace. Over
the past three years, we have worked closely with the U.S.
Government and European Commission to address a broad range of
specific issues. The TABD's pragmatic issue-driven process has
made it possible for a variety of industries to engage
officials and achieve meaningful results. We sincerely commend
the U.S. Department of Commerce for its leadership vision and
responsiveness.
And, Mr. Chairman, we do not need to tell this subcommittee
why our participating companies believe the European market is
so important. This panel has focused on that subject for years
and rather than repeating facts and figures from your own
record, Mr. Chairman, I'll simply commend the subcommittee's
foresight and underscore the TABD support for that view. This
is particularly true given world events over the past year.
The TABD supports the Transatlantic Economic Partnership
initiative while encouraging negotiators to be mindful of the
pragmatic results-oriented TABD approach. The theoretical
should not get in the way of the practical. Real economic
growth and real problems solved, rather than negotiating points
scored, should measure its success. The TABD is heartened by
USTR's commitment to an aggressive timetable and actions
planned for the TEP. We believe that many of the
recommendations should be ready for implementation prior to the
year 2000, and we applaud USTR's implied endorsement of this
view. Indeed, TABD urges Government to implement agreements
immediately upon completion.
Many TABD recommendations are addressed head on by the
Transatlantic Economic Partnership. Let me emphasize, however,
that we particularly support the stated aim to improve
regulatory cooperation in such areas as manufactured goods and
to reduce unnecessary regulatory impediments. Mutual
recognition and harmonization of standards have been the
hallmark of TABD since its inception.
TABD also encourages governments to continue working on
recommendations by our participating companies that do not fall
within the corners of the proposed negotiations. An important
example of such initiative is the pressing need for this
Congress this year to act on legislation to implement the OECD
convention on bribery and corruption.
Before closing, Mr. Chairman, let me note that President
Clinton, Prime Minister Blair, and President Santer commended
the TABD as a new paradigm for advancing trade dialogue in
their joint communique at the London Summit. They encouraged
other constituencies to engage in parallel transatlantic
dialogues.
The TABD is both appreciative and honored by this
characterization. We echo the call for parallel dialogues. We
have already met at the staff level with the potential
organizers of some of these efforts and would be pleased to
share our experience with anyone committed to free trade in an
open and harmonious transatlantic marketplace.
In conclusion, Mr. Chairman, the TABD supports the
Transatlantic Economic Partnership initiative. We believe that
properly focused negotiations can simultaneously advance both
those issues identified within the TABD scope as well as other
TABD priorities. Thank you, Mr. Chairman.
[The prepared statement follows:]
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Chairman Crane. Thank you.
Ms. Frost.
STATEMENT OF ELLEN L. FROST, SENIOR FELLOW, INSTITUTE FOR
INTERNATIONAL ECONOMICS
Ms. Frost. Thank you, Mr. Chairman, for this opportunity. I
have just written a short commentary on what we know about the
Transatlantic Economic Partnership thus far and where it might
go from here. With your permission, Mr. Chairman, I would like
to submit that commentary for the record.
Chairman Crane. Without objection, so ordered.
Ms. Frost. I will confine my verbal remarks today to a few
brief observations about the global and domestic challenges
facing the transatlantic powers. At the outset, I want to make
it clear that I fully support the Transatlantic Economic
Partnership, especially its regulatory component, and I greatly
admire the achievements of the Transatlantic Business Dialogue.
My concern is that the Transatlantic Economic Partnership
may not be sufficiently ambitious. There are at least two
reasons why negotiators should aim high. First, agreements
between the United States and the European Union send a signal
to the rest of the world about whether or not the two powers
are serious about taking further steps towards a rule-based,
market-oriented, global economy. The Partnership should back up
its words with action. For the last 50 years, progress towards
multi-lateral trade liberalization has depended heavily on
agreements betweenWashington and Brussels. While other
countries have become important players, future progress within the WTO
presupposes some form of transatlantic consensus. It is hardly
reasonable to expect other countries to make politically difficult
choices to open their economies if the transatlantic powers do not
continue to set an example.
The Partnership announcement asserts that the United States
and the European Union will give ``priority'' to pursuing their
objectives through the WTO and that their primary goal is
multilateral liberalization. This is good news, but thus far
neither the European Union as a whole nor the Clinton
administration has publicly committed itself to a clear-cut and
truly ambitious WTO agenda in the form of either a ``Millennium
Round'' or anything else. At best, certain pioneering
agreements may emerge from the partnership that can serve as
models for future WTO negotiations.
Second, the Transatlantic Economic Partnership has acquired
new urgency because of the Asian economic crisis and its effect
on the rest of the world. In the United States, the crisis is
likely to shave one-half to one percentage point from the 1999
economic growth rate and to boost the U.S. merchandise trade
deficit with the Asia to levels that undermine domestic support
for trade.
Recognizing the value of economic competition in
stimulating recovery, members of APEC have reaffirmed their
commitment to open trade and investment by 2010/2020, but no
such commitment exists across the Atlantic. With the important
exception of regulatory initiatives, the Transatlantic Economic
Partnership is so limited that it runs the risk of diminishing
the post-war tradition of transatlantic leadership within the
global trading system, leadership that has contributed so much
to Asian and global economic growth.
Despite these two imperatives, the need for multilateral
leadership and the Asian crisis, a transatlantic initiative
does not appear to be a high priority either in Brussels or in
Washington at this time. During a recent trip to Brussels, I
found that too many other events and evolutions are competing
for policy-level attention. Here in Washington, aside from
Africa and the Caribbean basin, the Clinton administration does
not appear to be focusing much on trade as a national priority
or using the ``bully pulpit'' to communicate its benefits.
Fast track is still in limbo, which inevitably undermines
our credibility in the context of APEC, the Federal Trade Area
of the Americas (FTAA), and the WTO. I do not have to tell
Members of Congress why this is so. It is because trade has
become a divisive issue in domestic politics, particularly
within the Democratic Party.
That brings me to my final point. Trade is a divisive
domestic issue in part because it leaves some people behind. It
follows that building support for trade calls for more
effective efforts to help those people adjust to global
competition.
Several months ago, the Institute for International
Economics held a conference on restarting fast track. Several
leading Congressional opponents of fast track made it clear
that they fully understand the benefits of trade to the
American economy as a whole. They are holding fast-track
hostage, they said, in order to draw attention to those who
lack the skills and resources to compete.
I am no expert in this area, but I imagine that Congress
and the administration should be talking about such things as
the portability of pensions and health care, local public-
private partnerships centered on community colleges,
consolidated and flexible adjustment assistance designed to
achieve a better match between training and jobs, dissemination
of lessons learned, and a range of other measures that take
advantage of the flexibility and creativity of our economic
system. Some of these tools are in place, but taken together
and explained in the context of global competition, they could
help reassure Americans about their economic future.
My conclusions are that the Transatlantic Economic
Partnership is worthwhile, but that it has not lived up to its
name as yet. It has not risen to the challenges I described:
setting an example of global leadership by signaling a serious
commitment to trade liberalization, devising trade initiatives
to cope more effectively with the Asian crisis, and addressing
domestic concerns.
If the United States and the European Union want to
reassert global economic leadership in a serious way, they
should consider adopting a broad vision and a strategy with an
overall deadline for open trade and investment. An exclusive
commitment to external monetary policy cooperation would also
be timely. Experience with APEC demonstrates that the mere
existence of a commitment to open trade and investment by a
date certain generates momentum. A broad commitment of an APEC
variety would capture political attention and add political
momentum to this unfulfilled partnership. On a more detailed
level, the follow-on action plan now being negotiated could
provide much needed momentum to both bilateral and global
initiatives.
Thank you very much, Mr. Chairman, for giving me this
opportunity to present my views.
[The prepared statement and attachment follows:]
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Chairman Crane. Thank you, Ms. Frost.
Mr. Berry.
STATEMENT OF WILLARD M. BERRY, PRESIDENT, EUROPEAN-AMERICAN
BUSINESS COUNCIL
Mr. Berry. Thank you, Mr. Chairman and members of the
committee for the opportunity to testify. I'm Willard Berry,
president of the European-American Business Council. The
Council is the one transatlantic organization that regularly
provides actionable information on policy development and works
with officials in both U.S. and Europe to secure a more open
trade and investment climate. A number of witnesses today have
remarked on the size and the extent of this remarkable economic
relationship, and it's also important to point out that it has
an impact on nearly every congressional constituency.
Perhaps, the most remarkable aspect of our trade and
investment relationship with Europe is that it is balanced,
free of the long-term deficits that have characterized our
relationship with Asian countries, in particular. Today,
economic relations with Europe--between Europe and the U.S. are
stronger than they have ever been. Trade and investments
continue to grow; long-standing disputes are being addressed;
there is more cooperation than ever before in the WTO and other
multi-lateral fora.
The Transatlantic Economic Partnership demonstrates that
governments on both sides of the Atlantic are committed to a
positive agenda to increase trade and investments for our
mutual benefit. Obviously, we have many points of friction, but
that is inevitable in an economic relationship of this size.
The Council hopes that while we try to manage the disputes, we
do not let them characterize or define the relationship. For
too long, problems in agriculture held up progress on other
trade issues. Even now, disputes over the EU banana regime,
hormone ban, and EU approval of genetically-modified food
products have soured relations between the governments. Various
U.S. sanctions measures--the Helms-Burton law in particular--
have been particularly damaging, threatening to disrupt EU-U.S.
cooperation in the WTO and endangering other trade initiatives.
We strongly support the TEP initiative announced in May.
The EABC and its members caution, however, that these efforts
should not detract from ongoing work in other fora. The EU and
U.S. have correctly tried to structure the TEP so that it will
be supportive of ongoing and future negotiations in the WTO.
EABC, a strong supporter of the WTO, expects that EU-U.S.
coordination, in order to promote WTO work, in agriculture
services and other sectors will be a substantial benefit from
the TEP. We see the TEP as complimenting the Transatlantic
Business Dialogue. In fact, our expectations is with the U.S.
and the EU who will use TABD recommendations as the basis for
their negotiating objectives in relevant areas of the TEP. EABC
also hopes that the U.S. and the EU will begin negotiations
under the TEP as soon as possible. Increased cooperation on
multi-lateral issues will be most useful if it has a positive
impact on new WTO negotiations to be launched in 1999 and 2000.
Many bilateral aspects of the TEP could be concluded in a short
time which would build support for the process within the
business community.
I'd like to turn to sanctions. The proliferation of
economic sanctions in the U.S. continues to strain the EU-U.S.
relationship. The Clinton administration and the European
Commission have reached an agreement on expropriated property
and secondary boycotts that is meant to settle the dispute over
Helms-Burton and ILSA. EABC strongly urges Congress to amend
Helms-Burton so that the President can waive Title IV which
requires that executive visas be denied for companies investing
in expropriated property in Cuba. Congress' cooperation in this
matter would allow the U.S. and EU to continue their
cooperation in addressing the issue of illegal expropriation
without using ineffective, unilateral sanctions.
EABC also recommends that Congress enact the Crane-
Hamilton-Lugar bill to reform the process of considering new
economic sanctions. Because of the concern of increasing local
and State government initiated sanctions, we encourage Congress
to discourage efforts by State and local governments to enact
sanctions measures and to maintain its role in the conduct of
foreign policy.
Two issues I would like to briefly address which present
problems currently in the relationship are online privacy and
biotechnology. The EABC is a member of the Online Privacy
Alliance which was mentioned by Under Secretary of Commerce. I
would like to say that this issue we are beginning to address
through a constructive dialogue between the administration and
the EU and industry. Based on these efforts, we are cautiously
optimistic this issue can be addressed without a disruption in
trade or data flows.
On biotechnology, the current dispute on the EU's failure
to approve some genetically-modified corn which is blocking all
U.S. corn exports to EU demonstrates the need for timely,
predictable, and science-based regulatory processes,
recommendations which are being advanced under the TABD. Thank
you, Mr. Chairman, for the opportunity to testify.
[The prepared statement follows:]
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Chairman Crane. Thank you, Mr. Berry.
And our final witness, Ms. Sophos.
STATEMENT OF MARY C. SOPHOS, SENIOR VICE PRESIDENT, GOVERNMENT
AFFAIRS, GROCERY MANUFACTURERS OF AMERICA, INC.
Ms. Sophos. Thank you, Mr. Chairman, for the opportunity to
testify before the subcommittee. My name is Mary Sophos, and I
am the senior vice president of government affairs of the
Grocery Manufacturers of America. GMA is the world's largest
association of food, beverage, and consumer product companies
with U.S. sales of more than $430 billion. GMA members employ
more than 2.5 million workers in all 50 States. We believe the
Transatlantic Economic Partnership announced earlier this year,
offers a excellent opportunity to reduce regulatory barriers
between the United States and the European Union as well as
provide a foundation from our comprehensive reductions in both
tariff and non-tariff trade barriers in the next WTO round.
GMA has initiated discussions among interested associations
and corporations in the processed food and consumer product
sector in response to the administration's request for comments
to a system identifying specific issues for the TEP agenda.
We plan to engage actively in the TEP process along with
our European counterparts, CIAA and initially have identified
three key areas for discussion. First, in the area of
biotechnology, U.S. negotiators should focus on two key issues,
establishing a clear methodology and a predictable timeline for
approvals of biotech products. Several GMA members are pioneers
in the area of biotechnology and have experienced significant
problems in obtaining timely approvals for products in the EU.
As a starting point, U.S. negotiators should look to the work
of the Transatlantic Business Dialogue. GMA agrees completely
with the TABD Working Group on biotechnology, but U.S. efforts
should focus on the making the relevant U.S. and EU regulatory
processes transparent, predictable, and compatible. My written
testimony provides additional details.
Second, U.S. negotiators should work to eliminate barriers
for food additive approvals. U.S. products exported to the EU
frequently must be reformulated to comply with European food
additive regulations which are quite restrictive. We would
recommend an approach similar to that being suggested by the
TABD for biotechnology.
Third, eco-labels continue to pose a non-tariff trade
barrier to manufacturers seeking to import into the EU and its
members countries. Labels like those currently being awarded in
the EU are generally not based on sound science but are awarded
on subjective criteria developed by local stakeholders. As
such, they generally reflect local cultural value and
environmental concerns and discriminate against international
competition. The USTR has continually acknowledged the
discriminatory nature of the EU program by placing it in its
1997 and 1998 national trade estimate reports. The EU has
promised bilateral discussions on this topic but they have yet
to occur.
GMA hopes that the U.S. will take up other issues with the
EU during TEP talks such as metric-only labeling requirements,
packaging issues involving extended producer responsibility;
product formulation requirements and nutritional claims.
Turning to the question of specific WTO complaints
involving the U.S. and the EU, I would like to reaffirm GMA's
view that overall the dispute settlement process established
under the WTO works quite well. With respect to the two U.S.-EU
disputes involving food products, specifically bananas and beef
hormones, GMA is pleased that the WTO dispute panel found in
favor of the U.S., and expect the EU to implement its
recommendations within the 15-month time period established
through WTO arbitration. Moreover, it is important to remember
that safeguards have been built into the dispute settlement
process in the event the U.S. is dissatisfied with the remedy
proposed by the EU, and we encourage the U.S. to use them if
necessary.
Mr. Chairman, the TEP is a valuable process which GMA
strongly endorses, first, to provide the forum for removing
regulatory impediments in areas of highest interest to
industry. Second, like the early liberalization process within
APEC, the TEP can help build momentum leading up to multi-
lateral negotiations such as the 1999 agriculture round. Mr.
Chairman, I appreciate the opportunity to appear before you and
would welcome any questions you might have.
[The prepared statement follows:]
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Chairman Crane. Thank you, Ms. Sophos. My first question is
to you, Mr. LoVoi. Did the leaders of TABD have any concerns
over how the TEP initiative was conceived and is now operating?
Mr. LoVoi. Two parts to your question. The conception,
there was some concern. There was--when the European Commission
initially proposed the new Transatlantic Marketplace Agreement,
there was--and I mention it in my statement--our concern that
we didn't want the theoretical to get in the way of the
practical. We were a little bit concerned it was too
theoretical. TABD is very, very practical in its biases. We're
pleased with the TEP proposal as it stands right now.
The second part of our question, its operation, it's too
early to tell. You know, it's very much being born as we speak,
so we'll reserve judgment on that.
Chairman Crane. Ms. Jasinowski, we didn't ask you to
testify, but I'd like to put a question to you. I understand
Goodyear Tire is serving as Chair of the Standards and
Regulatory Working Group of the TABD. Could you tell us a
little bit about this work and its importance to U.S.-EU trade?
Ms. Jasinowski. Thank you, Mr. Chairman. Goodyear's CEO,
Sam Gibara is the principal for Working Group I, which is also
the Standards and Regulatory Working Group. There was a lot of
dialogue among the members that were here and underSecretary
Aaron over this important work. We like to think of ourselves as the
``French truffle'' of trade, often overlooked but extremely valuable.
And let me give you an example of that. We ran some numbers, Mr.
Chairman, with respect to the U.S. exports to the EU of the members
states on this subcommittee and of the $128 billion worth of the U.S.
exports to Europe in 1996, $61.5 billion of U.S. exports are
represented on this Subcommittee, among the States and local
communities. So, obviously, it's to the advantage of businesses and
communities in the United States to reduce the costs, the redundant
costs in the standard setting practice, to our exports, to make them
more competitive abroad. Some studies have shown that up to 15 percent
of additional costs is added to U.S. exports by redundant testing. Now,
I want to quickly add that it isn't a question of whether businesses
either here or in Europe should be regulated. We concur that businesses
should be regulated in terms of meeting the conditions of health,
safety, and environmental protection. The question is, how to regulate
most efficiently and that is what the working group is all about. We
have 16 active sectors in Working Group I, including aerospace,
automotives, transportation services, automotive parts including tires,
pharmaceuticals, and agribiotech, so it's an extremely active working
group and our work is important. Thank you, Mr. Chairman, for the
opportunity of giving you a brief overview of our work.
Chairman Crane. Thank you. And the next question, I'd like
to put to Ms. Frost. How ambitious is the TEP initiative and
would you characterize it as broad-trade strategy or is it
limited to seeking the resolution of a few trade problems?
Ms. Frost. It's broader than seeking the resolution of a
few discreet problems and it is potentially ambitious. But its
language on many topics is distressingly vague, especially when
compared with the earlier initiative proposed by Sir Leon
Britain in March of this year. I share the desire of my fellow
witness from the TABD for concrete commitments, and it is in
that area that I find the TEP somewhat too vague.
For example, earlier this year, the Britain initiative
proposed zero industrial tariffs by 2010; that's pretty
concrete. The TEP says, by contrast, that they will explore the
feasibility of their progressive elimination on a timetable to
be agreed. Politically speaking, that's as far as they could
go. I don't intend to criticize the negotiators. What I'm
calling for, in effect, is a high-level political commitment on
both sides, so that negotiators can go further than this rather
vague language in the follow-on action plan.
I think the TEP does reflect a strategic commitment to the
WTO. I'm just looking for a few more details.
Chairman Crane. Mr. Berry, you warn in your testimony that
the U.S. and the EU should be careful to ensure that TEP
doesn't undermine the TABD. Can you explain where there's a
danger that this might happen.
Mr. Berry. What I would be referring to is essentially what
Mr. LoVoi mentioned is that there are, particularly in the
regulatory area, some very concrete proposals. I think they're
driven by some very practical interests in getting issues
resolved, and I think the TEP put in certain situations,
perhaps could be used as a way of postponing action because of
some larger goal. Now, the way it is actually set up over the
proposal that Ellen mentioned that Sir Leon first came out
with. Now, he had envisioned a huge package where success in
one area might be contingent upon success in another area which
is not the way the TABD works, and that's the kind of thing
that we were concerned about; that progress in one area not be
held up because they want to get something in another area
before.
Chairman Crane. Mr. Sophos, what issues has TABD focused on
that were out of the TEP initiative between government?
Ms. Sophos. Well, from a food perspective, the TABD has
been engaged in the biotechnology efforts for some time.
However, TABD doesn't really engage in any of the other food
areas. So, we were very pleased to see a rather more expansive
agenda in the TEP for agriculture and has engaged in trying to
enumerate some of those area beyond what traditionally have
been the focus of the TABD discussion.
Chairman Crane. And a final question for the entire panel:
What does the TABD propose in the way of resolving the serious
dispute with the EU over extraterritorial trade sanctions?
Anyone want to volunteer?
Mr. LoVoi. Yes, I'd be happy to, Mr. Chairman. The
sanctions issues has been under discussion for some time within
the TABD. The European business partners, obviously, are less
concerned as our U.S. partners. Generally, the view is the
Lugar-Hamilton approach and others, as well, of approaches is
the wisest, and the TABD has encouraged Congress to look at
that as a possible resolution.
Chairman Crane. I've been told that we have unilaterally
imposed more sanctions in the last 4 years than we have--well,
half of all the sanctions in the previous 80 years have
occurred in the last 4 years, and, unfortunately, it's one of
those God, motherhood, and apple pie initiatives, but people
don't stop to think of what the repercussions might be.
Mr. Berry. Mr. Chairman, if I could add, actually, the
first set of recommendations which came out at the TABD meeting
in Seville had a unanimous position shared by European and
American representatives there opposing unilateral
extraterritorial sanctions. So, there has been a consistent
policy at some point to the objection of the U.S. who were
embarrassed and found it difficult to address, but there has
been a real strong position from the very beginning from the
TABD.
Chairman Crane. Anyone else want to speak to the question?
Well, if not, let me express my appreciation to you all. I'm
sorry for the chaos here today, but we're grateful for your
appearance and we look forward to ongoing communication with
you all. Please don't ever hesitate to let us know what's the
latest input from your perspective. And with that, I will
permit this panel to disappear.
Our next panel is Robert Harness, director, government
affairs, Monsanto Company; Kyd Brenner, vice president, Corn
Refiners Association; Jeremy Preiss, chief international trade
counsel, United Technologies corporation, and finally, Kevin
Kelley, senior vice president, external affairs, Qualcomm
Incorporated.
And let me welcome our final panel and please try and
conform to our general guidelines of oral presentations of five
minutes or less. All printed statements will be made as part of
the permanent record.
We shall proceed first with Mr. Harness.
STATEMENT OF ROBERT L. HARNESS, DIRECTOR, GOVERNMENT AFFAIRS,
MONSANTO CO.
Mr. Harness. Thank you, Mr. Chairman. My name is Robert
Harness. I'm director of government affairs for Monsanto
Company. We applaud your interest in trade issues, particularly
for holding this hearing focused on the European Union.
As you know, over the next 50 years the world's population
is going to grow significantly with most of the growth in
developing countries where many of the world's most fragile
natural resources exist. Food production over this same period
of time will need to triple.
Biotechnology offers the potential to gain tremendous
agricultural productivity and to enhance nutrition with
environmentally sustainable farming practices.
We're committed to making the technology broadly available
to all farmers. But meeting the increased global food demand
requires a trade policy which enables all agricultural
interests to succeed. In our effort to help meet the world's
food needs using the best agricultural technology, U.S.
agriculture could be derailed by trade barriers.
Clearly, unfortunately, there are nations using non-tariff,
non-science based-barriers to trade, to slow down trade and
agricultural commodities and foods that have been developed
through biotechnology. If these trade barriers are allowed to
proliferate, the result will be a very chilling effect on the
biotech industry and on U.S. agriculture.
So, turning to the specific problems that we've faced in
the EU, there are three general areas of concern. They are:
one, the operation of the EU regulatory approval biotech
products versus more than 30 in the United States.
The European regulatory process had not produced a single
product approval in well over a year. On March 18, the European
commission completed the approval of three corn products and
one oil seed rape product, however, two of the approvals had
not yet received the final administrative approval required to
complete the effort that would come from the French government.
This is after over 2.5 years of really painstaking process
and multiple scientific reviews. The result has been a
significant trade interruption. The pending corn approvals are
a good example of the problems companies face in Europe. U.S.
and EU industry leaders have urged the European commission to
make the biotechnology product approval process more
predictable and transparent, such as the process we currently
experience in the United States.
Through the Transatlantic business dialog, which you've
heard about through the last panel, there has been an effort to
reduce trade barriers in this area. A number of specific
recommendations were made, including four dealing specifically
with the regulatory process.
First, the clarity and consistency be incorporated into the
regulatory programs and that specific guidance be issued;
second, that a common road map for regulatory approvals be
adopted; third, that product data requirements be harmonized
between the two sides, and fourth, that a common time-line for
decisionmaking be used.
The second trade issue is product labeling, which is a
matter of ongoing debate in Europe and one which has
significant potential to impact trade. In the United States,
food labels are used to inform the public of nutritional and
safety differences in food they eat. Foods produced through
biotechnology are not singled out as a specific category for
labeling.
The policy debate in Europe is based on the use of a food
label to inform consumers of the presence of ``a product of''
biotechnology, regardless of whether the food is different from
a safety or nutritional standpoint.
We fully support the science-based approach to food
labeling used by the U.S. FDA. While we recognize that the
labeling programs can be used to provide information to
consumers, such information and process must not be allowed to
create non-science based segregation requirements in commodity
crop markets that will lead to trade disruptions and
significant cost increases for consumers.
The third and final point is the public awareness and
confidence in biotechnology. Broad acceptance of biotechnology
requires that consumers be given relevant and accurate
information about the foods they eat. Public confidence in the
regulatory system is also important in gaining acceptance of
biotechnology. In the end, gaining broader public acceptance
naturally means less chance of trade issues, and industry and
government must work together on this important effort.
So, in conclusion, Mr. Chairman and members of the
committee, we appreciate your interest in reducing trade
barriers around the globe. As you meet with your European
colleagues or discuss these matters here in the United States,
I urge you to raise these issues. It's important to seek
meaningful changes in the EU regulatory system to make it
operate successfully and to seek ways to build public awareness
and confidence in agricultural biotechnology.
In terms of the upcoming WTO round focusing on agriculture,
we ask the U.S. to address the issue of biotechnology to
achieve a greater degree of transparency and harmonization in
every nation's regulatory regime.
Thank you very much, Mr. Chairman. I appreciate the
opportunity to be here.
[The prepared statement follows:]
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Chairman Crane. Thank you, Mr. Harness.
Mr. Brenner.
STATEMENT OF KYD D. BRENNER, VICE PRESIDENT, CORN REFINERS
ASSOCIATION, INC. ON BEHALF OF THE CSC BIOTECHNOLOGY COMMITTEE
Mr. Brenner. Thank you, Mr. Chairman. I'm Kyd Brenner, vice
president of the Corn Refiners Association. I'm here today on
behalf of the CSC Biotechnology Committee which is comprised of
the American Soybean Association, the Corn Refiners
Association, the National Corn Growers Association, the
National Cotton Council, the National Oilseed Processors
Association, and the U.S. Grains Council.
These groups share a common concern about the trade impact
of differences in worldwide regulatory processes for the
approval of biotechnology products. To date, the most serious
trade problems we have encountered have been in the European
Union.
We are here today to express our support for the
Transatlantic Economic Partnership, which we see as an
excellent opportunity to address these problems.
America's farmers and processors have rapidly adopted the
new technology of transgenic crops, and this year, 25 to 30
percent of U.S. corn, cotton, and soybeans, will come from
transgenic varieties. The U.S. has an effective and efficient
regulatory system that enjoys the trust of consumers. This is
not the case in the European Union. The EU approval process for
new biotech products is lengthy, non-transparent, and
unpredictable.
I'd like to emphasize that the regulatory process is the
source of many of the problems more than the substance of the
regulations. In the United States, regulatory approval can be
achieved in about a year. Some products have been in the EU
pipeline for well over two years and are still not fully
approved. This disparity in time frames creates trade problems.
Crops approved and planted in the U.S. can't be exported to
Europe until they receive EU approval. However, it is not
feasible, on any large scale, to segregate crops in bulk in
commodity handling and transportation systems. Therefore, our
Europeans markets remain at risk as long as the approval
processes are on entirely separate tracks.
This is exactly the problem U.S. corn growers encountered
this year. U.S. growers stand to lose sales of about $200
million because of the delay in regulatory processes in Europe.
Repetition of these problems year after year will only
exacerbate the problem, jeopardizing nearly $4 billion in U.S.
soy, corn, and cotton exports.
The TEP can provide a vehicle for some long-term solutions
for this problem, and we agree that biotechnology should be a
high priority item on its agenda. The important ingredient, in
our belief, for progress on these issues is political will.
Regulatory officials in the U.S. and Europe have been
discussing these issues for years. However, regulatory
officials cannot resolve the issues if the political will to
find a solution is lacking.
If the cooperation demonstrated at the May summit is
extended to discussions on biotechnology under the TEP, we
believe the process can be substantially improved without
undermining legitimate national objectives of protecting public
health and safety.
While harmonization of world processes would be a long-term
goal and would help to eliminate many problems, we have no
illusions that harmonization can be achieved quickly. Given the
short time frame envisioned for the TEP, we think the greatest
benefit would come from rapid agreement on several points.
First, a documented commitment to work toward harmonization
in biotechnology based on principles of sound science,
transparency, predictability, and timeliness.
Second, development of a common and publicly available
tracking system for products in the approval process would be
immensely helpful for producers and processors who are not the
actual applicants in the biotechnology regulatory system.
And last, an early warning system to let commercial
partners know if there are any unexpected delays in the
regulatory process, including a reasonable expectation of how
long it should take a product to move through the approval
system. Agreement on these points would certainly not solve our
problems, but would help build confidence among the interested
parties.
Mr. Chairman, we believe the TEP does offer an excellent
opportunity progress on biotechnology regulatory development,
and we are certainly prepared to support the initiative in any
way we can. Thank you.
[The prepared statement follows:]
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Chairman Crane. Thank you.
Our next witness is Mr. Preiss.
STATEMENT OF JEREMY O. PREISS, CHIEF INTERNATIONAL TRADE
COUNSEL, UNITED TECHNOLOGIES CORP., ON BEHALF OF THE NATIONAL
FOREIGN TRADE COUNCIL AND FOREIGN SALES CORPORATION COALITION
Mr. Preiss. Thank you, Mr. Chairman. I appreciate the
opportunity to testify here today. My name is Jeremy Preiss,
and I'm the chief international trade counsel for United
Technologies. I'm here today representing United Technologies,
the National Foreign Trade Council and the FSC Coalition, an
umbrella group of large and small companies seriously concerned
about the European Union's WTO challenge to the foreign sales
corporation, or FSC, tax provisions.
In earlier testimony today, we heard how the Transatlantic
Economic Partnership's proposed trade liberalization program
will create many economic benefits. The goals of the TEP are no
doubt laudable, and it's undeniable that greater trade and
investment liberalization will yield economic gains for both
the United States and European Union. But the good will and
cooperative spirit accompanying the TEP initiative are at odds
with the EU's pursuit of a misguided WTO challenge to the FSC
tax provisions.
The companies I represent here today have a difficult time
reconciling the forward-looking goals of the Transatlantic
Economic Partnership with the EU's unwarranted attack on the
FSC. Because the EU's WTO challenge distorts the FSC tax
provisions, I believe it's important to review briefly what the
FSC is and what it is not.
First, as all of you know, the FSC program was drafted and
enacted by Congress in 1984 expressly to conform to a detailed
GATT ruling that articulated the proper relationship between
different systems of taxation and international trade rules.
The FSC replaced the Domestic International Sales Corporation
or DISC, which, along with the tax practices of three European
countries, had previously been found to be a prohibited export
subsidy under GATT rules.
Despite the great care that Congress and other U.S.
officials took to ensure that the FSC was, and still is,
consistent with applicable trade rules, the EU has decided
after more than 13 years to challenge the program. Curiously,
it has taken the EU considerable time to acquire the view that
the FSC is inconsistent with the GATT and WTO rules. And, at
the same time, the EU has not shown how their commercial
interests have been disadvantaged by the FSC.
The intent of the FSC and the DISC before it is to give
U.S. exporters tax treatment comparable to the treatment
provided to their foreign competitors who benefit from European
territorial-style tax systems. The territorial tax system
generally exempts all income earned outside the country from
income tax, and all exports from value-added, and other
consumption taxes.
In contrast, the U.S. worldwide tax system generally taxes
all the income of U.S. companies, regardless of where it is
earned.
The EU would have the WTO believe that the FSC is an unfair
subsidy. This is simply untrue. In fact, the FSC merely applies
the same principle of territorial income taxation long enjoyed
by EU companies to U.S. exporters who choose to establish a
qualifying foreign sales corporation outside the United States.
And by permitting U.S. exporters to exempt a portion of their
export-related income from taxation, the FSC neutralizes some,
though not all, of the tax advantages that European companies
receive under their territorial tax systems. In short, the FSC
attempts to level the tax playing field on which U.S. exporters
and foreign exporters compete.
Before I go any further, I'd like to underscore an obvious,
yet very important point. The U.S. companies concerned about
the EU's challenge to the FSC are not taking issue with the
WTO, an institution we strongly support. Rather, we're taking
issue with the EU's actions. The WTO did not, on its own
initiative, seek to adjudicate this dispute. Rather, it's the
EU that has sought to shoe-horn a highly complicated, highly
technical tax matter into the dispute settlement process of a
multilateral trade organization.
In doing so, the EU has ignored more appropriate fora where
tax issues such as this have traditionally been handled. The
EU's challenge to the FSC has the potential to bog down the WTO
in the technicalities of tax policy. And the EU precedent may
spur additional WTO challenges to other countries' tax
policies. Indeed, the tax policies of many member States of the
EU are vulnerable to the same trade arguments and theories the
EU is now advancing against the FSC. The U.S. trade
representative has identified at least five such States:
Belgium, France, Greece, Ireland, and the Netherlands.
I think that we can all agree that making the review of tax
policy a regular part of the WTO's diet would be neither good
for the WTO, nor tax policy. It's a result we're working hard
to avoid, in conjunction with the office of USTR.
In sum, the EU's challenge to the FSC is deeply flawed and
could produce unintended, adverse consequences for both the WTO
and for tax policy. And, to paraphrase recent comments by
Ambassador Barshefsky, the EU's challenge cannot help but
significantly detract from joint U.S.-EU efforts to explore
greater cooperation in the trade and economics spheres.
Thank you again for the opportunity to speak here today and
I'd be happy to answer any questions you may have.
[The prepared statement follows:]
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Chairman Crane. Thank you, Mr. Preiss.
Mr. Kelley.
STATEMENT OF KEVIN KELLEY, SENIOR VICE PRESIDENT, EXTERNAL
AFFAIRS, QUALCOMM INC., SAN DIEGO, CA
Mr. Kelley. Thank you, Mr. Chairman. My name is Kevin Kelly
and I am Senior Vice President for External Affairs of Qualcomm
Incorporated. Based in San Diego, Qualcomm is a leader in
digital wireless telecommunications and the chief developer of
Code Division Multiple Access--CDMA--the world's fastest
growing wireless technology. On behalf of Qualcomm, I would
like to thank you for providing me with this opportunity to
testify before you today regarding the Transatlantic Economic
Partnership.
Qualcomm applauds the Administration for its role in
forming the TEP and forging closer ties with the European
Union. We support the goals outlined in the joint statement
announcing the TEP, especially those designed to reduce
technical barriers to trade and open markets to new services
for the benefit of consumers and enterprises.
We would suggest that the wireless communications sector is
a good place for the U.S. and the EU to begin this process. Why
is this sector so important? Currently, over 200 million
wireless phones are in use around the world, and that number is
expected to exceed 1 billion by the year 2005. As this industry
expands, more companies, more employees, more investment, will
be needed to keep pace with this demand.
In that sector, however, the EU, for years, has closed its
market to all but one wireless technology, one that happens to
be manufactured mainly by large European concerns. Europe's
exclusionary industrial policy has created an impossible
environment for developers of alternative wireless technologies
now wishing to compete in the European market.
Now, the EU is on the verge of passing legislation that
would perpetuate its exclusionary policy by barring competition
from alternative U.S. technologies for the next generation of
wireless communications. As a starting point, we believe that
the administration's ability to work with the EU to overcome
this flagrant of protectionism will signal whether the U.S. and
the EU are truly committed to an economic partnership.
Specifically, the administration needs to take immediate steps
to encourage the EU not to pass the pending legislation.
The pending decision would adopt an exclusionary wireless
standard set by the European Telecommunications Standards
Institute, ETSI. ETSI's next generation wireless standard is
based on Qualcomm's CDMA technology. ETSI's acceptance of CDMA
technology is a testament to the CDMA's superior capabilities
or other standards, including those now used exclusively in
Europe.
Qualcomm supports, and actually prefers, the idea of a
single CDMA standard for 3(G), and is willing to accept
technical alterations that improve its capabilities as long as
the standard is compatible with current CDMA systems. The ETSI
standard, however, adopts technical features that offer no
substantial improvements and appears to be specifically
designed to make it incompatible with both current and next
generation CDMA systems.
In other words, the legislation would mandate use of CDMA
technology, while simultaneously barring CDMA's developers from
effectively participating in the European market. Obviously,
the pending legislation and its underlying policy of
protectionism are directly at odds with the stated goals and
objectives of TEP, and if implemented, raise serious questions
as to the Europeans' willingness to forge a meaningful economic
partnership with the U.S.
The ETSI process and the EU-proposed legislation raise
serious questions about the EU's compliance with its
obligations under current bilateral and multilateral trade
agreements, let alone its commitment to the TEP. The EU has an
obligation under the Technical Barriers to Trade Agreement to
ensure that no standard is set or any regulation passed that
would create an unnecessary obligation to trade.
ETSI's adoption of a standard that lacks technical or
economic advantages over a competing standard and, unlike the
alternative, is incompatible with most existing standards, is
an action that creates an unnecessary barrier to trade in
violation of the TBT. Even more troubling is the EU's active
consideration of legislation to mandate the standard for the
entire community, again in contravention of its obligations
under the TBT.
Mr. Chairman, if the EU is not willing to adhere to the
agreed-to principles laid out by the WTO, what are we to think
about the EU's commitment to the TEP? If the TEP is to mean
anything, then the EU must immediately reverse its course
regarding the pending legislation and work with the U.S. to
allow fair consideration and open competition among existing
technologies. If the TEP is to be a success, it must alter the
status quo, end protectionism, encourage competition. Only
then, will Europe and the United States be true economic
partners.
Once again, thank you for the opportunity to testify.
[The prepared statement follows:]
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Chairman Crane. Thank you, Mr. Kelley.
Mr. Harness, what are your concerns about non-science based
segregation and labeling requirements?
Mr. Harness. Well, I think the primary concern, Mr.
Chairman, is that any kind of labeling proposal should be
science-based. It shouldn't create any kind of arbitrary
distinction that would require segregation without a basis for
segregating and differentiating.
The concern would be that if a non-science based approach
forced segregation, first of all, it probably isn't possible in
the U.S. system for commodity products. Secondly, if it were to
be made possible, it would be extremely expensive and the cost
would be past the relative system and our technological
advantages in agriculture would be lost in terms of the
economic efficiencies that would be eaten up by such a costly
process.
So, in some, the cost and feasibility of such a non-science
based approach would bother me a lot.
Chairman Crane. Mr. Brenner, is the goal of associating a
greater degree of transparency and harmonization of regulations
related to biotechnology products better addressed in bilateral
negotiations with the EU or with the WTO agricultural talks?
Mr. Brenner. Mr. Chairman, I think, it's something that I
think should be addressed in both forums. We have a current and
very serious problem with the EU and we have anopportunity to
address that in a short-term fashion before the WTO process fully gets
into gear on the technical side.
Certainly, we're not pre-judging where this issue is going
to end up in the WTO. There are a number of different avenues
they may follow there. But, perhaps we could get some early
sign using the TEP process of things which were achievable, not
just with the EU, but around the world.
Chairman Crane. Mr. Preiss, it seems to me that Europe's
challenge to the FSC tax structure is a violation of a
longstanding understanding we've had with the Europeans going
back to 1984, when we changed the DISC tax arrangements
specifically to respond to their trade concerns. Why did Europe
wait 13 years to challenge the FSC?
Mr. Preiss. It's difficult, Mr. Chairman, to say what
exactly is running through the mind of a EU policymaker. But
the fact that the EU has waited 13, almost 14, years after the
FSC was put in place to challenge the program does invite the
very question you have asked and certainly invites speculation
as to whether there might be ulterior motives behind their
challenge.
One ulterior motive that has been advanced that is that the
EU is frustrated with having recently lost two high profile WTO
cases to the United States, both of which were discussed
earlier today--the bananas case and the beef hormones case.
With the challenge to the FSC, therefore, the EU is trying to
even the score with the United States at the WTO or, at least,
be more proactive in litigating at the WTO instead of
constantly being on the defense.
Chairman Crane. Mr. Kelley, as international standards
become increasingly critical on world trade, many observers
worry that European standards entities are more and more
dominating in controlling international standards-setting
bodies, and that this will put U.S. exporters at a distinct
disadvantage. In your opinion, what should the U.S. Government
do to address European domination in the international
standards area?
Mr. Kelley. Well, Mr. Chairman, I think that is exactly the
issue we're talking about the third generation standard. What
the U.S. Government should do is exactly what it started to do
regarding this issue. Just raise the consciousness of the
European regulators and let them know that we are aware of what
they're doing and we're not going to stand for it.
Another thing that they should consider doing is being
stronger advocates of U.S. standards in these international
markets, and make sure that these foreign markets are open to
U.S. standards.
A perfect example of that is what's going on in China, now
with the existing second-generation standards. The Europeans
have done a wonderful job of selling their standard into China.
We are trying to get the administration to open the Chinese
market to our technology, and we're having some success. But we
need to continue to encourage the United States to make sure
they advocate U.S. standards abroad.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Yes, thanks, Mr. Chairman.
Very briefly, Mr. Kelley, in terms of the Transatlantic
Economic Partnership--really, the question is, what are you
doing? And also, what are you doing with USTR? So that's number
one. Can I go through the questions first?
As far as Mr. Preiss is concerned, I agree with you that
the FSC, eliminating arguable GATT issues, but to increase the
tax benefit that it defers, I think you are absolutely right on
there. Mr. Harness my impression is that the European
community--and I've only really taken soundings with the
English and the Germans--are worried about Monsanto because you
have such a strong competitive edge. You've put so much
research, you've done such a great job in this area, that you
may be setting the standards for everyone there. You may want
to comment about that.
As far as Mr. Brenner is concerned, you talked about the EU
approval process for biotech products, it's a non-transparent
and unpredictable, but we had the Under Secretary of Commerce
here and he felt that things were moving along pretty well, and
that there was much more exposure and sun light involved here.
You might like to comment briefly on those.
Anyone--Mr. Brenner.
Mr. Brenner. We'll do this in reverse order. Yes, not to
contradict the Under Secretary, I believe the process itself on
paper, and the way products move through it, is still quite
unpredictable. Certainly, in the last year we have had a number
of changes in the process and deviations as products were
moving through. I would certainly agree we may be turning a
corner. There are certainly people in the commission and in
many of the member States who fully recognize that the process
they have been using is not functioning, and they're sincerely
committed to try to make a better process. They do have some
procedural reforms underway, which will take some years to
complete.
So, I think, working with those people to recognize the
problems through the TEP, among other things, is a way of
helping to ensure we are turning a corner there. I feel were
right at the edge of it, we're not around it yet.
Mr. Houghton. Thank you.
Mr. Harness. Well, certainly there can be no doubt that
agricultural biotechnology has been controversial in Europe and
we, Monsanto, have been in the middle of that controversy.
We're not trying to set the standards for anyone except to meet
the standard that we think is the most important, and that is
to provide technology that will help produce food for everyone
on the planet.
We do think the technology has enormous benefits for the
future. The initial products are aimed at the farmer.
Subsequent products are going to have--not just by Monsanto,
but by other companies as well--are going to have consumer
benefits, nutritional enhancements, and other benefits that
really are going to, I think, be significant for people around
the world.
So, just about every new technology has its challenges,
some in the technology area alone, some with public acceptance,
and I think that's what we're experiencing here.
Mr. Houghton. I guess the only thing I was saying is that
my impression is that it's sort of an emotional issue. And
that, rather than going at it from a governmental or legalistic
standpoint, there is an awful lot of personal contact in
reducing the perceived threat.
I think you're in a wonderful position. You've done a great
job. You've got a fabulous company. But, there is that concept
that you are going to sort of overwhelm the market.
Mr. Harness. I don't think we've done as good a job on that
in terms of reducing the public concerns. And I think it's an
effort that really requires a partnership between us and the
food companies that bring the food to the consumer with the
governments themselves; the food companies are doing a lot on
this. We're doing things. I don't think we've reached the
public in Europe with all of the right messages in all of the
right ways yet, but that certainly is a priority for us.
Mr. Houghton. Good. Thank you.
Mr. Preiss. I appreciate your statement of support for the
FSC, Mr. Congressman. I also was heartened by Ambassador
Barshefsky's earlier testimony where she said that USTR and
would vigorously defending the FSC at the WTO. My hope, of course, is
that, ultimately, we will not have a final WTO adjudication of the FSC,
I hope that the Europeans will come to understand that pursuing this
challenge at the WTO is not a prudent course of action and, therefore,
they will ultimately relent. But it is important to know, however, that
we have our allies on this committee and in Congress generally.
Thank you.
Mr. Houghton. Thank you. Mr. Kelley.
Mr. Kelley. I guess your question, you asked what are we
doing with the USTR? We are doing a number of things----
Mr. Houghton. And also on your own.
Mr. Kelley. Certainly on our own. With regard to the USTR,
the international standards setting process in
telecommunications is a complex one. The first thing that we
have to do is to make sure that everybody understands the
process and how various companies such as our are able to
participate in that process. In particular, with respect to the
ETSI process in Europe, we tried to participate, first, as a
U.S. company and were told we could not participate because we
are a U.S. company and ETSI was only available to European
companies. That is in direct contrast to the standards setting
bodies in the United States where anyone can participate. So,
we were forced to open a European subsidiary just to
participate in that process. The European companies do not have
to do that to participate in the United States. So, getting
this kind of process into the USTR is certainly something that
we are doing.
Second of all, we're trying to suggest methods to them that
they can suggest to their European counterparts that can open
this process and make more open and free, like the U.S.
process. And we're doing this not only with the USTR, we're
doing it with the Commerce Department, the State Department,
the Federal Communications Commission.
In addition, as I mentioned, we have opened an office in
Europe. We are participating as much as we are being allowed to
in the standards setting process over in Europe, and we
continue to expand these efforts. We're also doing this in Asia
and South America.
Mr. Houghton. Thank you very much.
Thank you, Mr. Chairman.
Chairman Crane. Well, I want to thank our panelists again,
and apologize to you for the disruptive kind of day it's been,
and reassure everyone that the official record will remain
open, Mr. Kelley, for anyone's contribution for two weeks.
With that, the committee stands adjourned.
[Whereupon, at 2:10 p.m., the hearing adjourned subject to
the call of the Chair.]
[Submissions for the record follows:]
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