[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
IMPORTANCE OF TRADE NEGOTIATIONS IN FIGHTING FOREIGN PROTECTIONISM:
ACTIVE U.S. INVOLVEMENT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MARCH 4, 1999
__________
Serial 106-71
__________
Printed for the use of the Committee on Ways and Means
__________
U.S. GOVERNMENT PRINTING OFFICE
66-807 WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of February 19, 1999, announcing the hearing............ 2
WITNESSES
American Farm Bureau Federation, Dean Kleckner................... 52
Baszile Metals Service, Barry Baszile............................ 26
Business Roundtable, and Boeing Company, Philip M. Condit........ 17
Coalition of Service Industries, and Chubb Corporation, Dean R.
O'Hare......................................................... 34
Council of the Americas, Washington Operations, Hon. William T.
Pryce.......................................................... 63
Emergency Committee for American Trade, and Cargill,
Incorporated, Ernest S. Micek.................................. 6
National Foreign Trade Council, Inc., and Foster Wheeler
Corporation, Richard J. Swift.................................. 29
Gardner, Kevin, Cave City, Kentucky.............................. 57
Staffing Innovations, Inc., Michael D. Ryan...................... 66
Tramco, Inc., Leon Trammell...................................... 60
SUBMISSIONS FOR THE RECORD
American Forest & Paper Association, W. Henson Moore, statement
and attachment................................................. 70
American Natural Soda Ash Corporation, Westport, CT, John
Andrews, Mike Murray, and John F. McDermid, statement.......... 74
American Sugar Alliance, James W. Johnson, Jr., statement and
attachments.................................................... 80
Gilbarco, Inc., Greensboro, NC, David Kaehler, statement......... 90
International Association of Machinists and Aerospace Workers,
Upper Marlboro, MD, R. Thomas Buffenbarger, statement.......... 90
Rubber and Plastic Footwear Manufacturers Association, Mitchell
J. Cooper, statement and attachments........................... 92
Semiconductor Industry Association, George Scalise, statement.... 96
United Brotherhood of Carpenters and Joiners of America,
Portland, OR, Michael V. Draper, statement..................... 102
U.S. Chamber of Commerce, statement.............................. 103
IMPORTANCE OF TRADE NEGOTIATIONS IN FIGHTING FOREIGN PROTECTIONISM:
ACTIVE U.S. INVOLVEMENT
----------
THURSDAY, MARCH 4, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M.
Crane (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 19, 1999
No. TR-4
Crane Announces Second Hearing in Series on the
Importance of Trade Negotiations
in Fighting Foreign Protectionism: Active U.S.
Involvement
Congressman Philip M. Crane (R-Il), Chairman of the Subcommittee on
Trade of the Committee on Ways and Means, today announced that the
Subcommittee will hold the second in a series of hearings on the
importance of expanding trade and resisting protectionism through
active U.S. involvement in trade negotiations. The hearing will take
place on Thursday, March 4, 1999, in the main Committee hearing room,
1100 Longworth House Office Building, beginning at 10 a.m. The first
hearing in this series was announced on February 4, 1999, in release
number TR-2.
Oral testimony at this hearing will be from both invited and public
witnesses. Any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
The United States currently participates in three major
multilateral and regional trade negotiations. At the December 1994
Summit of the Americas in Miami, leaders of 34 Western Hemisphere
democracies agreed to establish a Free Trade Agreement of the Americas
(FTAA), in which barriers to trade and investment are progressively
eliminated. They committed to begin the process immediately, make
concrete progress by the year 2000, and conclude negotiations by no
later than 2005. These negotiations were officially launched at the
Second Summit of the Americas in Santiago, Chile, in April 1998.
The Asia Pacific Economic Group (APEC) forum, an association of 21
economies bordering the Pacific Ocean, working cooperatively to reduce
barriers to trade and investment, has declared its intention to
establish free trade and investment in the region by the year 2010 for
developed countries and by 2020 for others. In November 1997, APEC
members held a Joint Ministerial Meeting and Leaders Summit in
Vancouver, where they identified 15 sectors in which they intended to
cut tariffs and remove other barriers to trade. At the November 18,
1998, Ministers and Leaders Meeting in Malaysia, countries agreed to
move work on the tariff portion of nine of these sectors into the World
Trade Organization (WTO), with the aim of completing an agreement with
participation beyond APEC countries by 1999.
The Uruguay Round was the eighth round or series of multilateral
trade negotiations under the General Agreement on Tariffs and Trade
(GATT). The agreements reached at the end of 1994 during the Uruguay
Round were noteworthy in that they greatly expanded coverage of GATT
rules beyond manufactured goods trade to include agricultural trade,
services trade, trade-related investment measures, intellectual
property rights, and textiles. The most visible accomplishment of this
multilateral round was to establish the WTO to administer the GATT
agreements and to settle disputes among WTO members.
The Uruguay Round agreement calls for the resumption of
negotiations by the year 2000 to further liberalize trade in
agriculture and services, as well as on government procurement
practices and enforcement of intellectual property rights. The next WTO
Ministerial conference, which will be hosted by the United States
November 30-December 3, 1999, is slated to consider the procedures and
substance of the so-called ``built-in'' WTO agenda, as well as other
matters of interest to WTO Members.
At the hearing held on February 11, 1999, the Subcommittee received
testimony from United States Trade Representative Charlene Barshefsky,
who discussed the President's trade agenda.
FOCUS OF THE HEARING:
The Subcommittee requests that witnesses address the adequacy and
direction of the President's trade policy agenda and negotiating
priorities for the remaining two years of this Administration.
In addition, witnesses should focus their testimony on such issues
as: (1) the potential impact of ongoing trade negotiations on jobs,
wages, economic opportunity and the future competitiveness of U.S.
manufacturers and service providers, (2) implementation and compliance
with existing trade agreements, (3) prospects for an agreement to
establish a FTAA, (4) the status trade talks under the auspices of the
APEC Group, (5) negotiations on the so-called ``built-in'' agenda in
the WTO, (6) ongoing WTO accession negotiations for China and other
countries, and (7) the possibility of further bilateral trade
negotiations with Europe, Chile, New Zealand, Australia, and other
nations in the Pacific Rim region.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Pete Davila at (202) 225-1721 no later than the close
of business, Thursday, February 24, 1999. The telephone request should
be followed by a formal written request to A.L. Singleton, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. The staff of
the Subcommittee on Trade will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies, along with
an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, of their
prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than Tuesday, March 2, 1999.
Failure to do so may result in the witness being denied the opportunity
to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Thursday,
March 18, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1
format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Crane. Good morning. This is the second in a
series of hearing of the Ways and Means Subcommittee on Trade
to consider the importance of expanding trade and resisting
foreign protectionism through active U.S. involvement in trade
negotiations.
On February 11, Ambassador Barshefsky discussed the
President's trade agenda for the remaining 2 years of this
Administration. Today we are joined by CEOs from four major
American companies, the president of the American Farm Bureau,
and by three witnesses who will represent the interests of
several small businesses and a family farm. I have asked
today's witnesses to give us their thoughts on the adequacy and
direction of the President's trade agenda. Recognizing that the
United States is currently participating in five major trade
initiatives, including the new WTO round, the Free Trade
Agreement of the Americas, APEC, and the Trans-Atlantic
Economic Partnership, I will be listening very closely for
advice on priorities for the next 2 years.
I recently read a speech given by Bill Gates in Seattle
where he lays out the importance of trade negotiations for
ensuring that the booming Internet trade remains tax-free and
non-discriminatory, that U.S. intellectual property is
protected, and that trade rules around the world are made more
uniform. Because of the huge fixed costs associated with high
tech industries of the 21st century, such as computers and
software, their future survival will depend on the volume of
sales inherent in global markets. As we have been saying, the
United States needs to find new ways to sell to the 94 percent
of the world's population that lives beyond our borders. Of
course we can not conclude such negotiations without arming
U.S. trade negotiators with the clout and the leverage they
would realize from fast track negotiating authority.
At the last hearing, I said to Ambassador Barshefsky that I
am prepared to discuss with the Administration any specific
ways in which it believes that my fast track bill, which the
Administration agreed to in 1997, is somehow deficient. I will
reiterate my call today to any critics to show me precisely
where they believe my bill falls short, and to offer
constructive and specific proposals that can garner bipartisan
support.
Because future trade agreements offer the best opportunity
we have to expand and ensure the success of U.S. businesses and
workers in the marketplace of the 21st century, we must do all
we can to quickly pass fast track legislation. In the meantime,
I hope that hearings such as this one today, will make crystal
clear that all U.S. companies, workers, and consumers, stand to
gain through trade agreements.
I would now like to recognize the Ranking Minority Member
of the Trade Subcommittee, Sander Levin, for any statement he
would like to make.
Mr. Levin. I thank you, Mr. Chairman. I will be very brief
because we have two panels and we may have some votes. We want
very much to get moving.
This is part of what I hope will be an intensive dialog
about where we should be going in terms of our international
trade. We have a lot of changing currents within the
international trade picture. The countries that we trade with
are increasingly those who have very different structures than
we do, both in terms of their capital structures, their labor
structures, and environmental structures. In my judgment, we
need to adapt to these changing currents and make sure that we
have a trade legislative framework that is responsive to these
changes and sensitive to them.
As I have said before, I think we need to evolve a new
consensus on trade. The one that we used to have broke down on
various issues, including and especially this issue of how we
respond to the different nature of trade, the different content
of it, the evolving trade with evolving economies. I hope out
of this dialog will come some new ideas. I think it would
require a reshaping substantially of the fast track proposals
that were offered a couple of years ago.
But anyway, your testimony is an important part of this
effort to have a renewed dialog, and I hope come to a new
consensus on trade. So I join the chairman in looking forward
to your testimony.
Chairman Crane. Thank you, Mr. Levin. We will proceed in
the order that you are indicated on the list of witnesses. I
think you all have that before you. Mr. Micek, Mr. Condit, Mr.
Baszile, Mr. Swift, and Mr. O'Hare. I would suggest that you
try to keep your verbal presentations to around 5 minutes. Any
printed statement will be made a part of the permanent record.
[The opening statement of Hon. Jim Ramstad follows:]
Statement of Rep. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this hearing today to discuss
the importance of trade negotiations.
Earlier this week, I met with Hennepin County Commissioner Randy
Johnson, who was out in Washington, D.C. for the National Association
of Counties meeting. One of the top issues he wanted to talk to me
about was trade.
Commissioner Johnson is working with a group in Hennepin County
that is trying to be proactive on behalf of Minnesota's workers and
businesses. They are concerned that the Twin cities region may become a
victim rather than a player, in the new world economy. They are doing
all they can to develop an aggressive strategy, involving the public
and private sectors, to allow the Twin Cities to compete in the global
economy. They know their strong international involvement is critical
to the economy of Hennepin County, the rest of the state and everyone
living there.
I want to help in their effort. I want workers and employers in
Minnesota to be able to compete with the rest of the world. I know when
given a fair opportunity, they will succeed. I don't want them to be a
powerless victim.
But my support for Hennepin County and the rest of this nation is
hampered if the Administration does not have fast track authority.
Regardless of how ambitious the Administration's agenda for the next
two years is, they won't be achieving much if Congress doesn't give
them the authority to negotiate trade agreements and help American
companies compete throughout the world. We'll only have the WTO dispute
settlement process to protect what trade liberalization we have already
achieved--not the power to knock down more unfair barriers to trade
throughout the world.
That's why I hope the Administration will submit suggestions to
this Subcommittee soon on how best to craft legislation to extend the
President this authority. I also wish all my colleagues in this House
had the insight that Hennepin County has on the need for an aggressive
approach and the importance of trade to our nation.
Again, thank you for holding this hearing to highlight these
issues. I look forward to hearing from our witnesses today, especially
Ernie Micek, Chairman and CEO of Cargill and a good friend from
Minnesota.
So we will with that, proceed with Mr. Micek.
STATEMENT OF ERNEST S. MICEK, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, CARGILL, INCORPORATED, MINNEAPOLIS, MINNESOTA, AND
CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE
Mr. Micek. Thank you, Mr. Chairman, and good morning. My
name is Ernie Micek. I am chairman and chief executive officer
of Cargill, Incorporated. Cargill is a privately-held
agribusiness company founded over 130 years ago in Iowa.
Cargill is an excellent example of why the United States
needs to support an open trading system, both at home and
abroad. Just as greater trade and investment in overseas
markets increasingly fuel growth in our national economy,
Cargill's growth depends in large part on markets outside the
United States. In the commodity businesses in which we
participate, we need to be a global company to grow and
succeed.
But today, I am testifying as chairman of the Emergency
Committee for American Trade on behalf of the heads of ECAT
member companies, whose prosperity, like Cargill's depends on
the continued expansion of U.S. international trade and
investment. ECAT members are major American companies with
global operations and represent all principal sectors of the
U.S. economy. The annual sales of ECAT member companies total
over $1 trillion, and the companies employ approximately 4
million persons. ECAT companies, besides providing employment,
add value in many important ways to the communities where their
plants and offices are located.
ECAT commends you, Mr. Chairman, and other Members of the
Trade Subcommittee, for your leadership on the trade expansion
initiatives. I am pleased to have the opportunity to testify
before the Trade Subcommittee today on the importance of moving
forward with a positive U.S. trade agenda and resisting the
forces of protectionism. It was precisely this concern that led
33 ECAT CEOs to join me in sending a letter to the President at
the end of last year, stressing the need to pursue a positive
trade agenda to promote the health of the U.S. economy. I would
like to ask that a copy of the ECAT letter be entered into the
record of this hearing.
Above all else, ECAT member companies believe that a policy
of expanding U.S. international trade and investment through
bilateral, regional, and multilateral negotiations is essential
to a sustained U.S. economic growth and standards of living.
American companies, both large and small, are operating in a
global economy that is increasingly concentrated outside the
United States. In fact, 96 percent of the world's consumers are
located outside of the United States. With the lowering of
trade barriers and technological advances, American companies
are increasingly able to reach these consumers. As a result,
trade accounts for one-fourth of our gross domestic product.
The agribusiness sector in which Cargill operates is a perfect
example of this, as the products coming from one-third of
America's acres are exported. But this number could be greater
if it were not for the Asian crisis.
Trade and investment have strengthened the U.S. economy by
generating new economic activity here at home through research
and development, and capital investments, as well as by
creating better, higher paying jobs, as documented in ECAT's
1998 study, Global Investments, American Returns. The trade and
foreign direct investment of American companies has
complemented rather than reduced economic activity in the
United States in areas such as research and development, and
investment in physical capital. American firms engaging in
international trade and investment have provided important new
business opportunities in the United States as they purchase
over 90 percent of their intermediate inputs for their products
from U.S. suppliers. At the same time, the foreign affiliates
of American firms are an important market for U.S. product and
services, accounting for 40 percent of U.S. exports. This new
economic activity generated by U.S. trade and investment,
promotes U.S. economic growth and higher U.S. standards of
living overall.
The ECAT publication includes case studies from 10 ECAT
member companies. Cargill's case study describes our fertilizer
business that has production activities concentrated in the
United States. Our fertilizers are distributed to more than 20
countries around the world. Our Florida facilities produce more
than 4 million tons of phosphate per year, 75 percent of which
is exported.
What this means in human terms is that our fertilizer trade
supports approximately 1,500 jobs at Cargill, and an estimated
40,000 phosphate-related jobs in Central Florida. The company
employees, whose jobs are supported by trade, do the best job
of conveying the human side of trade.
In the fall of 1997, just before the expected vote on trade
negotiating authority, Jim Johnson, a maintenance mechanic and
past president of the local union from our fertilizer operation
near Tampa, took time off from his job to come to Washington to
tell Members of Congress what trade meant to his job and his
son's job at our Tampa plant. He urged Members of Congress to
support trade negotiating authority so that the United States
would not be left behind while the rest of the world continues
to form trade alliances to its advantage.
Jim hit the nail on the head, saying that the lack of trade
negotiating authority kind of puts us in a position of having
our tools around our neck instead of in our hands. Borrowing
Jim Johnson's words, ECAT is concerned that unless the United
States adopts a forward-looking, positive trade agenda, we will
be left with our tools to expand trade investment around our
necks, instead of in our hands. Simply put, the United States
needs to press for our trading partners to take more
challenging steps to open their borders to trade.
The increase in America's standard of living that has
occurred since World War II would not have been possible
without U.S. political and economic leadership and maintaining
an open trading system that has produced a dramatic rise in
world trade. As our economy has become more closely integrated
into the world economy, it is more important than ever that the
United States, as the leader of the current economic order, not
abandon its over one-half century of leadership of the world
trading system. The gains we have made over the past half
century could be lost if we do not maintain our commitment to
an open trading system, and resist domestic and global
pressures toward protectionism.
The world achieved a great degree of global economic
integration from the late 19th century until World War I. It
was only in the early 1980's that the world reached and then
exceeded the earlier level of international economic
integration.
As chair of ECAT, I have made trade education a continuing
ECAT priority. In order to move forward on a positive trade
agenda, we must re-engage the support of Congress, the
Administration, and American workers and their families for
trade expansion.
Globalization is now an inescapable fact of life. We can't
turn back the clock. While the global economic system is in its
early stages in facing great challenges, it is up to us to have
a positive leadership role that promotes greater economic
opportunities for U.S. companies and their employees and their
families. ECAT believes that a positive trade agenda should
establish a clear set of objectives for the 1999 WTO
Ministerial and a new round of WTO negotiations and commitments
to achieve China's full integration into the international
trading system and renewal of trade negotiating authority.
This year, as host of the 1999 WTO Ministerial, the United
States has the opportunity to exercise its leadership in
launching a new round of trade negotiations that will advance
trade liberalization well into the 21st century. In order to
achieve this result, the upcoming ministerial agenda must
remain focused on trade liberalization, advance a reasonable
framework and scope for the new round, and must promote new
initiatives that will create momentum for liberalization. We
believe the United States must take the lead in this effort.
U.S. business has an important role to play in ensuring the
success of the ministerial, by encouraging the adoption in the
United States of a positive agenda in making the case for the
contributions of the WTO and to continuing trade
liberalization.
ECAT is joining with the Business Roundtable and other U.S.
business organizations through an ad hoc coalition on a WTO
Ministerial to coordinate business support for ministerial
activities. ECAT also supports early action on several items,
including CBI Parity, the African trade bill, and the
miscellaneous tariff bill because they are important in and of
themselves and in order to create momentum for the action under
the broader trade agenda. The African Growth and Opportunity
Act would provide a valuable platform for increasing U.S.
commercial ties with sub-Saharan Africa. The CBI Parity bill
would benefit both the United States and Caribbean economies.
In pursuing a positive trade agenda, we must resist
pressures to close our borders, despite the rising trade
deficit. The world is watching us and the actions that we take.
For instance, if we respond to rising steel imports, other than
in accordance with procedures set out in our unfair trade
remedies statutes and other than ways consistent with
multilateral trading rules, we will set a dangerous precedent.
Speaking both as chairman of ECAT and as CEO of a company that
has a steel division, we must stand firm and reject
protectionist measures or we will risk more retaliation.
The United States and its trading partners must face the
pressures on the open trading system by acting in accordance
with the rules of the multilateral trading system. The United
States will not succeed in this regard without the cooperation
of our trading partners.
So in summary, I and other members of ECAT, believe that
efforts must continue to reach a bipartisan agreement on the
extension of trade-negotiating authority that will ensure trade
expansion into the 21st century. ECAT believes that armed with
the positive trade agenda that we have outlined, Congress, the
Administration, and the business community, will be best
positioned to offer constructive alternatives to protectionist
proposals. In both the short and the long-term, moving forward
on a positive trade agenda gives us the greatest opportunity to
guarantee that the trade and foreign direct investment of U.S.
companies will continue to produce American returns in the form
of greater U.S. economic growth and higher standards of living.
I appreciate the opportunity to present ECAT's views. I
would be happy to answer any questions that Subcommittee
Members might have.
[The prepared statement follows:]
Statement of Ernest S. Micek, Chairman and Chief Executive Officer,
Cargill, Incorporated, Minneapolis, Minnesota, and Chairman, Emergency
Committee for American Trade
Introduction
My name is Ernie Micek. I am Chairman and Chief Executive Officer
of Cargill, Incorporated. Cargill is a privately-held agribusiness
company founded over 130 years ago in Iowa. Today the company is
headquartered in Minneapolis, Minnesota, and is involved in marketing,
processing, and distributing agricultural, food, financial, and
industrial commodities throughout the world. We have some 80,000
employees in more than 1,000 locations in 65 nations with customers and
suppliers in approximately 130 more countries.
Cargill is an excellent example of why the United States needs to
support an open trading system both at home and abroad. Just as greater
trade and investment in overseas markets increasingly fuel growth in
our national economy, Cargill's growth depends in large part on markets
outside the United States. We need to be a global company to grow and
succeed.
Today, I am testifying as Chairman of the Emergency Committee for
American Trade on behalf of the heads of ECAT member companies, whose
prosperity like Cargill's depends on the continued expansion of U.S.
international trade and investment. ECAT members are major American
companies with global operations and represent all principal sectors of
the U.S. economy. The annual sales of ECAT member companies total over
one trillion dollars and the companies employ approximately four
million persons.
ECAT commends you, Mr. Chairman, and other Members of the Trade
Subcommittee for your leadership on trade-expansion initiatives. I am
pleased to have the opportunity to testify before the Trade
Subcommittee today on the importance of moving forward with a positive
U.S. trade agenda and resisting the forces of protectionism. It was
precisely this concern that led 33 ECAT CEOs to join me in sending a
letter to the President at the end of last year stressing the need to
pursue a positive trade agenda to promote the health of the U.S.
economy. I would like to ask that a copy of the ECAT letter be entered
into the record of this hearing.
Before addressing the specifics of ECAT's views on the U.S. trade
agenda, I want to discuss how the global trade and investment
activities of American companies are producing significant returns for
the U.S. economy.
Global Investments, American Returns
Above all else, ECAT member companies believe that a policy of
expanding U.S. international trade and investment through bilateral,
regional, and multilateral negotiations is essential to sustain U.S.
economic growth and standards of living. American companies, both large
and small, are operating in a global economy that is increasingly
concentrated outside the United States. In fact, 96 percent of the
world's consumers are located outside of the United States. With the
lowering of trade barriers and technological advances, American
companies are increasingly able to reach these consumers. As a result,
trade accounts for one-fourth of our Gross Domestic Product. The
agribusiness sector, in which Cargill operates, is a perfect example of
this, as the products coming from one-third of America's acres are
exported.
Trade and investment have strengthened the U.S. economy by
generating new economic activity here at home through research and
development and capital investments, as well as by creating better,
higher-paying jobs. As documented in ECAT's 1998 study, Global
Investments, American Returns, the trade and foreign direct investment
of American companies have complemented rather than reduced economic
activity in the United States, in areas such as research and
development and investment in physical capital. American firms engaging
in international trade and investment have provided important new
business opportunities in the United States, as they purchase over 90
percent of their intermediate inputs for their products from U.S.
suppliers. At the same time, the foreign affiliates of American firms
are an important market for U.S. products and services, accounting for
40 percent of U.S. exports. This new economic activity generated by
U.S. trade and investment promotes U.S. economic growth and a higher
U.S. standard of living overall.
I think the best way to communicate what this really means is to
look at actual company case studies and the lives of company employees
whose jobs depend on trade and investment. The ECAT publication
includes case studies from 10 ECAT member companies. Cargill's case
study describes our fertilizer business that has production activities
concentrated in the United States and product distributed to more than
20 countries around the world. Our Florida facilities produce more than
four million tons of phosphate per year, 75 percent of which is
exported. Cargill's phosphate exports enable us to operate the Florida
facility 24 hours-a-day, 365 days-a-year. If we had to rely on the U.S.
market alone, our Florida plant would sit idle for most of the year and
our production costs would increase.
What this means in human terms is that our fertilizer trade
supports 1,450 jobs at Cargill and an estimated 40,000 phosphate-
related jobs in Central Florida. The company employees whose jobs are
supported by trade do the best job of conveying the human side of
trade.
In the fall of 1997, just before the expected vote on trade-
negotiating authority, Jim Johnson, a maintenance mechanic and past
president of a local union from our fertilizer operation near Tampa,
took time off from his job to come to Washington to tell Members of
Congress what trade meant to his job and his sons'; jobs at our Tampa
plant. Jim urged Members of Congress to support trade-negotiating
authority, so that the United States would not be left behind while the
rest of the world continues to form trade alliances to its advantage.
Jim hit the nail on the head, saying that the lack of trade-negotiating
authority ``kind of puts us in a position of having our tools around
our neck instead of in our hands.''
A Positive Trade Agenda
Borrowing Jim Johnson's words, ECAT is concerned that unless the
United States adopts a forward-looking, positive trade agenda, we will
be left with our tools to expand trade and investment around our neck
instead of in our hands. The increase in America's standard of living
that has occurred since World War II would not have been possible
without U.S. political and economic leadership in maintaining an open
trading system that has produced a dramatic rise in world trade. As our
economy has become more closely integrated into the world economy, it
is more important than ever that the United States not abandon its over
half-century of leadership of the world trading system.
The gains we have made over the last half-century could be lost if
we do not maintain our commitment to an open trading system and resist
domestic and global pressures toward protectionism. The world achieved
a great degree of global economic integration from the late 19th
century until World War I, during which time international trade and
investment reached high levels. This period was followed by decades of
global fragmentation caused by political conflicts, as well as
protectionist trade policies such as the prohibitive U.S. Smoot-Hawley
tariffs that helped bring on the depression of the 1930s. It was only
in the early 1980s that the world reached and then exceeded the earlier
level of international economic integration.
Trade Education. As Chair of ECAT, I have made trade education a
continuing ECAT priority. In order to move forward on a positive trade
agenda, we must re-engage the support of the Congress, the
Administration, and American workers and their families for trade
expansion. ECAT's trade education initiative, called TradeWorks, is
intended to rebuild the support of American workers, Congress, and the
Administration for an open trade system and continued trade
liberalization. It aims to achieve this objective by doing a better job
of explaining why and how the global activities of American firms
promote U.S. living standards and benefit the lives of company
employees. First, it is seeking to broaden understanding of the
critical role of both trade and investment in promoting economic growth
and higher living standards in the United States. Toward this end,
ECAT's study, Global Investments, American Returns, details the
benefits that flow to the U.S. economy from trade and foreign direct
investment. Second, the project is developing a set of educational
materials and an efficient delivery system that will enable ECAT member
companies to educate their workers, communities, and elected officials
about the ways in which their worldwide operations help to raise U.S.
living standards, and inform them about how international trade and
investment better their lives. The name ``TradeWorks'' is taken from
Cargill's own trade education program and conveys the simple idea that
trade works to make our lives better.
Elements of A Positive Trade Agenda. In this time of global
economic challenges, the United States must lead by example in keeping
its markets open and pursuing a positive trade agenda that promotes
greater economic opportunities for U.S. companies and their employees
and their families. ECAT believes that a positive trade agenda should
establish a clear set of objectives for the 1999 WTO Ministerial and
the new round of WTO negotiations, and commitments to achieve China's
full integration into the international trading system and the renewal
of trade-negotiating authority.
ECAT also supports early action on several items, including CBI
Parity, the Africa trade bill, and a miscellaneous tariff bill, because
they are important in and of themselves and in order to create momentum
for action on the broader agenda. The African Growth and Opportunity
Act would provide a valuable platform for increasing U.S. commercial
ties with sub-Saharan Africa. The CBI-Parity bill will benefit both the
U.S. and Caribbean economies. CBI Parity can be an important part of
re-building the economic infrastructure of Caribbean nations devastated
by Hurricane Mitch.
In pursuing a positive trade agenda, we must resist pressures to
close our borders despite the rising trade deficit. The world is
watching us. If we respond to rising steel imports other than in
accordance with procedures set out in our unfair trade remedy statutes
and other than in ways consistent with multilateral trading rules, we
will set a dangerous precedent. Speaking both as Chairman of ECAT and
as CEO of a company that has a steel division, we must stand firm and
reject protectionist measures.
ECAT's views on the major elements of this agenda are set out
below.
The 1999 WTO Ministerial: Launching a New WTO Round
This year as host of the 1999 WTO Ministerial, to be held in
Seattle, Washington, the United States has the opportunity to exercise
its leadership in launching a new round of trade negotiations that will
advance trade liberalization well into the next century. In order to
achieve this result, the upcoming ministerial agenda must remain
focused on trade liberalization, must advance a reasonable framework
and scope for the new round, and must promote new initiatives that will
create momentum for liberalization.
The Seattle Ministerial. It is important that the United States
work to ensure that the Seattle ministerial meeting is successful in
producing a positive framework and agenda for the launch of the new
round and in reinforcing both domestic and international support for
the multilateral trading system.
To create a positive framework for the new round, the focus of the
ministerial agenda must be kept on trade expansion. The agenda should
not be sidetracked by divisive issues such as labor, environment,
competition policy, and investment on which there is little hope of
gaining consensus within the WTO. On labor and environment, the United
States should assume a constructive role and emphasize ways in which
international cooperation and consensus may best be achieved. For
example, the United States is pursuing an appropriate course on labor
issues by increasing its support for the ILO and focusing its efforts
to achieve a consensus on labor issues within that organization. If the
United States allows contentious issues to dominate the ministerial,
confidence in the global trading system and U.S. leadership will be
undermined.
To be successful, the ministerial agenda should also include a
renewed effort to broaden WTO membership to include those emerging
economies that are not yet subject to WTO rules. China, the largest
emerging economy in the world, must be brought into the multilateral
trading system. Its admission to the WTO on the basis of a
commercially-acceptable protocol of accession should be given top
priority on the ministerial agenda. The continuing financial
instability in Asia and the slowdown in the global economy make it more
critical than ever that China be subject to WTO rules and a participant
in sectoral liberalization initiatives.
Reaching an agreement on sectoral market access initiatives, such
as the negotiations on the nine sectors covered under the Early
Voluntary Sector Liberalization (EVSL) negotiations, at the time of the
ministerial would help to make it a success and would provide momentum
for liberalization negotiations in the new round. The EVSL initiative
would result in the elimination of tariffs in chemicals, toys, medical
equipment and scientific instruments, energy, fish and fish products,
and forestry sectors in global trade. Similarly, progress at the
ministerial in negotiations to remove non-tariff barriers in the
information technology sector would also promote a successful meeting.
U.S. business too has a role to play in ensuring the success of the
ministerial by encouraging the adoption of a positive agenda and making
the case for the contributions of the WTO in continuing trade
liberalization. ECAT is joining with the Business Roundtable and other
U.S. business organizations through an ad hoc coalition on the WTO
ministerial to coordinate business support for ministerial activities.
A WTO ministerial that produces a positive agenda backed by
consensus will send a strong signal to global markets about the
strength and vitality of the open trading system. A successful
ministerial will encourage emerging economies to stay the course on
trade liberalization.
Success in Seattle will reinforce domestic support for the WTO.
Under the Uruguay Round Agreements Act, the Administration is required
to report to Congress next year on how the WTO has worked for American
interests in the first five years of its operation. The law also
provides that Congress can vote to revoke U.S. membership in the WTO if
the WTO dispute settlement body rules against the United States three
times in any five-year period. It is essential that the Administration
be able to submit a positive report on the benefits of the WTO
following a highly successful U.S. ministerial meeting.
Finally, if the ministerial produces a trade-liberalizing agenda,
U.S. support will build for renewal of trade-negotiating authority. One
of the factors that has hindered progress on renewal has been the lack
of a specific articulation of negotiating objectives. The
Administration, the Congress, and the private sector are now engaged in
the process of developing negotiating objectives for the new round,
which will clarify areas in which negotiating authority is necessary.
Standstill Commitment. To help U.S. trading partners resist the
adoption of protectionist measures in response to global economic
pressures, the United States should take the lead in urging that WTO
members enter into a standstill on trade restrictive measures in
advance of the ministerial. The United States could then propose that
WTO members formally adopt a standstill commitment at the ministerial.
Such a commitment would help safeguard the liberalization achieved
under the Uruguay Round and subsequent sectoral negotiations and
provide a positive foundation for future liberalization in the new
round.
Scope and Framework for Negotiations. A new round should be broad
in scope, including negotiations mandated under the built-in agenda on
agriculture and services, as well as negotiations to reduce industrial
tariffs, promote business facilitation, and improve transparency in
government procurement. The scope of the negotiations should also be
flexible to allow the later inclusion of sectors or issues that are not
currently ripe for negotiation.
Negotiations should generally adhere to the WTO model of a ``single
undertaking'' that requires all WTO members to observe the final
agreements reached in a new round. At the same time, the framework for
the new round should allow for agreements to be implemented as soon as
they are finalized, rather than require that their implementation be
delayed until all agreements are completed, as was the case in the
Uruguay Round. It is also important to establish timetables to ensure
that negotiations yield positive results within reasonable time
periods.
ECAT's views on the major areas that should be included in a new
round are provided below.
1. Agriculture. The agriculture negotiations should aim to secure
substantial, progressive reductions in support and protection,
including deep cuts in bound tariff rates and the elimination of export
subsidies. Negotiations should seek a reduction in average tariff
bindings over six years by 50 percent from current levels. Tariff peaks
should be reduced to levels that will not prohibit imports.
Negotiations should clarify that tariff-rate quotas are transitional
measures and provide for their phase-out. Sectoral zero-for-zero tariff
agreements should also be encouraged.
The agriculture negotiations should seek a reduction in the
aggregate measure of support beyond the Uruguay Round level. The United
States also should seek to eliminate the monopoly control of state
trading entities (STEs) and discipline their behavior.
In connection with the launch of the agriculture negotiations, the
Seattle ministerial declaration should endorse the initiative being
developed within APEC to establish a global ``open food system.'' The
initiative calls for putting the reform of food and agricultural
policies at the top of the U.S. and global trade agendas. It is based
on the premise that encouraging greater reforms in agricultural
policies and promoting a more efficient global food system will
encourage global economic development, as well as broader trade and
investment in the goods and services sectors. The United States should
advocate the establishment of a WTO working party to discuss the
creation of a global ``open food system.''
2. General Agreement on Trade in Services (GATS). The United States
should pursue new negotiations to liberalize trade in services,
particularly financial services, as part of a new round. Further
liberalization of services trade will enhance global growth, assist
developing countries in obtaining the necessary infrastructure to
sustain development, and help restore investor confidence in global
markets.
One of the primary objectives of the services negotiations should
be to encourage the creation of transparent, impartial regulatory
regimes in local markets. The creation of such regimes is essential to
make the GATS national treatment and market access commitments
meaningful.
In seeking expanded liberalization commitments, the United States
should aim to limit reservations to the greatest degree possible. The
United States should seek commitments to ensure national treatment and
the right of establishment, eliminate restrictions on cross-border
transactions, promote pro-competitive regulatory reform, and remove
obstacles to the free movement of business personnel.
3. Market-Access Negotiations. The new round should include market-
access negotiations to remove tariff and non-tariff barriers in a wide
range of industrial sectors. The negotiations should include efforts to
achieve tariff reductions in the nine EVSL sectors to the extent such
reductions have not been finalized by the time of the ministerial. The
market-access negotiations should also cover the six additional sectors
identified in APEC for further liberalization, particularly food
products.
Textile and apparel tariffs, which remain very high relative to
other industrial products, should also be included in market-access
negotiations, with the goal of seeking further reductions before the
termination of textile and apparel quotas in 2005. Finally, the
negotiations should encompass efforts to broaden membership in the
Chemical Tariff Harmonization Agreement (CTHA), with the understanding
that no further reductions in chemical tariffs should be considered
until all major chemical-producing nations are fully committed to the
CTHA.
4. Trade Facilitation. ECAT strongly supports the inclusion of
business-facilitation issues on the ministerial agenda. The United
States should seek a WTO agreement on trade facilitation that would
encompass the adoption of a binding WTO agreement based on the rules
contained in the International Convention on the Simplification and
Harmonization of Customs Procedures (Kyoto Convention), a work program
on trade facilitation, and a commitment to simplify rules of origin.
The United States should encourage the WTO to focus its trade-
facilitation efforts on customs procedures and advocate the
establishment of a WTO working group on the harmonization and
simplification of customs procedures. The United States should also
support the simplification and harmonization of non-preferential rules
of origin so that they no longer create unnecessary trade impediments.
5. Government Procurement. ECAT supports U.S. efforts to bring more
countries into the WTO Procurement Agreement, to broaden its coverage,
and to negotiate an agreement on transparency in procurement. The
United States should seek to conclude an agreement on transparency by
the time of the ministerial. It should include requirements regarding
the transparency of procurement laws and regulations, adequate notice
of bidding opportunities, use of objective criteria in preparing bid
specifications and in evaluating bids, adequate dispute settlement, and
WTO notification of preference levels.
The transparency provisions of the Government Procurement Agreement
should be harmonized with the text of a new transparency agreement.
China's Accession to the WTO
Securing China's accession to the WTO on the basis of a
commercially-viable protocol of accession is a priority for ECAT. The
United States can no longer afford to have China, as the largest
emerging economy in the world, outside of the global trading system.
Fully integrating China into the global trading system will help to
ensure that it plays a positive role in the global economy and provides
broader market access for U.S. goods, services, and agriculture.
China's accession to the WTO would be read by financial markets
throughout the world as a vote of confidence in the international
economy. It would also send a powerful signal to other Asian emerging
economies about the value of maintaining open markets and adhering to
multilateral trading rules in restoring global economic stability and
growth.
In advocating China's WTO membership, ECAT does not believe it
should be at any price. China must be willing to make the necessary
economic reforms and market-access commitments to create a
commercially-viable protocol of accession that provides meaningful
market access for U.S. goods, services, and agriculture. These
commitments must be in addition to China's full implementation of
existing liberalization commitments. If China agrees to such a
protocol, the United States should support China's WTO membership and
request that the Congress approve the permanent extension of normal
trade relations (NTR) status to China.
China's market holds enormous potential for U.S. goods, services,
and agricultural exports. Since 1979, when the United States first
extended most-favored-nation treatment to China, U.S. exports of goods
and services have grown nearly twenty times, reaching $18 billion last
year. Over the same time period, U.S. investment in China has grown to
$25 billion. U.S. exports to China support more than 200,000 jobs in
the manufacturing and agricultural sectors, as well as tens of
thousands of jobs in the U.S. retail, services, transportation,
marketing, consumer goods, and telecommunications sectors.
The United States has just begun to scratch the surface of the
China market. China is already the fourth largest market for U.S.
agricultural exports. In recent years, China has imported large
quantities of U.S. grains, cotton, poultry, vegetable oils, and other
agricultural products. The American agricultural community views China
as its most important growth market for the twenty-first century.
There is vast potential too for further sales of U.S. non-
agricultural products and services. Even allowing for the impact of the
Asian financial crisis, the purchasing power of China's middle class is
expected to rise dramatically over the next decade. China also has huge
developmental needs to improve the living standards of its population
and is committed to spending over $750 billion on infrastructure over
the next decade.
Cargill has a substantial stake in the China market, as it is one
of our largest markets for grain, proteins, fertilizers, and other
agricultural commodities. Until recently, when a controversy arose over
the presence of a fungus, TCK smut, in certain U.S. wheat, China was
buying on average of 8- to 10-million tons of grain per year. Cargill
also ships orange juice and phosphate fertilizer to China from our
plants in Florida and exports cotton, corn, soybeans, soybean products,
and meat to China. Cargill has investments in animal-feed plants, a
bulk fertilizer plant, and a soybean-crushing plant in China and
employs over 500 people in China.
Doing business in China presents great challenges because of poor
infrastructure and extensive market restrictions, including high
tariffs, discriminatory sanitary and phyto-sanitary standards, and
government control of pricing and distribution, as well as restrictions
on trading rights. China's WTO accession offers the opportunity to
negotiate firm commitments to remove such barriers and to secure
further market access.
The United States and China have an important window of opportunity
early this year to reach a final agreement on the terms of China's
accession to the WTO. If an agreement is not reached within the next
few months, there is a real risk the process will be delayed for
several years. Securing an early agreement on a commercially-viable
protocol of accession must remain a priority on the U.S. trade agenda.
Renewal of Trade-Negotiating Authority
Renewal of the President's trade-negotiating authority is also an
integral part of a positive trade agenda, as it provides the basic
infrastructure necessary to achieve further trade liberalization and
other trade policy objectives. Over the past 25 years, the legislative
extensions of trade-negotiating authority have been the primary
mechanism for the executive and legislative branches to come together
on a bipartisan basis to carry forward U.S. trade policy objectives. No
mechanism has been created to take the place of this process since the
expiration of the last extension of negotiating authority in 1994. As a
result, a vacuum has been created and U.S. trade policy remains
stalled, jeopardizing U.S. leadership in the global trading system and
endangering the continued expansion of trade and investment.
ECAT is recommending that the WTO ministerial and the launching of
a new round be used as the rationale for a new positive trade agenda,
even in the absence of trade-negotiating authority. While the United
States may be able to move forward through the ministerial and
immediate post-ministerial period without negotiating authority, our
ultimate liberalization objectives cannot be achieved without it.
The Seattle WTO ministerial offers the United States the
opportunity to reassert its leadership within the WTO; however, unless
the President is granted negotiating authority for agriculture,
services, and any other areas to be included in a new round, the United
States risks being left on the sidelines. Absent negotiating authority,
it will be difficult for the United States to credibly participate in
the new-round negotiations and achieve further liberalization in
sectors of greatest interest to the United States. Our trading partners
will reap the advantage.
Renewing trade-negotiating authority is also necessary for the
United States to reassert its leadership in regional trade negotiations
such as the Free Trade of the Americas (FTAA) and the Asia Pacific
Economic (APEC) Forum. Although the FTAA negotiations have been
launched, serious questions remain whether our Latin American trading
partners will be willing to enter into substantive negotiations beyond
trade facilitation measures before the United States has trade-
negotiating authority. In addition, the lack of U.S. negotiating
authority has given Brazil the opportunity to expand the Mercosur
arrangement and to solidify its influence in shaping the trade agenda
within the FTAA.
Trade-negotiating authority is also essential to continue the
sectoral liberalization process that the United States is encouraging
through APEC under the 15 sectors identified under the EVSL initiative.
The United States will not be able to implement fully the tariff
reductions agreed to in the nine sectors covered under the EVSL
initiative or the other six sectors that may be the subject of future
negotiations. Similarly, the United States may lack authority to
implement fully an agreement to reduce non-tariff barriers in the
information technology sector under a second Information Technology
Agreement (ITA II).
The absence of a forward-looking trade policy backed by a grant of
trade-negotiating authority is taking its toll on the competitiveness
of U.S. goods, services, and agriculture. Since the expiration of
negotiating authority in 1994, regional preferential trade arrangements
among our competitors in Europe, Latin America, and Asia have
mushroomed, putting U.S. products at an increasing disadvantage. For
example, U.S. agricultural exports are losing out to South American
competitors as a result of the preferential tariffs they enjoy under
the Mercosur Agreement. Our Canadian, Asian, and European competitors
are also continuing to gain advantage over the United States as they
negotiate their own preferential arrangements with Latin American
countries. The European Union has begun free-trade negotiations with
Mexico and is close to initiating free-trade negotiations with Chile
and Mercosur. It is also negotiating preferential agreements on
standards with Asian countries. Canada now has its own free trade
agreement with Chile, has entered into a cooperation agreement with
Mercosur, and is rapidly expanding its market access in Latin America,
thereby increasing the competitive challenge posed by Canadian exports
to U.S. manufactured and agricultural exports.
While we must not delay progress on developing other U.S. trade
policy priorities in the absence of trade-negotiating authority, we
must continue our efforts to build bipartisan support for such
authority.
The Challenges Ahead
The United States and its trading partners must face the pressures
on the open trading system by acting in accordance with the rules of
the multilateral trading system. The United States will not succeed in
this regard without the cooperation of our trading partners. For this
reason, ECAT believes that the United States should call upon its
trading partners to support a standstill on the imposition of trade-
restrictive measures in advance of the Seattle Ministerial that will be
formally adopted at the ministerial.
The United States must also ensure that the integrity of the WTO
and its dispute settlement process is maintained by insisting that the
European Union and other major trading partners uphold the decisions of
WTO dispute settlement panels. In preparing for the next ministerial
and the possibility of a new round of multilateral negotiations, the
United States must ensure that the framework and results of such
negotiations strengthen WTO rules and expand market access for U.S.
goods, services, and agriculture.
In seeking a more constructive bilateral relationship with China,
the United States faces the complex challenge of securing China's entry
into the WTO on the basis of a commercially-viable protocol of
accession, at a time when China is renewing its efforts to repress
dissent and is imposing new restrictions on trade and investment.
I and the other members of ECAT also believe that efforts must
continue to reach a bipartisan agreement on the extension of trade-
negotiating authority that will ensure trade expansion into the twenty-
first century.
Time will tell whether we will be able follow Cargill's Jim
Johnson's advice about getting our trade policy tools from around our
necks and into our hands. ECAT believes that armed with the positive
trade agenda that we have outlined, the Congress, the Administration,
and the business community will be best positioned to offer
constructive alternatives to protectionist proposals. In both the short
and long term, moving forward on a positive trade agenda gives us the
greatest opportunity to guarantee that the trade and investments of
U.S. companies will continue to produce American returns in the form of
economic growth and higher living standards.
I appreciate the opportunity to present ECAT's views and I would be
happy to answer any questions subcommittee members may have. I would
also like to ask that ECAT's comments to USTR on the 1999 WTO
Ministerial agenda be entered into the record of this hearing.
Chairman Crane. Thank you, Mr. Micek.
Mr. Condit.
STATEMENT OF PHILIP M. CONDIT, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, BOEING COMPANY, SEATTLE, WASHINGTON, AND CHAIRMAN,
INTERNATIONAL TRADE AND INVESTMENT TASK FORCE, BUSINESS
ROUNDTABLE
Mr. Condit. Mr. Chairman, and Members of the Subcommittee,
good morning. My name is Phil Condit. I am chairman and CEO of
Boeing Company. I also have the privilege of serving as the
Business Roundtable's chairman of the Trade and International
Investment Task Force. It is my privilege to offer our views on
the future direction of U.S. trade policy. I have asked that my
written testimony be submitted in the record. I will just
summarize my key points.
I would also like to introduce the gentleman to my left,
Mr. Barry Baszile, who is president of Baszile Metals Service,
and aerospace supplier who has come from Los Angeles to testify
this morning. He is the perfect example of a small business
that depends heavily on trade. I will let him tell his story.
Mr. Chairman, the United States clearly faces a number of
fundamental choices on the direction of trade policy. Despite
the fact that trade has never been more important to this
Nation's economic growth, there continue to be questions on the
wisdom of these efforts, the efforts to expand trade by
negotiating new agreements and trying to break down barriers to
U.S. exports.
I would venture that those views are based upon concerns
about whether trade benefits people broadly in the United
States, whether U.S. firms and employees are actually
benefiting from trade agreements, given the problems with
compliance and enforcement. Clearly these are legitimate
concerns. In fact, they must be addressed if we are to work
together to build a national consensus for trade and continue
to fuel our Nation's economic growth.
Mr. Chairman, I would argue that America's trade agenda
must be based on a set of fundamental principles. Let me see if
I can outline what I believe those principles need to be.
Principle No. 1. America must recognize the reality of a global
economy and develop the trade and investment policies that
enable us to navigate through the complexities of this global
system. That involves both the financial institutions that are
required to promote international economic stability, and the
review of U.S. laws and regulations, including sanctions and
trade statutes that ensure that they do not unnecessarily
impede the ability of U.S. agriculture, industry, and their
employees to compete in world markets.
Principle No. 2. We must reaffirm U.S. leadership. The
United States is the leader, and the world is looking to the
United States for leadership.
Principle No. 3, and probably the most important. Rules
matter. The economic system of the world must be based on a
rules-based system. Compliance and enforcement of those rules
are required if this system is to work.
Principle No. 4. Business must be a force for positive
change in the global economy. We must contribute to
implementing a trade policy that is win-win. That means we must
work together to make sure that that global system benefits
all.
Mr. Chairman, while there are many issues that you and this
Subcommittee will be considering, I would like to mention two
in particular. The first is that we have a great opportunity to
continue the process of trade liberalization and improve the
rules during the upcoming WTO Ministerial in Seattle. This is
the first time that ministerial will be held in the United
States. It is a unique opportunity to demonstrate U.S.
leadership and introduce a new round of trade negotiations.
Second. The strength of the multilateral trading system
depends on all key players being part of the system. I believe
that it is strongly in our benefit to work hard to include
China in that world trading system on a commercially meaningful
basis. That will be a difficult and important negotiation, but
one I believe is a real opportunity in the months ahead.
I commend the Subcommittee for taking the important and
leadership steps toward building a consensus that is required
by holding this hearing. Thank you very much.
[The prepared statement follows:]
Statement of Philip M. Condit, Chairman and Chief Executive Officer,
Boeing Company, Seattle, Washington, and Chairman, International Trade
and Investment Taskforce, Business Roundtable
Mr. Chairman, Members of the Subcommittee, good morning. My name is
Philip Condit. I am Chairman and CEO of The Boeing Company. I also have
the privilege of serving as the Chairman of the Business Roundtable
International Trade and Investment Task Force.
I want to thank you for providing me and The Business Roundtable
with the opportunity to share our views on the future direction of U.S.
trade policy. Mr. Chairman, I would ask that my written testimony be
submitted for the record and that I summarize the key points. I would
also like to introduce Mr. Barry Baszile, President of Baszile Metals
Services, who has come to Washington, D.C. from Los Angeles to testify
with me today. Mr. Baszile is one of Boeing's small business suppliers
and is a terrific example of how when Boeing exports its products to
international customers, the benefits extend throughout the U.S.
economy.
Mr. Chairman, the United States today faces a number of fundamental
choices in the direction of its trade policy. Despite the fact that
trade has never been more important to this nation's economic growth,
some continue to question the wisdom of efforts to liberalize trade. I
would venture that their views are based upon concerns about whether
the benefits of trade are broadly shared and whether U.S. firms and
workers are actually benefiting from trade agreements.
These are clearly legitimate concerns and need to be addressed. In
fact, they must be addressed if we are to work together to rebuild a
national consensus for trade and fuel the nation's economic growth.
I. America Must Reach New Trade Agreements to Prosper
Over the last several decades, successive Congresses and
Administrations working together on a bipartisan basis have made
significant and admirable progress in breaking down foreign trade
barriers, benefitting our companies, workers, farmers and the country
as a whole. However, the ever-changing global economy continually
presents new opportunities and challenges. The United States must reach
out for these opportunities and meet these challenges. To do so, the
United States must continue to pursue trade liberalization, especially
through new international agreements. If we are not in the vanguard, we
risk falling behind other countries that are pursuing their own
agendas.
International trade agreements are needed to open foreign markets
for American companies, workers and farmers. The United States has been
the leader in working for open markets because we know that, with our
market the most open in the world, and with our companies, workers and
farmers the world's most competitive, we have the most to gain from
removing foreign barriers to our goods and services through trade
agreements and the most to lose if such barriers persist.
However, despite recent trade agreements and improvements in world
trade rules, foreign barriers remain and new ones continue to be
erected. Many countries still impose significant tariffs on our
exports. In an increasingly competitive global economy, these ``taxes''
can make the difference between success and failure in foreign markets.
Moreover, as tariffs and traditional non-tariff barriers to our
goods and services exports have fallen, new problems have emerged. For
example, inadequate intellectual property protection, customs, and
standards-related and other regulatory barriers have become a new set
of problems for U.S. exporters and their workers. Our agricultural
exports continue to face tariff and non-tariff barriers. Recent
agreements have partially resolved some of these problems, but more
progress is needed.
Some interest groups have argued that given the deterioration in
the U.S. trade balance in 1998, this is no time to begin new
liberalization initiatives. But this is the wrong way to look at the
issue. Launching new trade negotiations has the potential to stimulate
economic growth in countries whose economies are suffering. That will,
in turn, boost demand for American exports.
The United States must lead in promoting trade liberalization for
the undeniable reason that today we live in a global economy. The
United States is the world's largest exporter. Our total exports were
$931 billion in 1998. Total trade--imports plus exports--accounted for
over $2 trillion in business activity, or nearly 24 percent of the size
of the U.S. economy. More than 95 percent of the world's consumers live
outside the United States, and the world's fastest-growing and most
promising new markets are spread across the globe. There is no way that
the United States can have a bright economic future if we do not
actively pursue these foreign customers and markets.
Trade is good for our economy, good for business, good for workers,
good for farmers and good for consumers American companies, workers,
and farmers have worked hard to compete in the global economy, and the
United States has seen the positive results. U.S. exports continue to
rise at an impressive pace--between 1996 and 1998, real exports were up
30 percent from the 1993-1995 period. These exports are the engine
driving economic growth and job creation in the United States. Export
growth has accounted for about 27 percent of the nation's overall
economic growth over the past ten years. During this time export growth
outpaced the expansion of the economy as a whole. U.S. exports did slow
in 1998 because of the Asia economic crisis, which highlights the
reality that U.S. economic growth and stability depends increasingly on
access to international markets.
I have heard a lot of talk that trade is good only for big
companies. This is just not the case as Mr. Baszile will explain in
greater detail. Small- and medium-sized companies are active exporters
too. In addition to directly exporting, many small- and medium-sized
companies also supply large companies with products and services that
are used in the production of exports. These suppliers are what we have
referred to in the past as the invisible exporters.
Trade is also good for American workers. Approximately 12 million
U.S. jobs are supported by exports. Exports account, directly or
indirectly, for about one in ten civilian jobs in the nation and about
one in five manufacturing jobs. These export-related jobs are high-wage
jobs. They typically pay 13 to 16 percent more than the average
compensation.
The United States cannot, and should not, ignore the real effects
of job loss for individuals, regardless of the cause. But trying to
freeze the U.S. economy in place is impossible and would not be in the
interest of this or future generations. The United States needs to
ensure that all Americans earn the education and learn the skills they
need in order to be competitive in the global economy.
Exports are particularly important for the nation's farmers. As a
whole, the U.S. agricultural sector is more than five times as reliant
on foreign trade as the U.S. economy. U.S. agriculture exports hit a
record $60 billion in 1996 but have fallen since then due to economic
crises and recessions in Asia and Latin America.
Imports are also important to consumers by contributing to a
vibrant, competitive economy and high standards of living. Imports can
help keep inflation in check, which often translates into low interest
rates, high investment, and hence high job creation. Imports also give
consumers a greater choice of goods and services, including those not
available domestically. They create jobs in areas such as retail,
distribution, ports and transportation. Imports allow U.S. companies
and employees to use the best technology from around the world,
increasing their productivity and competitiveness and therefore leading
to higher wages and creation of more U.S. jobs. Moreover, imports
encourage competition and innovation.
Because the United States is the world's most competitive nation,
it has the most to gain from the global economy and from trade
liberalization. In the 1980s and early 1990s, conventional wisdom held
that the United States had been overtaken by Japan and Germany and
might never regain its place as an economic leader. Today, the United
States is back on top. Our economy has been growing faster than those
in Europe and Japan. We are the world's biggest exporter of both goods
and services. We have the highest budget surplus (as a percentage of
gross domestic product) of any G-7 economy except Canada. We have
created more net jobs in the past few years than all other G-7 nations
combined, and our unemployment rate is below that of every other major
industrial economy except Japan.
The United States has the world's largest economy, the most
productive employees, the best technology, and the most innovative
people. That is why it is considered to be the most competitive large
country in the world, as recently confirmed by the Global
Competitiveness Report from the World Economic Forum. The United States
is highly competitive in a range of important industries, such as:
semiconductors, computers, computer software, aerospace equipment,
applied materials, biotechnology, construction equipment,
telecommunications and other information-based equipment and services,
financial services, information services and entertainment. These are
the technologies of today--and of the 21st century.
The United States has done so well because its companies and
workers have aggressively sought out the opportunities presented by the
global economy. The U.S. Government needs to continue negotiating new
international trade agreements and enforce existing agreements to
ensure that U.S. companies and workers, and the products and services
they produce, are given the opportunity to compete fairly and to
prosper in the global economy. The United States has nothing to fear
from a rules-based trading system.
Because trade is so economically vital, the direction and execution
of U.S. trade policy can make a big difference. The decisions that this
Committee and the Congress will make in 1999 will have ramifications
for decades to come. Recognizing this, we appreciate the opportunity to
offer some views from the business community.
II. U.S. Trade Policy Should be Keyed to Principles
In defining a trade agenda that will ensure U.S. competitiveness,
as we enter a new century, U.S. policymakers can be helped by orienting
principles.
The four principles are:
1. Given the reality of the global economy, the United States needs
trade and investment policies to navigate through the complexities of a
global system and ensure that trade achieves its intended purpose--to
raise American and global living standards. The U.S. Government needs
to continue to be a powerful advocate for U.S. exports, both in terms
of political support and programs to support U.S. exports. At the
international level, there is a need for effective global financial
institutions to promote international economic stability. Within the
United States, there is a need for periodic review of U.S. laws and
regulations--including sanctions and trade statutes to ensure that they
do not unnecessarily impede the ability of U.S. agriculture, industry,
and their employees to compete in world markets.
2. U.S. leadership is critical. For the last 50 years, the United
States has led the effort to liberalize trade, and the United States
and our trading partners have benefited both economically and
strategically. Continued efforts to liberalize trade will require U.S.
leadership.
3. The rules-based trading system is the foundation of the global
economy and enforcement of the rules is the basis for public trust and
support for U.S. involvement in the global economy. The strength of the
rules-based World Trade Organization (WTO) system also lies in its
inclusiveness and transparency. Compliance with, and enforcement of,
the rules governing trade is key to sustaining support for further
trade liberalization. This applies to the WTO as well as bilateral
rules under agreements negotiated between the United States and other
countries. Furthermore, given the importance of the rules-based WTO
system, aggressive efforts should be made to incorporate into the
system trading partners that have demonstrated a commitment to WTO
principles and trade liberalization.
4. Business is a key driver in the global economy and must be a
force for developing and implementing a trade policy that is no longer
viewed as a zero sum game. Nations pursue trade to benefit their
citizens. Business must work together with government to create a
global trading system that provides benefits to more individuals in
society and accommodates the interests of a broader range of
stakeholders. Business must also ensure that the stakeholders clearly
understand the importance of trade to their future. The best way to
assure that trade is a win-win for a broader group of Americans is by
training and upgrading the skills of the workforce, enforcing
international trade rules and, when necessary, ensuring that companies
and employees have access to appropriate import relief procedures and
remedies.
Mr. Chairman, we believe that these principles will help government
officials in gaining public support for ambitious market opening
initiatives. Attention to principles can also help trade negotiators
assure that the policies being pursued are internally consistent and
mutually reinforcing.
III. The Agenda: Strengthening the World Trading System and Expanding
Coverage to New Players
While there are many issues over which you and the Subcommittee
will be deliberating during the weeks and months ahead as you define
America's trade agenda, I would like to focus on two critical issues
that go to the heart of what will continue to be the strength of our
trade policy--that is, the rules-based trading system. These include:
(1) launching a new round of trade negotiations at the WTO Ministerial
meeting this fall in Seattle; and (2) bringing China into the trading
system on commercially meaningful terms.
The Urgency of WTO Negotiations
Initiating new multilateral trade negotiations in the WTO is vital
for the United States and the global economy. Since the Uruguay Round
negotiations were completed in 1993, the benefits of open trade for
consumers and workers have been amply demonstrated. The new WTO has
provided a framework for carrying on negotiations in selected sectors,
for settling disputes, and for promoting communication between
governments and stakeholders in the private sector. This record
demonstrates that the trading system works. Now it is time to begin new
negotiations to remove remaining barriers to trade and investment.
Efforts are also needed to improve the WTO's rules and its dispute
resolution process.
It is important to launch new world trade negotiations in 1999 and
not to allow differences in economic performance among countries, or
election cycles their, delay start. The world waited seven years
between the GATT Tokyo Round and the Uruguay Round. But today economic
constant communication electronic commerce change is much more rapid.
Because markets respond so quickly in our global economy, trade
negotiations begin to generate economic benefits very quickly. Thus,
further delay in starting new negotiations will postpone the economic
stimulus that successful trade negotiations can deliver. Even worse, a
lack of momentum for new trade talks may lead some governments to
renege on previous liberalization commitments.
Although some have criticized the WTO, the fact is that the WTO is
an organization of governments who cooperate to reduce trade barriers
and eliminate improper trade discrimination. A strong, successful WTO
is in the U.S. interest because this rules-based system can be used to
confront governments that discriminate against Americans who export
goods, services, and capital investments.
The WTO Ministerial to begin in Seattle on November 30 offers an
opportunity for the U.S. Government to promote the launching of new WTO
negotiations. This is the right moment to start new talks because the
experience of the last few years shows several areas in which current
WTO agreements can be built upon and improved. To assist trade
negotiators in crafting an agenda for new WTO negotiations, we offer
several recommendations for how U.S. interests can be best advanced.
Suggested Agenda for New WTO Negotiations
In considering what a new WTO negotiation should accomplish, it
helps to divide the issues into two categories:
the built-in agenda that carries forward ongoing
negotiations, and
review and strengthening of various WTO agreements.
By distinguishing these two categories, it may become clearer to
policymakers and the public that much of what needs to be done within
the WTO, at this time, is not the development of new rule-based
agreements, but rather the continuation of the unfinished business of
the Uruguay Round. This requires the completion of current negotiations
and the adjustment of Uruguay Round agreements based on the experience
of the first five years of operation.
The improvement of current WTO agreements is especially important
to preparing the world trading system for the 21st century. Although
the Uruguay Round included a number of trade agreement milestones, the
full potential of these agreements has not yet been achieved. Rather
than devoting resources to the negotiation of entirely new WTO
agreements, it may be best for governments to focus on improving
existing disciplines.
Governments should aim to keep the overall negotiating process
flexible regarding the implementation of new decisions. In the past,
the operating procedure in trade negotiations was that nothing is
decided until everything is decided. Yet the more structured WTO
decisionmaking mechanisms may provide a way to implement agreements in
individual areas as they are agreed. Requiring all agreements to be
finalized at the same time would likely draw out the negotiating
process, with no concrete results attainable for several years. Given
the growing importance of trade to the United States and world
economies, the United States should not have to wait over seven years
(as in the Uruguay Round) before a package of agreements is finalized.
A precondition for successful trade negotiators is that all WTO
members should agree to a standstill on trade-restrictive measures in
advance of the Ministerial and throughout the negotiations. Such a
standstill would ensure that governments do not modify their laws in
order to gain bargaining advantage. The standstill should not interfere
with the continued use of trade remedy laws consistent with WTO rules.
It is important that the new agreements apply to the largest
possible number of large countries. Thus, the WTO should continue
working to achieve the accession of China and other non-members on
commercially acceptable terms. Strengthening the WTO will also
underline to non-members the value of being part of the multilateral
trading system.
Let me now discuss some actions that the WTO should take with
respect to the built-in agenda.
The Built-in Agenda
There are three parts of the Built-in Agenda--Services,
Agriculture, and Tariffs.
Services. Because world trade in services is increasing at a faster
rate than trade in goods, the expansion of the Services Agreement
should be a top priority in the next round. The problem in Services is
that, at present, the General Agreement on Trade in Services provides
only minimal disciplines.
The WTO needs to begin this process by encouraging governments to
ratify the Financial Services and Basic Telecommunications Agreements
and to fulfill their commitments under them. Negotiations should also
be launched to expand liberalization commitments under these two
agreements. Among the high priority sectors for obtaining new services
agreements are: all levels of distribution, transportation,
construction, tourism, information technology, health care,
advertising, express delivery, and business professional services.
Agriculture. The Uruguay Round made notable progress in reducing
agricultural trade barriers and making import protection more
transparent. But there is far more to do in addressing policies that
impede trade. Negotiations on agriculture are especially important
because the prospects for developing countries of obtaining greater
market access can encourage responsive commitments by these countries
not only on agriculture, but also on other sectors of interest to
industrial countries.
Tariffs. Although average tariff levels have fallen as a result of
trade negotiations, tariffs remain significant barriers in some
sectors. This should be a high priority in new negotiations. High
tariffs must be put on a timetable for reduction. When feasible, zero-
for-zero proposals should be considered and ``nuisance'' tariffs--those
under 5 percent--should be eliminated.
Review and Strengthening of WTO Agreements
Moving beyond the Built-in Agenda, the WTO should address several
problems that have risen in the implementation of the Uruguay Round
Agreements. Using the upcoming negotiations to improve the
effectiveness of the WTO is the best way to strengthen the trading
system for the challenges of the 21st century.
The following is an overview of the major issues that need to be
addressed:
Intellectual Property. Even after the improvements achieved in the
Uruguay Round Agreement on Trade-Related Aspects of Intellectual
Property (TRIPS), significant gaps remain in the protection and
enforcement of intellectual property rights--regarding patents,
trademarks, copyrights, and trade secrets. Governments also need to
focus on improving the enforcement of TRIPS obligations. For example,
developing countries must honor their TRIPS obligations following the
termination of the transition period ending January 2000.
Subsidies and Countervailing Measures. The WTO Agreement on
Subsidies and Countervailing Measures (SCM) was an important
achievement of the Uruguay Round, and trade negotiators should resist
proposals to weaken it. In addition, negotiators should consider ways
to strengthen the Agreement; for example, by requiring developing
countries to apply the same disciplines against export subsidies.
Customs-Related Issues. Although often technical, national
regulations regarding rules of origin, pre-shipment inspection, import
licensing, and valuation can have a significant impact on business
costs and trade flows. For example, the Uruguay Round provides for a
work program on the harmonization of rules of origin. These efforts
have been slow going. The trade ministers should renew their efforts to
achieve such harmonization.
Sanitary and Phytosanitary Measures. The WTO Agreement on Sanitary
and Phytosanitary Measures (SPS) does not prevent governments from
enforcing legitimate food safety and public health regulations. What
SPS aims to do is to assure that governments do not block imports
through unnecessary regulations either inadvertently or through
inadvertence. Any attempt to water down these requirements should be
opposed.
More attention should be given to the provision calling for
governments to base their SPS measures on international standards
except when those standards fail to provide a high enough level of
health protection. Greater harmonization of food safety standards will
lead to a safer world food supply and will help achieve the dual goals
of fewer trade restrictions and the avoidance of episodes in which
protectionists blame tainted food on free trade.
Technical Barriers to Trade. As tariff barriers fall, some
governments and standard-setting organizations will be tempted to use
technical standards as a substitute for tariffs in order to protect
national industry. Recognizing this possibility, the Uruguay Round
produced a new Agreement on Technical Barriers to Trade (TBT). These
new disciplines have not yet been tested in WTO dispute settlement.
Nevertheless, a number of concerns have arisen. For example, for
standards seeking to fulfill health, safety, or environmental
objectives, TBT lacks a requirement that such standards be based on
scientific principles.
Government Procurement. The Agreement on Government Procurement is
not part of the WTO single undertaking but rather is a ``plurilateral''
agreement comprising only 26 of 133 WTO member countries. The upcoming
Trade Round should review this status to see if the Procurement
Agreement can be fully brought into the WTO. This is a huge sector
totaling over $3 trillion a year worldwide.
For those governments that do participate in the Procurement
Agreement, efforts should be made to strengthen the Agreement by: (1)
expanding coverage of subnational governments and government-controlled
enterprises; (2) inclusion of additional service sectors; and (3)
lowering the threshold for obligations to apply. The issue of
developing country participation in agreement the Procurement Agreement
should also be discussed. These countries may have the most to gain
from transparent and fair procurement processes that make best use of
their limited resources.
Electronic or E-Commerce. E-Commerce does not appear to require
unique trade rules, but because of the importance of this new sector to
economic efficiency and growth, the WTO should give specific attention
to it. A top priority at the Ministerial should be to make permanent
the standstill regarding tariffs on electronic transmission. Another
objective should be to ensure that MFN and national treatment are
accorded to foreign providers of Internet and interactive services.
Trade-Related Investment Measures. The WTO Agreement on Trade-
Related Investment Measures (TRIMs) is the thinnest of the WTO
Agreements. Attention should be given to strengthening its provisions.
One of the critical areas for discipline is the imposition of trade-
related investment measures, such as mandatory technology transfer
requirements. Such requirements are trade-distorting and can often
render new investment impossible.
Transparency of Government Policies. Transparency requirements are
currently spread throughout the WTO Agreements. The WTO should consider
the negotiation of a general transparency agreement that would
encompass tariffs, internal taxes, standards, sanitary measures,
domestic regulations, subsidies and export incentives, export controls,
procurement, agricultural policies, rules of origin, and other customs
practices. Such an agreement could provide for clear publication of
government rules and perhaps help to curtail bribery and corruption. It
could also affirm the value of private sector participation in the
rules-setting process.
Dispute Settlement. The WTO's Dispute Settlement Understanding is
the key to effective enforcement of WTO agreements. However, experience
with the WTO dispute process has revealed several areas where the
procedural rules need improvement. We recommend that trade negotiators
consider whether the timetable for the panel process can be
substantially streamlined perhaps by cutting down the time by 50
percent. Right now, the biggest problem lies in the slow implementation
of panel and Appellate Body reports over a 12-15 month period. While
this period may already be too long, ``gaming'' by governments may drag
out the compliance process even longer. The WTO needs to address this
tactic in order to retain public confidence in the dispute settlement
system.
Trade and Environment. In 1994, trade ministers created a Committee
on Trade and Environment. The WTO renewed that mandate in 1996. The
Committee has held numerous meetings, but has made very limited
progress. Later this month, the WTO is sponsoring a high-level meeting
on Trade and Environment to review the issues and to stimulate new
proposals.
The WTO is not the right forum to negotiate international
environmental policy. Attempting to do so would distract trade
ministers from what should be their primary objective which is to open
markets, prevent export subsidies, and stop trade discrimination.
Recognizing, however, that unmanaged transborder environmental problems
can sometimes become trade issues, the Roundtable endorses efforts by
governments, working with interested stakeholders, to improve the
effectiveness of multilateral environmental institutions and
agreements.
There are also a few environment-related issues that need to be
addressed in the WTO, and governments should strive to make greater
progress here. For example, the status of multilateral environmental
agreements under trade rules needs to be clarified so that the WTO is
not perceived in some quarters as an impediment to environmental
protection. The problem of subsidies that harm the environment e.g.,
European agricultural subsidies deserves more attention, and the Trade
Policy Review Mechanism might be used to cast a spotlight on such
practices.
Labor Issues. The issue of trade and labor rights has engendered so
much controversy that it has eclipsed the real issue, which is
obtaining more respect for internationally recognized labor standards
around the world. During 1998, significant progress was made in Geneva
when the International Labor Organization (ILO) adopted a Declaration
on Fundamental Principles and Rights at Work. This was a landmark
achievement for the ILO and exemplifies what The Business Roundtable
called for in 1995 when the Roundtable urged that ILO programs be
improved. Governments should continue to pursue multilateral efforts to
promote labor standards. The organization of primary responsibility
should be the ILO, but complementary activities in other organizations
should not be ruled out, or insisted upon.
An important labor standard is freedom from forced labor practices.
The WTO is not oblivious to this heinous problem. Article XX(e) of the
General Agreement on Tariffs and Trade has always allowed governments
to ban imports of products made with ``prison labor.'' At this time,
the applicability of this exception to products of forced labor remains
uncertain. It may be timely for the WTO to clarify this ambiguity by
affirming that governments may ban products made using forced labor.
Doing so might help governments combat forced labor, a practice that is
anathema to free market principles.
Consideration should also be given to expanding GATT Article XX to
deal with products made using child labor. This year, the ILO will
complete a new Convention on exploitative child labor, and the
definitions employed in this Convention might be utilized in modifying
Article XX. It should be noted that Article XX would not permit
punitive trade sanctions on unrelated products. Rather, Article XX
would only permit an import ban on the product made using child labor.
New Initiatives
A number of new rule-based WTO initiatives have been
proposed such as investment and competition policy. These
issues are important to the international economic system, and
careful consideration should be given to determine whether
these issues are ripe for WTO negotiations.
Competition Policy. The globalization of business
activities raises important questions about the extent to which
foreign anticompetitive practices may undermine market access
opportunities created by bilateral and multilateral trade and
investment agreements. However, at this time, there are huge
uncertainties as to the proper goals for a competition policy
negotiation in the WTO and whether the WTO is the optimal
forum. For example, what are the downsides and, conversely, the
upsides of addressing market access problems through an
international competition policy agreement in the WTO or other
fora?
Under these circumstances, it is premature to launch a WTO
negotiation on competition policy. A more constructive approach
would be to establish a new WTO work program that will focus
more on exchanging information about the development and
enforcement of appropriate antitrust laws.
Investment. Achieving disciplines on how governments treat
foreign investment is important to gaining the full benefits of
the international economic system. If the WTO Ministerial
decides not to launch comprehensive international investment
negotiations, a constructive course now would be (1) to
strengthen the WTO Agreement on Trade-Related Investment
Measures by expanding it to include additional trade distorting
investment measures, such as technology transfer requirements,
and (2) to establish a WTO work program on investment that will
focus more on exchanging information about how to structure an
investment regime that will promote economic growth.
China's WTO Accession
Mr. Chairman, over the next five weeks, the United States and China
have a window of opportunity to accelerate the process of bringing
China into the global trading system. As the largest emerging economy
in the world, China can take on a pivotal role in helping to chart the
course for recovery in Asia particularly in light of the continuing
weakness in the Japanese economy. In addition, the growth of the Asian
market is important to the United States and further opening China's
market will lead to increased U.S. exports of goods, services and
agriculture.
Fully integrating China into global economic institutions, such as
the WTO, is the best means to ensure that China will play a positive
role in the global economy and provide broader market access for U.S.
goods and services. In order to join the WTO, China should be required
to enter into binding commitments to open its markets and abide by the
disciplines of multilateral trading rules. The liberalization required
under WTO rules would provide important new opportunities in the vast
Chinese market, which will help maintain global economic growth. WTO-
mandated liberalization in China will also promote growth in China
itself as the removal of discriminatory trade barriers creates new
opportunities for economic activity and jobs. WTO accession would also
provide another venue to encourage China to maintain a stable currency.
While China's WTO membership is important because of the benefits
it would provide to the American, the Chinese and the global economy,
it would also be viewed by financial markets throughout the world as a
vote of confidence in the global economic system. China's WTO
membership would send a powerful signal to Asian economies and other
emerging markets around the world the importance of maintaining open
markets and adhering to multilateral trading rules if economic growth
is to be maintained.
In advocating China's WTO membership, we do not suggest that it be
at any price. China must be willing to agree to a commercially viable
protocol of accession, which provides meaningful market access for U.S.
goods, services and agriculture. These commitments must be in addition
to China's full implementation of existing liberalization commitments.
If China agrees to such a protocol, the United States should be ready
to support China's WTO admission and request that the Congress approve
the permanent extension of normal trade relations (NTR) treatment so
that U.S. firms and workers will be able to take full advantage of the
market opening agreements that have been so paintstakingly negotiated.
Bringing China into the global trading must remain one of America's
greatest priorities. We ask for your continued leadership in achieving
this goal by making it an integral part of your global economic
strategy, and we commit our support to you to work to build support for
permanent NTR trading status.
IV. Conclusion
The next nine months will be very important in determining the
future direction of U.S. trade policy. First, the United States will
hopefully be successful in securing China's accession to the WTO on the
basis of a commercially viable protocol of accession. This will help
restore stability in Asia and strengthen the multilateral trading
system by ensuring that key members of the team are all playing by the
same rules. Second, we hope that the United States will provide the
leadership necessary to launch new negotiations in the WTO to further
liberalize trade and strengthen the WTO. I urge the Congress and the
Administration to work together to reach a consensus on moving forward
this year on these critical issues. And, I commend the Subcommittee for
holding these hearings to help inform members of the Congress and the
public about these vital issues and to continue the process of building
a national consensus on America's trade policy.
Chairman Crane. Thank you, Mr. Condit.
Mr. Baszile.
STATEMENT OF BARRY BASZILE, PRESIDENT AND OWNER, BASZILE METALS
SERVICE, LOS ANGELES, CALIFORNIA
Mr. Baszile. Mr. Chairman, Members of the Subcommittee,
good morning. I am Barry Baszile, the owner and president of
Baszile Metals Service. Our main office is located in Los
Angeles, California, and we have branch offices located in
Seattle, Washington, and in York, Pennsylvania.
First, I would like to thank you for the opportunity to be
with you today to represent my company of 40 employees and our
community. One of my primary reasons for being here with you
today and the reason that I am so excited about this
opportunity is to try and put a face on what you all hear so
much about. That is, how international trade impacts the
thousands of small businesses in communities scattered
throughout this country.
I can tell you that Baszile Metals Service is living proof
that the benefits of participating in a global economy are not
limited just to big business. Some 24 years ago, I founded
Baszile Metals. Today, we are the only black-owned firm to
manufacture parts, process and deliver aluminum sheet, plate,
rod, bar, and extrusions to the aerospace and defense
industries. I began my career making cold sales calls on large
companies. Many of those companies, like Boeing, gave us a
chance. The door was opened, and it was up to us to be reliable
and provide quality products at competitive prices.
I am fortunate to have a talented, dedicated workforce.
These are people who really care about their jobs and their
customers. They know that our products must be of the highest
quality because lives depend on it. Over the past 24 years, our
products have been a part of every Boeing model of commercial
aircraft, NASA's space shuttle, the international space
station, the F-15 and F-16 jet fighters. We are also a supplier
for the Joint Strike Fighter program.
Our customers have included the Boeing Company, Rockwell
International, Northrop-Grumman, McDonnell-Douglas, Lockheed
Martin, the Department of Defense, and NASA. We have even
provided copper, nickel, and zinc to the Treasury Department
for the coins. We are also a stocking supplier for bus brake
and axle parts and brake assemblies and repair kits. The hard
work and dedication of our employees has paid off. Last year,
our company was selected as the Boeing Company's Small
Disadvantaged Supplier of the Year. One of the reasons for our
selection was our 97.6 percent on-time delivery record. We are
extremely proud of our performance and of this recognition.
I am keenly aware of the role that my customers play in the
international marketplace, and how competitive it can be. Our
role as a supplier is to deliver quality products on time and
at competitive prices. However, I have another responsibility.
That is to provide jobs and economic opportunity in my
community. If possible, I would like to take just a moment to
tell you how our association with companies like Boeing
manifest itself in our inner city Los Angeles community.
Our firm is transitioning into a true manufacturing
company. Soon, we will not only be providing metals, but
producing metal parts for our customers. We are building a
10,000-square foot machine shop to produce precision parts. The
people who make those parts will be individuals who could be
classified as socially and economically disadvantaged. We are
working hand-in-glove with Los Angeles law enforcement, black
and Hispanic groups, the International Association of
Machinists, and the United Auto Workers, to identify and train
so-called ``deadbroke dads'' for jobs as machinists. Some of
the men with this label are not deadbeats. What so many of them
need are jobs to help them fulfill their obligations. We are
going to do that. They need training to build a skill that they
can take pride in and help restore their self respect as
contributing members of the community. We are going to help
them do just that.
If I might, Mr. Chairman, I would like to talk about one
more program that my company is involved in. In October, we
announced the formation of a new non-profit organization called
Welfare to Work Partners, to help address the critical needs of
our inner-city community. Welfare to Work Partners will target
crucial problems such as preparing welfare recipients to
successfully enter the workforce by improving their academic
competencies and life skills. Our goal is to enhance the level
of bonding and emotional relationships between non-custodial
fathers and their children, establish paternity, increase the
fathers' earning capacity, and to improve community awareness
of fatherhood. The Welfare to Work Partners program is off and
running. We even have our own Website. You can find us at
www.wwpartners.org.
We are teaming with the successful Fast Track LA program,
which is a unique program that provides classes to improve both
academic and important life skills. As an inner city employer,
I am sensitive to the needs to assist our employees in their
own self-improvement and education. Baszile Metals has a 20
station computer lab where our employees can work on programs
designed to improve their English, reading, and math skills
levels.
My background and training was as a probation officer and
social worker. Today I am a businessman working with some of
our Nation's largest companies, including the country's largest
exporter, the Boeing Company.
Ladies and gentlemen, what I hope I have left with you
today is what one company can do in its community as the result
of having strong business partnerships with major companies to
do business in the international marketplace. I encourage you
to continue to find ways that we as a Nation can participate in
fair and open trade with other nations, so that our employees
and our communities can benefit.
Thank you very much.
[The prepared statement follows:]
Statement of Barry Baszile, President and Owner, Basszile Metals
Service, Los Angeles, California
Mr. Chairman, Members of the Subcommittee, good morning. I am Barry
Baszile, the owner and President of Baszile Metals Service. Our main
office is located in Los Angeles, California and we have branch offices
located in Seattle, Washington and York, Pennsylvania.
First, I would like to thank you for the opportunity to be with you
here today to represent my company and our 40 employees, and our
community. One of my primary reasons for being here with you today, and
the reason that I am so excited about this opportunity is to try and
put ``a face'' on what you all hear so much about. That is how
international trade impacts the thousands of small businesses in
communities scattered throughout this country. I can tell you that
Baszile Metals Service is living proof that the benefits of
participating in a global economy are not limited just to big business.
Some 24 years ago I founded Baszile Metals. Today we are the only
black-owned firm to manufacture parts, process and deliver aluminum
sheet, plate, rod, bar and extrusions to the aerospace and defense
industries. I began my business making cold sales calls on large
companies. Many of those companies, like Boeing, gave us a chance. The
door was opened and it was up to us to be reliable and provide quality
products at competitive prices.
I am fortunate to have a talented, dedicated workforce. These are
people who really care about their jobs and their customers. They know
that our products must be of the highest quality because lives depend
on it. Over the last 24 years our products have been a part of every
Boeing model of commercial aircraft, NASA's space shuttle and
International Space Station and the F-15 and F-16 fighter jets. We are
also a supplier for the Joint Strike Fighter program.
Our customers have included: The Boeing Company, Rockwell
International, Northrop-Grumman, McDonnell-Douglas, Lockheed Martin,
the Department of Defense and NASA. We have even provided copper,
nickel and zinc to the Treasury Department for coins. We are also a
stocking supplier for bus brake and axle parts and brake assemblies and
repair kits.
The hard work and dedication of our employees has paid off. Last
year our company was selected as The Boeing Company's Small
Disadvantaged Supplier of the Year. One of the reasons for our
selection was our 97.6 percent on-time delivery record. We are
extremely proud of our performance and of this recognition.
I am keenly aware of the role that my customers play in the
international marketplace and how competitive it can be. Our role as a
supplier is to deliver quality products, on time at a competitive
price. However, I have another responsibility and that is to provide
jobs and economic opportunities in my community.
If possible I would like to take just a moment to tell you how our
association with companies like Boeing manifests itself in our inner
city Los Angeles community.
Our firm is transitioning into a true manufacturing company. Soon
we will not only be providing metals, but producing metal parts for our
customers. We are building a 10,000 square foot machine shop to produce
precision parts. The people who make those parts will be individuals
who could be classified as socially or economically disadvantaged.
We are working hand-in-glove with Los Angeles law enforcement,
Black and Hispanic groups, the International Association of Machinists
and the United Auto Workers to identify and train so called ``deadbroke
Dads'' for jobs as machinists. Some of the men with this label are not
``deadbeats.'' What so many of them need are jobs to help them fulfill
their obligations . . . and we are going to do that. They need training
to build a skill that they can take pride in and help restore their
self-respect as contributing members of the community . . . and we're
going to help them do just that.
If I might, Mr. Chairman I would like to talk about just one more
program that my company is involved in.
In October we announced the formation of a new, non-profit
organization called ``Welfare to Work Partners'' to help address the
critical needs of our inner-city community.
``Welfare to Work Partners'' will target crucial problems such as
preparing welfare recipients to successfully enter the workforce by
improving their academic competencies and life skills.
Our goal is to enhance the level of bonding and emotional
relationships between non-custodial fathers and their children;
establish paternity; increase the fathers' earning capacity and;
improve community awareness of fatherhood. The Welfare to Work Partners
program is off and running. We even have our own web site
www.wwpartners.org.
We are teaming with the successful Fast Track LA program, which is
a unique training program that provides classes to improve both
academic and important life skills.
As an inner city employer, I am sensitive to the needs to assist
our employees in their own self-improvement and education. Baszile
Metals has a 20 station computer lab where our employees can work on
programs designed to improve their English, reading and math skill
levels.
My background and training was as a probation officer and social
worker. Today I am a businessman working with some of our nation's
largest companies, including the country's largest exporter--The Boeing
Company.
Ladies and Gentlemen, what I hope I have left with you today is
what just one company can do in its community as the result of having
strong business partnerships with major companies to do business in the
international marketplace. I encourage you to continue to find ways
that we, as a nation, can participate in fair and open trade with other
nations, so that our employees and our communities can benefit.
Thank you.
Chairman Crane. Thank you, Mr. Baszile.
Mr. Swift.
STATEMENT OF RICHARD J. SWIFT, CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, FOSTER WHEELER CORPORATION, CLINTON, NEW
JERSEY, ON BEHALF OF THE NATIONAL FOREIGN TRADE COUNCIL, INC.
Mr. Swift. Mr. Chairman, and Distinguished Members of the
Subcommittee, I am Dick Swift, the chairman and chief executive
officer of Foster Wheeler Corporation, a global engineering,
construction, and manufacturing company specializing in the
process and power industries. I also serve as the chairman of
the National Foreign Trade Council, a broad-based organization
founded in 1914, of more than 550 U.S. companies having
substantial international interests.
I am appearing today on the Council's behalf. I would like
to submit my detailed statement for the record and summarize my
remarks for you now.
I appreciate the opportunity to testify today. Foster
Wheeler, like many other NFTC members, depends on its success
in the international marketplace for the majority of its
business. In fundamental respects, our Nation's economic
strength has been due to our extensive trade and investment
with other countries, and our willingness to remain open and
unafraid of global competition. World Trade Organization trade
ministers will meet in Seattle later this year, creating a real
opportunity to advance America's economic interests and
demonstrate bipartisan support for increased trade.
Through a new round of multilateral negotiations, the
United States can reduce barriers to agricultural trade, open
trade in services, and give American business new access to
other markets around the world. We can also strengthen and
improve our existing WTO trade agreements and enforcement
mechanisms. The NFTC has provided recommendations to the U.S.
trade representative on future WTO negotiations that are
included in my statement for the record.
For decades, America has been the world's most powerful and
articulate advocate of an open rules-based trading system.
Today however, many have begun to doubt America's commitment to
open trade. It is time to get back to the positive role of
trade and demonstrate the leadership necessary to implement a
forward-looking trade agenda. Congress has a vital role to
play. Passage of a broad pro-trade bill would clarify and renew
America's commitment to open markets and global growth. Such a
package could strengthen the hand of our negotiators and the
competitiveness of our business in the international
marketplace.
The bill should contain these elements. First, strongly
endorse multilateral trade liberalization through comprehensive
WTO negotiations and other bilateral and regional trade
initiatives. Such liberalization would be a powerful stimulant
to global economic growth and recovery.
Second, renew traditional trade negotiating authority. This
will provide our negotiators the tools they need to negotiate
from strength, and allow major new trade negotiations under the
WTO, FTAA, and APEC to proceed in a serious and meaningful
manner. We recognize that there will be little progress until
we address the environmental and labor issues that have been
raised. We believe that a meaningful dialog must be started to
move the process forward.
Third, enact common sense sanctions reform. This will put
in place a process for thoughtful and rational cost-benefit
analysis before imposing counter-productive unilateral economic
sanctions. The NFTC strongly endorses the sanctions reform
legislation that will be introduced shortly and will be
sponsored by the distinguished Chairman of the Subcommittee,
Congressman Crane, along with Congressmen Dooley and Manzullo.
Fourth, provide American exporters and workers with the
tools they need to compete on a level playing field. This
should include multi-year authorization for OPIC, the Export-
Import Bank, TDA, and the Trade Advocacy Center. These
organizations provide tremendous economic return on a very
small investment, and the services they provide are crucial for
helping keep America competitive against foreign government
supported exports in overseas markets.
Fifth, reform cold war era trade laws such as Jackson-
Vanik, and grant multi-year Normal Trade Relations status to
China and Vietnam. Provisions should also be made to grant
permanent NTR to them upon accession to the WTO on a meaningful
commercial basis.
Finally, the bill should include provisions to renew and
reform the Export Administration Act and the Trade Adjustment
Assistance program. Congress may also wish to include
preferential trade programs for less developed countries, such
as those contained in the Africa Growth and Opportunity Act,
and the Caribbean Parity legislation.
In crafting a pro-trade bill, the NFTC strongly urges
Congress to make sure that all of its provisions are consistent
with our obligations under the WTO, and are market opening, not
market closing.
Mr. Chairman, the NFTC believes that enactment of a broad-
based, pro-trade bill will erase many of the doubts about our
commitment to open trade, and increase America's
competitiveness in the global market. The NFTC and its members
stand ready to work with the Committee in developing and
supporting such a package. Thank you.
[The prepared statement follows:]
Statement of Richard J. Swift, Chairman, President and Chief Executive
Officer, Foster Wheeler Corporation, Clinton, New Jersey, on behalf of
the National Foreign Trade Council, Inc.
Mr. Chairman and distinguished Members of the Subcommittee, I am
Richard J. Swift, Chairman, President and Chief Executive Officer of
Foster Wheeler Corporation. Foster Wheeler is a U.S.-based engineering,
construction and manufacturing company specializing in the process and
power industries. I am appearing today on behalf of the National
Foreign Trade Council (NFTC), a broad-based organization of more than
550 U.S. companies having substantial international operations and
interests. At the beginning of this year, I became the Chairman of the
NFTC.
I appreciate the opportunity to testify today on U.S. trade policy
and the trade agenda. I would like to begin by applauding the historic
leadership role of the Ways and Means Committee in forging a
bipartisan, pro-trade agenda for our nation. Such an agenda has never
been more important.
I would like to focus my remarks on three issues: (1) the
fundamental importance of trade to the U.S. economy and the need for
American leadership in fostering
global growth; (2) the need to support American exporters, workers,
farmers, and consumers through passage of a bipartisan pro-trade bill;
and (3) the critical importance this year of a successful World Trade
Organization (WTO) Ministerial Conference which launches new
multilateral trade negotiations.
1. Importance of Trade to the U.S. Economy and Need for American
Leadership in Fostering Global Growth
As the world's largest trader and most open, major market economy,
the United States has benefitted enormously from expanding global trade
and investment. In fundamental respects, our nation's economic strength
at home has been due to our vibrant trade and investment with other
countries and to remaining open and unafraid of global competition. The
result has been the longest domestic economic expansion since World War
II.
The facts speak for themselves. More than one-third of America's
economic growth during the 1990s was from exports. Trade now accounts
for close to 25 percent of our GDP. Millions of workers depend on trade
for stable, well-paying jobs. It's been said many times, but it bears
repeating--only 4 percent of the world's population lives in the United
States. American businesses, workers, farmers and consumers must
continue to engage actively in global trade if our economy and standard
of living are to grow and remain healthy.
Like many NFTC members, Foster Wheeler depends on expanding trade
and investment for a majority of its overall revenue. More than 60% of
Foster-Wheeler's revenues are from our international activities. When
Foster Wheeler grows globally, our domestic activities also thrive.
These activities include millions of dollars in purchases from American
small and medium business suppliers, who are often unaware that they
are ``invisible exporters.''
Let me give you one example. Two years ago, Foster Wheeler signed a
contract to supply six steam generators for the Yancheng electric power
project in China--the largest single boiler contract in Chinese
history. The project is keeping at least 200 people employed at our
Dansville, New York, facility. It's also generating millions of dollars
in orders for suppliers of all kinds of products in 26 states. By the
time it's complete, Yancheng will bring in $310 million in orders for
America goods and services--orders that are already supporting hundreds
of jobs across the country.
Yancheng isn't just a success story for Foster Wheeler. It's a
success story for American trade policy. We win such contracts because
our government supports an open, rules-based global trading system.
Those American jobs are possible because Congress supports normal trade
relations with China. Suppliers all across the country are receiving
those orders today due to continued congressional reauthorization of
the Export-Import Bank, which provided critical financing.
I would like to turn briefly to the positive role of imports and
keeping the trade deficit in perspective. A primary cause of our rising
trade deficit is because the U.S. economy is much stronger than many
other major economies, which have been in severe recession, stagnation
or a slower growth mode. The Asian financial crisis and the subsequent
serious downturn in these and other key markets led to a decline in our
exports last year. At the same time, the strength of the U.S. economy
has kept U.S. demand for imports at a high level. This is what is
driving our rising trade deficit. It is notable, however, that the
deficit is still much smaller as a percentage of GDP than it was the
last time our nation's trade deficit (goods and services) peaked in
1987--1.98 % versus 3.27%.
While recognizing that certain sectors of our economy have been hit
hard by slower growth overseas and stronger imports, imports play a
positive role in the U.S. economy. They provide consumer freedom of
choice, fill a market demand that may not be available domestically,
and are often incorporated as components into American-made final
products. Imports also provide a healthy dose of competition. In fact,
the competitiveness fostered by our openness to imports is one of the
fundamental reasons our economy is as strong as it is today. Finally,
the United States, like other countries, has trade laws to deal with
injurious imports.
American economic leadership in bolstering global economic growth
and U.S. exports can help stem the rising U.S. trade deficit. This
means stabilizing economies in turmoil in Asia and Latin America,
keeping markets open, further liberalizing trade and investment, and
making sure American exporters and workers have the necessary tools
from our government to compete globally on a level playing field. These
tools include establishing predictable and effective trade rules,
negotiating market-opening trade agreements, halting the use of
counterproductive unilateral economic sanctions, and providing
competitive export and investment financing.
There are also important indirect benefits from global economic
engagement. Expanding trade and investment supports broader national
objectives. It stimulates economic growth and development, which
provides countries with the means to address other important objectives
besides alleviation of poverty and basic economic survival. It improves
workers lives. For example, affiliates of American companies abroad
provide higher average wages and better benefits such as health care
and housing. It improves the environment by incorporating higher
environmental standards in new plants, by exporting environmentally
advanced technologies, and by eliminating harmful subsidies,
particularly in the agricultural sector. And finally, America's trade
expansion, as well as trading regimes such as the WTO, spread core
American values such as respect for the rule-of-law, openness,
transparency and regulatory due process. Trade deserves much greater
credit as a positive force for building better civil societies.
2. The Need for a Positive, Bipartisan Pro-Trade Package
For decades, America has been the world's most powerful and
articulate advocate of an open, rules-based trading system. Today,
however, many have begun to doubt America's commitment to open trade.
Uncertainties about U.S. trade policy threaten to undermine many of the
opportunities expanded trade could create for American business and
workers. For example, the Administration's trade negotiating authority
has lapsed. Our relationship with our fourth-largest trading partner,
China, continues to be the subject of acrimonious debate every year.
Far too often, America imposes unilateral trade sanctions in disputes
with foreign countries, even our friends. Reauthorization and funding
for vital agencies that promote U.S. exports is uncertain. Even
American participation in organizations like the International Monetary
Fund (IMF), the World Bank and the WTO itself cannot be taken for
granted.
It is time to get back to the positive role of trade, and
demonstrate the leadership necessary to implement a forward-looking
trade agenda. Congress has a vital role to play. Congressional passage
of a broad pro-trade bill would help to clarify and renew America's
commitment to expanding trade and fostering global growth. Such a
package could strengthen the hand of our negotiators and the
competitiveness of our businesses and workers in the international
marketplace.
The bill should contain these key elements:
Strong support for advancing global trade liberalization,
trade expansion and effective trade rules through comprehensive WTO
trade negotiations, and other important bilateral and regional trade
initiatives. Such action will serve as a powerful engine of growth
domestically and globally.
Renewal of traditional trade negotiating authority on a
multi-year basis to provide America's trade negotiators the tools they
need to get the job done from a position of strength and allow major
new trade negotiations, including WTO, Free Trade Area of the Americas
(FTAA) and Asia Pacific Economic Cooperation (APEC) trade talks, to
proceed in a serious and meaningful manner. We recognize that there
will be little progress on this matter until we address the
environmental and labor issues that have been raised. We are prepared
to sit down with the members of this Committee, the Administration, and
others to engage in a meaningful dialogue that will move the process
forward. I don't expect that we will agree on all the issues, but we
have a mutual interest in resolving this impasse so that we can advance
our national interests in the global economy.
Common sense sanctions reform to put in place a process
for thoughtful and rational cost/benefit analysis prior to the
imposition of unilateral economic sanctions, and lifting current
sanctions that are counterproductive and harmful to American exports
and jobs. The NFTC strongly endorses the legislation that will be
introduced as soon as next week by the distinguished Chairman of this
Subcommittee, Congressmen Crane, along with Congressmen Dooley and
Manzullo.
Essential trade tools for American exporters and workers
to compete on a level playing field. These should include multi-year
reauthorizations for the Overseas Private Investment Corporation and
the Export-Import Bank, as well as the programs of the Trade and
Development Agency and the Commerce Department's Advocacy Center. These
organizations provide tremendous economic return on a very small
investment, and the services they provide are crucial to keeping
America competitive against foreign government-supported exports in
overseas markets.
Reform of Cold War era trade statutes, such as the
Jackson-Vanik amendment to Title IV of the Trade Act of 1974, by
granting multi-year Normal Trade Relations (NTR) status to China,
Vietnam and other covered countries, promoting their accession to the
WTO in a commercially meaningful manner, and granting permanent NTR to
them upon such accession.
Reauthorization and reform of the Export Administration
Act in a manner which recognizes current commercial realities of dual-
use technology in the global marketplace, and which places greater
emphasis on viable multilateral solutions.
Renewal and reform of the Trade Adjustment Assistance
program to help dislocated workers obtain new skills and jobs, greater
technical assistance to bolster International Labor Organization (ILO)
initiatives, and support for effective implementation of the June 1998
ILO Declaration on Fundamental Principles and Rights at Work.
Preferential trade programs for less developed countries,
including extension of the Generalized System of Preferences, the
Africa Growth and Opportunity Act, Caribbean Parity legislation, and
renewal of the Andean Trade Preferences Act.
The NFTC and its members stand ready to work with the Committee and
other groups in developing such a pro-trade agenda in a bipartisan
manner.
3. The Critical Importance of a Successful WTO Ministerial and New
WTO Round
Finally, I'd like to turn to one of the most important issues on
our nation's trade agenda this year--the WTO Ministerial Conference and
the launching of new WTO trade talks. The NFTC believes a successful
WTO Ministerial is vitally important and that our government should be
bold and farsighted in leading the way for comprehensive new WTO
negotiations to advance global trade liberalization and strengthen
existing WTO agreements.
The NFTC submitted detailed comments to the United States Trade
Representative last October on its recommendations for the scope and
content of future WTO trade talks, and has submitted recent comments on
upcoming WTO negotiations on government procurement issues. These
comments are attached to this statement and we request that they be
made part of the record.
The NFTC supports the Administration's efforts to reach agreement
by the time of the ministerial meeting, in a few key areas as a down
payment for launching a more comprehensive, accelerated round of WTO
negotiations. So-called ``deliverables'' should include a WTO agreement
on the ``early voluntary sectoral liberalization'' initiative launched
by APEC countries, an agreement on transparency in government
procurement, conclusion of the second round of Information Technology
Agreement negotiations, and a continued moratorium on tariffs on e-
commerce. The NFTC supports a new WTO Round that further opens and
expands trade for American businesses, workers, and farmers. This
should include mandated ``built-in'' negotiations on services and
agriculture, industrial tariff reductions, improvements to existing WTO
agreements and rules, and certain institutional changes to ensure the
WTO is equipped for the 21st century.
As members of the subcommittee are well aware, the WTO and its
predecessor, the General Agreement on Tariffs and Trade (GATT), form
the core foundation of an open and expanding multilateral trading
system. It is rules-based, market-opening, and provides for effective
dispute settlement. It has been key to fostering global growth and
prosperity for over five decades. The Uruguay Round alone--the last
round of multilateral trade talks which concluded in 1994--represented
the largest global tax cut in history and forged unprecedented
agreements in areas such as agriculture, services, intellectual
property and dispute settlement.
The upcoming WTO Ministerial in Seattle offers us a rare
opportunity to demonstrate united American leadership on trade by
showcasing its benefits, and by galvanizing support for comprehensive
WTO market-opening negotiations and improvements to existing WTO
agreements. Such action--setting the example and leading the way for
further multilateral progress on trade--is one of the most important
steps we can take to restore global growth and prosperity. Part of
setting the example includes upholding existing WTO obligations. The
NFTC urges all WTO members to agree to a ``standstill'' against new
trade barriers.
Historically, the United States has led the rest of the world in
advancing multilateral trade liberalization. As the world's economic
superpower, we must again step up to the plate. The NFTC is working
with other major business groups, some of which are represented here
today, helping the business community do its part to assure a
successful WTO Ministerial.
Mr. Chairman, thank you for the opportunity to share the NFTC's
views on the U.S. trade policy agenda.
[An attachment is being retained in the Committee files.]
Chairman Crane. Thank you, Mr. Swift.
Mr. O'Hare.
STATEMENT OF DEAN R. O'HARE, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, CHUBB CORPORATION, WARREN, NEW JERSEY, AND CHAIRMAN,
COALITION OF SERVICE INDUSTRIES
Mr. O'Hare. Thank you, Mr. Chairman. It is a pleasure to
present the views of the Coalition of Service Industries, CSI,
on priorities for expanding U.S. services trade.
CSI believes that an open rules-based international trade
system is essential to maintain U.S. economic prosperity, and
that the World Trade Organization is absolutely essential to
that system. The WTO has proven its value to the U.S. services
sector by concluding good market access agreements on
telecommunications and financial services. Nonetheless, the
organization must improve implementation and enforcement of
trade agreements already negotiated and increase the
accessibility to the public. Strong U.S. leadership will be
required to achieve these goals.
Our coalition's very great interest in the WTO services
trade negotiations, scheduled to start in 2000, the first
comprehensive services negotiation ever undertaken, is
explained partly by the fact that the United States is the
world's largest exporter and importer of services. In 1998,
U.S. services exports were $260 billion. Imports were $180
billion. The trade surplus was $80 billion from services.
CSI has produced at USTR's request, an initial statement of
liberalization objectives in eight service sectors. I ask, Mr.
Chairman, that this document be included in the record of this
hearing.
In essence, we seek the following general objectives.
First, ensure the right to establish and to control ownership
of our investments. Second, ensure national treatment for U.S.
investors. Third, eliminate unnecessary restrictions on cross-
border transactions. Fourth, remove obstacles to the free
movement of critical business personnel. Finally, promote pro-
competitive regulatory reform.
What is pro-competitive regulatory reform? It means
abandoning outdated forms of regulation by which governments
limit the number of participants in a market, limit the
introduction of new products, restrict market-based pricing,
and discriminate against foreign firms.
The next round of services negotiations must include reform
of these out-dated regulatory practices. We made a start in
this by including the 1997 U.S. Japan bilateral insurance
agreement in the WTO financial services agreement. These
provisions would create a pro-competitive regulatory
environment in Japan, and were aimed at leveling the playing
field for foreign insurers.
Unfortunately, significant aspects of the agreement have
not been implemented. The United States is engaged in other
important trade initiatives that complement efforts in the WTO.
Of these, our bilateral relationship with China is critical. We
strongly support the Administration's effort to reach a WTO
accession agreement that lets us participate fully in the
Chinese market.
As you are aware, U.S. negotiators are now in Beijing. We
urge USTR to continue to insist that without commercially
meaningful commitments on services, there simply can be no deal
with China. And if China agrees to play by WTO rules, then the
United States should provide normal trade relation status to
China.
In conclusion, Mr. Chairman, we believe the United States
must continue to take the lead in multilateral and other
efforts to eliminate trade and investment barriers, and
establish an even stronger system of international trading
rules centered on the WTO, and buttressed by national pro-
competitive regulatory supports. This will require extending
broad multi-year trade negotiating authority to the President.
We must ourselves avoid protectionist trade actions and we must
build a strong domestic consensus that the benefits of open
international trade outweigh its costs.
CSI is helping build this consensus by holding the first
World Services Congress in Atlanta on November 1-4, this year.
In addition, CSI has helped lead a new coalition, the U.S.
Alliance for Trade Expansion, USA Trade, to support the WTO
Ministerial in Seattle. These hearings are an important step in
developing a consensus on these issues, and we appreciate the
opportunity to present our views. Thank you very much, Mr.
Chairman.
[The prepared statement follows:]
Statement of Dean R. O'Hare, Chairman and Chief Executive Officer,
Chubb Corporation, Warren, New Jersey, and Chairman, Coalition of
Service Industries
It is a pleasure to appear today to present the views of the
Coalition of Service Industries (CSI) on the importance of expanding
trade and resisting protectionism through active U.S. involvement in
trade negotiations, and on U.S. negotiating priorities for the next
several years.
CSI was established in 1982 to create greater public awareness of
the major role services industries play in our national economy;
promote the expansion of business opportunities abroad for U.S. service
companies; advocate an increased focus on liberalization of trade in
services in international trade negotiations; and encourage U.S.
leadership in attaining a fair and competitive global marketplace. CSI
represents a broad array of U.S. service industries including the
financial, telecommunications, professional, travel, transportation,
information and information technology sectors.
It is timely and important that the Subcommittee review U.S. trade
policy and the challenges now confronting it. Strong, focused United
States leadership is, more than ever, essential in a world economy torn
by financial shocks and economic dislocation. As the world's strongest
economic power the U.S. must lead by example. We must pursue trade,
investment and economic policies that encourage domestic and
international growth. Just as we ask other countries to pursue sound
policies, we must avoid protectionist actions that they might emulate.
An open, rules based international trade system is essential to
maintain U.S. economic prosperity, and the World Trade Organization is
an absolutely essential element of that system.
The WTO is first of all dedicated to promoting the market-driven
economic principles that underlie our own economic success. It does so
by providing a forum where governments commit themselves to reductions
in trade barriers. The WTO is what its member governments make it. And
the members of the WTO rely on constant, skilled U.S. leadership to
keep the WTO moving ahead.
In its first five years, the WTO has proven its value to the U.S.
services sector by the negotiation of agreements on basic
telecommunications and financial services. We are fortunate to have had
the skillful, energetic leadership of Director General Ruggiero during
this initial period. It is very important that he be replaced with a
strong, highly able leader upon his retirement this April.
Challenges to the WTO
While we believe it is essential to strengthen the role of the WTO
in creating a level field where players can compete freely and fairly,
the organization faces several major problems which U.S. leadership
must help overcome.
The first of these is the issue of the implementation and
enforcement of trade agreements already negotiated. The WTO is an
effective forum where governments negotiate agreements. By and large it
has also been an effective forum where governments can bring complaints
against those who do not abide by their agreements. But it has a long
way to go to develop as an institution that ensures that trade
agreements are implemented and commitments fulfilled. In part, this is
a responsibility of member governments and the industries that benefit
from agreements. CSI takes this role very seriously. Our Research and
Education Foundation has mapped out a process for monitoring
governments' implementation of the telecommunications agreement. We
will be putting more effort into this in the future. Likewise, we will
be closely tracking the implementation of the GATS financial services
agreement, which entered into force on March 1st.
A case in point is the WTO Financial Services Agreement that was
concluded by 71 signatories on December 13, 1997. Those signatories
agreed to file their formal acceptances of the agreement by January 29
this year, and they agreed that it would come into effect on last
Monday, March 1. In fact, 16 of the signatories were not able to file
their acceptances by the deadline. The issue before our financial
services industry was, therefore, whether to advise our government to
support, or to oppose, entry into force of the agreement. On balance,
we concluded that it would be in our overall interest to support it
because most of the major 16 non-accepting countries would almost
certainly do so in the next six months. In addition, according to the
WTO, the governments that have accepted the agreement account for
approximately 95 percent of global financial services activity.
Nonetheless, it is disquieting that countries like Australia, Poland,
Brazil and Luxembourg are not able to follow through on their
commitments, on schedule.
The second of these problems is the transparency and openness of
the WTO. The President has called on the WTO to open its doors wider to
the public. CSI wholly endorses this initiative and urges WTO member
governments to take steps to increase the organization's accessibility
to an interested public which has much at stake in the outcome of
negotiations or the resolution of trade disputes.
Importance of Services Trade
The growing economic strength of our service industries is the best
argument for the continuing U.S. commitment to an open trading system
in which the WTO plays a key role. The U.S. service sector is essential
to domestic prosperity. In 1997, according to the Bureau of Economic
Analysis of the U.S. Department of Commerce, the U.S. service sector
comprised 77.2 percent of U.S. gross domestic product, and 78.8 percent
of private sector employment (see graphs attached, Appendix A).
In 1998, the U.S. created 2.9 million net new jobs, all in the
service sector, slightly less than the 3.2 million service sector jobs
created in 1997.
The U.S. is the world's largest exporter and importer of services.
In 1998, U.S. services exports were $260.3 billion, while imports were
$180.8 billion, producing a trade in services surplus of $79.4 billion.
Services comprise nearly 30 percent of U.S. exports.
Those few statistics dramatically depict the value of opening
markets abroad for the U.S. service sector.
The U.S. is very competitive in virtually every category of
services trade.
Travel and tourism contributed over $25 billion to the
services trade surplus in 1997. This is the largest sectoral
contribution to the overall services surplus. In addition, travel and
tourism support over seven million direct jobs and generate roughly $71
billion in tax revenues for federal, state and local governments.
Business, professional and technical services is a largely
unrecognized powerhouse in American trade. In 1997, we exported more
than $21 billion in these services and we had a $16 billion trade
surplus. These data do not include the earnings from foreign
investments and foreign affiliates, which are very substantial. Trade
in business, professional and technical services--such as accounting,
legal, engineering, architectural and consulting services--is
especially important because it frequently paves the way for trade and
investment in other service and manufacturing sectors.
Telecommunications services are an integral component of
operations of all businesses, and are essential in promoting domestic
and global growth. Telecommunications services provide the necessary
infrastructure for the development and continued expansion of the
information society and electronic commerce. An estimated $725 billion
in revenue was generated in 1997, and projections for the next five
years indicate that traded telecommunications services will increase at
about 20 percent annually for outbound calls from the U.S. to foreign
markets.
The information technology industry is also dependent on
trade and trade expansion. The WTO estimates that over the next five
years, sales over the Internet will double each year. To realize this
robust growth will require countries to open their markets and allow
the provision of cross border services in virtually every sector from
financial services to healthcare.
U.S. law firms, when billing foreign clients, produce
exports. Overall U.S. legal services exports approach $1.0 billion.
Foreign students coming to American schools, net after
scholarship and local assistance, spent $8.3 billion in the U.S., which
is a U.S. export. We have a surplus in trade in education services of
$7.0 billion.
Medical services rendered in the U.S. to foreign citizens
produced an export surplus of $0.5 billion, although few doctors
imagine themselves as U.S. exporters.
WTO ``Services 2000'' Negotiations
These facts help explain our industries' very great interest in the
new WTO services trade negotiations scheduled to start in 2000. These
will be the first comprehensive services negotiations ever undertaken--
negotiations which offer U.S. service industries opportunities to
expand market share by reducing barriers to entry and cross border
trade, and to deal with new issues, such as regulatory reform, which
would ensure our firms' ability to compete fairly in the local
marketplace.
But these new services negotiations will not occur in isolation.
They will be combined with other issues. How these negotiations will be
packaged is a matter of dispute between the United States and the
European Union and Japan. They seek a comprehensive negotiation
concluded by a ``single undertaking,'' in three years, ending by 2003!
The Uruguay Round produced the General Agreement on Trade in
Services (GATS) which states the general principles for freer world
trade in services, and creates a very complex format for actual
negotiations. In spite of the technical difficulties, the successes in
telecommunications and financial services in 1997 showed that most
countries now understand how to negotiate within the complicated GATS
framework.
Content of the New Trade Round
CSI believes that the United States should continue to advocate a
new trade ``Round'' that permits us to capitalize on the momentum that
we believe has been created through successful sectoral services
negotiations. Emphatically we do not agree with the concept of an all-
inclusive round concluded by a single undertaking. We believe that this
formula will almost inevitably result in a protracted negotiation that
will impose unnecessary delays in obtaining market access for our
companies.
The President in the State of the Union Message called for an
ambitious new WTO Round. We believe that his definition of ``Round'' is
close to our own: a focus on market access issues including services,
agriculture and goods and certain other issues required by the Uruguay
Round agreement. This more constrained negotiation would have a better
chance to conclude successfully in 2003. Other, broader issues could be
initiated in 2000 but brought to fruition later through a ``rolling
negotiation'' that could conclude after 2003.
We believe it is highly important for the United States to pursue
aggressively new negotiations to liberalize services trade. We believe
this negotiating framework will lead to faster, better results for
agriculture, goods and services.
What Does the Services Sector Want from Services 2000 Negotiations?
Previous services negotiations have yielded advances in
telecommunications and financial services, but much remains to be done
both in those, and a number of other sectors. All industries in the
services sector continue to face uneven implementation of past
commitments and continued impediments to free and fair trade,
especially through regulatory systems that are used to limit
competition.
CSI established last fall a Services 2000 Working Group that
produced a detailed initial statement of negotiating objectives for 8
sectors: Distribution, Express Delivery, Financial Services, Health
Care Services, Information Technology, Professional and Business-
Related Services, Telecommunications, and Travel and Tourism. I ask,
Mr. Chairman, that this document be included in the record of this
hearing following my statement.
In essence, these requests distill into the following general
objectives:
Expand the scope of commitments countries undertake to
liberalize services trade, by limiting the exceptions countries are
permitted to take in their national schedules;
Ensure rights of establishment and ownership for U.S.
investors abroad, through wholly owned or other forms of business
ownership;
Ensure national treatment of U.S. companies abroad, so
foreign investors have the same access to local and foreign markets as
domestic companies;
Eliminate unnecessary restrictions on cross border
transactions;
Promote pro-competitive regulatory reform focused on
adequacy of appropriate and consistent rules, as well as transparency
and impartiality of regulatory administration; and
Remove obstacles to the free movement of critical business
personnel.
Pro-Competitive Regulatory Reform
The financial services industry in particular faces formidable
barriers in countries with arbitrary and non-transparent regulatory
systems. We see the desirability of negotiating ``pro-competitive''
regulatory principles that will complement market access commitments by
providing for well-regulated financial systems. Regulatory requirements
and restrictions too often deny foreign companies the opportunity to
compete on an equal basis with domestic firms. A lack of transparency
in regulations, along with uneven enforcement, undercuts the benefits
of market access and often leads to weak and vulnerable financial
systems.
What is ``pro-competitive regulatory reform?''
Essentially it means abandoning outdated forms of regulation, by
which governments limit the number of participants in a market, limit
the introduction of new financial services products, restrict use of
market-based pricing, and discriminate against foreign firms.
We believe regulators should focus on three goals: ensuring the
solvency of financial services firms, promoting the transparency of
intra-company transactions, and improving the reliability of economic
data that allows customers and investors to make better informed
judgements about the soundness of financial institutions themselves and
the quality of their investments.
The Japan-U.S. Insurance Agreement
Particularly for the insurance sector, pro-competitive regulatory
reform should be on the agenda for the GATS 2000 negotiations. We made
a start in this by including the 1997 WTO U.S.-Japan bilateral
insurance agreement in the WTO Financial Services Agreement. These
insurance provisions deal solely with creating a pro-competitive
regulatory environment in Japan and were aimed at leveling the playing
field for foreign insurers in the Japanese insurance market.
Unfortunately, significant aspects of the agreement have not been
implemented. On July 1, last year, the USTR expressed its ``extreme
disappointment'' with Japan's implementation of the agreement, but the
issue remains unresolved. This is a matter of deep concern to the U.S.
insurance sector and we have attempted to give every support to USTR's
efforts to achieve compliance by the Japanese with their obligations
under the bilateral agreement.
The irony of the situation is the fact that, if these provisions
were fully implemented by the Japanese, Japanese insurers, themselves,
would eventually be in a far stronger financial and competitive
position than they are today.
Regulatory systems that promote competition and solvency will
encourage financial services firms to introduce innovative products,
reduce prices, achieve efficiencies in operations, improve the quality
of services provided, attract capital for long term investments,
introduce new technologies, and create new employment opportunities.
By pressing to eliminate restrictions on foreign establishment or
ownership and cross border transactions, by removing obstacles to the
free movement of persons and by affirmatively promoting national
treatment and pro-competitive regulatory principles, the United States
will be helping to shape an agenda at the WTO that will produce genuine
global economic liberalization with positive benefits for both U.S.
business and consumers, as well as the liberalizing economies.
Other Trade Initiatives
I would also like to address briefly some other trade initiatives
that complement efforts in the WTO, and that are important in their own
right.
China
Our bilateral relationship with China is one of our most important.
Over the past decade U.S. exports have increased over 20-fold and those
exports are estimated to support more than 200,000 U.S. jobs.
The effort to negotiate market access for U.S. services and goods
has been a long-term concern that is now bound up in the effort to
negotiate China's membership in the WTO. As the largest emerging
economy in the world, China's integration into the rules-based
international trading system is essential to ensuring that China
undertakes the obligations and responsibilities of the trading system
as well as receiving the benefits.
We support the administration's effort to reach a commercially
acceptable WTO accession agreement that will enable our companies to
participate fully in the Chinese market. We believe that China's
participation in the WTO is critically important not only for China,
but also for the rest of the world.
As you are aware, U.S. negotiators are now in Beijing in an effort
to make progress toward this objective. We urge USTR to continue to
insist that China accept that opening its services sector is equally
important as reducing tariffs on merchandise. Without meaningful
commitments on services, there simply can be no deal with China. And if
China agrees to play by WTO rules, then the United States should be
prepared to provide permanent extension of normal trade relations
status to China.
Free Trade Area of the Americas (FTAA)
In our own hemisphere, regional trade grew 15 percent in 1997--
twice the world average. Two-thirds of U.S. export growth has been in
the Western Hemisphere. Countries in the region are negotiating with
each other and the Europeans to secure the benefits of this trade
expansion. The United States must now take the lead in pursuing trade
and investment liberalization in our own hemisphere, if we want to
receive the full benefits of the trade expansion that is underway, and
to prevent our exporters being excluded from important new markets by
trade agreements made between other countries in the Hemisphere.
We support efforts to reach a hemispheric free trade area, which
would ultimately expand NAFTA and include virtually all of North, South
and Central America. FTAA represents an enormously ambitious
undertaking that merits the full commitment of the U.S. government.
Asia Pacific Economic Cooperation (APEC)
The APEC economies represent over one-half of total world
production and almost one-half of world trade. U.S. bilateral trade
with these economies is roughly two-thirds of all U.S. trade. The
United States has been an active participant in the APEC effort to
achieve free and open trade in the region. We have worked hard to
ensure that the momentum generated by APEC's work to date is not
derailed by the Asian financial crisis, and that APEC economies move
forward to implement previously agreed market opening steps. We
strongly support inclusion of pro-competitive financial services
regulatory reform in the APEC work program.
Trade Negotiating Authority
What will it take to implement a broad and ambitious trade agenda
such as the above?
CSI urges Congress to extend broad, multi-year trade negotiating
authority to the President. Such congressional trade negotiating
authority has come to be expected as a foundation that is necessary to
conclude with credibility liberalization agreements with our trading
partners.
Another important step is to adopt domestic economic policies,
including tax policies, that help create an environment that encourages
competition and reduces the costs of competing overseas. Congress'
support and leadership in revising and extending the deferral rules for
U.S.-based financial services companies last year was a giant step
forward in conforming U.S. tax rules to U.S. trade policies. Permitting
deferral of active financial services income is essential to
maintaining the competitiveness of our financial services firms. We
urge you to further extend this provision this year.
Conclusion
The economic interests of the United States dictate that we must
take the lead in multilateral and other efforts to eliminate trade and
investment barriers and establish a system of international trading
rules buttressed by national pro-competitive regulatory supports. It is
time to reinvigorate U.S. trade policy by extending to the President
the trade authority he has traditionally been given to conduct
negotiations. We must ourselves avoid protectionist trade actions. And
we must attempt to create a strong domestic consensus that the benefits
of open international trade outweigh the costs of continued engagement.
The Coalition of Service Industries is helping build this consensus
by organizing the first World Services Congress that will be held in
Atlanta on November 1-4 this year. We hope to attract more than 2000
business and government leaders, academics, and others to help
construct a global consensus on the benefits of trade liberalization in
services, and to support the launch of an ambitious services trade
negotiation at the WTO Ministerial in Seattle at the end of November.
We will welcome the participation of members of this Subcommittee and
its staff in this important event.
In addition, CSI has helped form a coalition to support the WTO
Ministerial. Made up of trade associations and advocacy organizations,
the U.S. Alliance for Trade Expansion (USATrade) represents $2 trillion
in annual trade and over 150 million American farmers, workers, and
consumers, and seeks to promote economic growth, job expansion, and
higher living standards in the U.S. by rules-based multilateral trade
liberalization through the WTO. We plan to have a strong presence
representing our various constituencies at the Ministerial in Seattle.
Our members strongly believe that expanding international trade and
investment improves the lives of Americans and that continued U.S.
leadership in strengthening the rules-based international trading
system is the surest way to sustain our domestic economic strength.
These hearings are an important step in developing a consensus on these
issues.
[GRAPHIC] [TIFF OMITTED] T6807.001
Chairman Crane. Thank you, Mr. O'Hare. Thank you all for
your presentations.
For the panel generically, I would like to throw a question
out. Ambassador Barshefsky testified last month that the
Administration is seeking better coordination between the
International Labor Organization, ILO, and the WTO. What, in
your views, are the proper relationships between these two
international bodies?
Mr. Swift. Well, Mr. Chairman, if I could take a first
crack at that. In my testimony I said that labor and
environmental issues should be discussed meaningfully amongst
the appropriate Members of the Administration and the Congress.
The International Labor Organization is an international
organization which addresses labor standards, and is the
organization to do that, not the WTO. So if they could start
talking together in a meaningful way, that is a very positive
development, in my view anyway.
Chairman Crane. Does anyone else have a view?
Mr. Micek. Yes. I would just like to follow up on Mr.
Swift's comments. ECAT supports the use of ILO as the
appropriate forum to deal with international labor issues. We
are concerned that if we just target only labor and
environmental objectives without really dealing with the
overall strategic issues that are a part of trade, we could get
bogged down and miss a great opportunity.
Chairman Crane. Any other views on that question?
What is your advice on how labor and environmental issues
should be handled in the negotiating authority? Anyone?
Mr. O'Hare. Mr. Chairman, I would just like to comment that
I think trade negotiations and certainly labor issues are in
many respects independent issues. I think the ILO has been
doing an extremely good job for decades. We shouldn't let trade
issues overwhelm or overtake the progress that they are making
in these areas. I view the two as very independent issues.
Chairman Crane. Does anyone else have a view on that?
Mr. Swift. If I could follow up on what I said earlier, the
WTO is a trade organization. It should be a rules-based
organization to govern how the international marketplace
trades. Labor and environmental issues are not necessarily
trade issues. The ILO is a better forum for labor issues than
the WTO.
Chairman Crane. A final question from me, and this is to
Mr. Baszile. We hear from many labor union representatives that
fast track and active U.S. involvement in trade negotiations
are just big business issues that will end up hurting workers
in small businesses. Why do you think small businesses should
support fast track negotiating authority and active U.S.
involvement in breaking down international trade barriers?
Mr. Baszile. Mr. Chairman, small businesses, since I have
been in business for the past 24 years, have been encouraged to
export their products as much as they can. More importantly,
our customer base is made up of people who export their
products. So if we don't do it on a direct basis, we certainly
benefit by the exporting activity of customers like Boeing and
others. So we think it is very important.
Chairman Crane. Well you are sitting amongst some giants
there.
Mr. Baszile. Yes, I am.
Chairman Crane. We had a Trade Subcommittee hearing out in
my district about 3 or 4 years ago. I have some big corporate
headquarters there, Motorola, Ameritech, United Airlines,
Sears, Kemper Insurance, and so forth. We are the fifth largest
export State in the Union, Illinois. My district is probably
No. 1 in the State. What was most revealing about that hearing
is that better than 90 percent of our exports out of Illinois
come from companies employing 500 or fewer.
Mr. Baszile. That's right. One thing that I would just like
to emphasize again, if we remember 83 percent of the jobs in
this country are supplied by small business. So we are a
continuing integral part of the global economy, and of course
the strengthening of this economy in our country.
While I might not be able to sell a plane to China, I
certainly support Mr. Condit in his efforts. So therefore----
Chairman Crane. With your component parts.
Mr. Baszile. Absolutely.
Mr. Condit. And without those, we can't do it. So it is
very much a cooperative effort with our suppliers.
Chairman Crane. I couldn't agree with you more.
Mr. Levin.
Mr. Levin. Welcome, to all of you. There has been some
discussion here, especially in response to Mr. Crane's question
about labor, about what I would call labor markets and
environmental issues. I regret there is not a more diversified
panel in that respect regarding that issue because we are going
to have to confront it and do it effectively if we are going to
move ahead on a broad-based trade consensus.
I want to turn to other issues, but I would just urge you,
Mr. O'Hare, and you, Mr. Micek, to take another look at the ILO
and its record on labor market issues. To call it effective I
think is totally unrealistic. Its record is not one of
effectiveness on these issues. I don't think they are
independent of trade issues. I think they are very much a part
of them.
Just look at the discussions we are having on Africa, and
especially on CBI, where these labor market issues are very
central to the debate over these bills, especially CBI. It has
been the basis of the difference between the House and the
Senate, cutting across party lines. So there is no use of
pretending that just ship it to the ILO. That won't resolve it.
I think, Mr. Swift, that your statement on page 4 is
something that we all need to take seriously, where you say
``We recognize that there will be little progress on this
matter'' that is trade negotiating authority, ``until we
address the environmental and labor issues that have been
raised. We are prepared to sit down with the Members of this
Committee, the Administration, and others, to engage in a
meaningful dialog that will move the process forward.''
If we do not take seriously your advice, I think we are
going to simply reach another dead-end. There is no use in
trying to finesse the issues or shove them off to the ILO. They
have now a statement of principles. But in terms of embodying
these in agreements, the ILO really doesn't have either the
authority, and it surely doesn't have the history of doing it.
But if I might, before my time is up, because I didn't want
to lose this opportunity to talk about another issue that is
really related to this issue of labor market issues,
environmental issues. It isn't fast track, but it's China WTO.
A number of you have said it has to be on commercially
acceptable terms, we shouldn't simply rubber stamp what they
want. Their structures on labor market, on capital markets, on
environmental issues is so different, we better face up to
them.
So I want to zero in, now that I have this opportunity, Mr.
Condit, to take one piece of it. That is the issue of transfer
of technology. I don't want to ask you specifically about
Boeing because some of that may be proprietary. But I would
like your views.
One of the issues, it seems to me with China that we
haven't really faced adequately in talking about WTO, are their
requirements for technology transfer. It seems to me we can't
simply stand by idly and have this huge economy, China, place
these requirements on American firms and therefore, American
workers in terms of technology transfer and other things. Would
you comment on that, please?
Mr. Condit. All of these issues are very complex. For most
of the companies that all of us represent the technology is a
key part of our competitiveness. So the protection of that
technology is important to us, as well as to the United States
overall.
On the other side, I do not perceive that as a defensive
strategy. If we don't continue to move the ball forward, don't
continue to advance our own technology, in the long term, we
will not be winners in the world market. So reasonable
limitations on technology transfer are not unreasonable; but if
they get out of proportion, they will simply limit all of the
action and nothing happens.
So I guess my strongest feeling of all is that we continue
as companies to take the initiative to continue to advance our
own technologies. Then I am convinced we can continue to lead
the world in competitiveness. But it takes good intellectual
property rules. I think that is absolutely vital, but we need
to avoid excessive technology transfer limitations.
Mr. Levin. I think I get your meaning. When we talk about
concern of requirements, especially evolving economies, that we
transfer technology, I am not suggesting that by being
concerned about it, we should drop our efforts to develop and
to continue to develop our own technology. I don't see that
those are necessarily or at all in conflict. But it seems to me
that we better realistically raise these and confront these
issues in the WTO China accession negotiations. I don't think
your company or any other would say well let China accede and
we'll talk about that issue after they are in the WTO.
Mr. Condit. But let me argue the other side for just a
second. I think it is important that we do move forward. So
there is always this balance between getting the best agreement
that you can get, and still getting one. I think that is the
difficulty of any negotiation. I don't disagree that we need to
address that subject. It does need to be there. On the other
hand, we won't get a final solution. There will continue to be
further negotiations, and will need to be.
Mr. Levin. Thank you.
Chairman Crane. Mr. Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman. I want to thank the
Distinguished Members of this panel for being here today. We
need to hear from you on these very, very critical issues. I
was just trying to quantify in my mind how many millions of
jobs your respective groups represent and what a chunk of the
GDP you five people here today represent. I wasn't able to do
it, but suffice to say, obviously when we have the Emergency
Committee for American Trade, the Business Roundtable, National
Foreign Trade Council, the Coalition of Service Industries, not
to mention small business represented by Baszile Metals, we
need to listen closely as you represent many of our
constituents. Those points also need to be heard by the White
House.
One of my major disappointments, and I think major
disappointment of our chairman and most people on this panel,
is the failure to pass fast track. We see what is going on. We
see how many major regional agreements have been entered into
since fast track expired. We also see that we haven't been part
of those major regional agreements.
Yet I am still hopeful. By the way, let me also say that
not all members of this panel share the Distinguished Ranking
Member's views on the ILO. I certainly identify with your
remarks, Mr. Micek, and yours Mr. Condit, as far as the ILO is
concerned. But I think we have to get beyond that. That is
certainly important.
I just hope that a collaborative effort is made on the part
of the White House. I, in my earlier years on this panel,
worked with them on NAFTA and GATT. We worked together on a
bipartisan, pragmatic, collaborative way, and got those done.
Lately, however, I have been very disappointed. The
Administration has sent signals to this Subcommittee that we
have to make changes to last year's fast track legislation. But
I am not sure, and I don't think anybody here on this panel is
sure, what changes they want. So my question to any of you--and
it is certainly good to see my good friend Ernie Micek, a
leader on these issues back home in Minnesota--has anybody from
the White House told you or your groups what changes need to be
made in last year's last track legislation? Have they sat down
or asked you to come down there to solicit your advice, your
expertise for passing fast track legislation this year? Any of
you? Ernie?
Mr. Micek. Well, I have had some conversation. I think they
are concerned about focusing just on fast track. But perhaps it
can be part of the broader issue. That is why I think many of
us believe that given the opportunity that we have here in this
country with the WTO Ministerial being held in the United
States, that fast track can be part of a bigger trade issue.
Hopefully when we can see or more people can see the value of
what WTO negotiations can produce, then they will also
understand that to make this happen we do need fast track
authority.
I do want to step back for just a minute on the labor issue
because my experience, and I have been around for 40 years in
corporate America, tells me that we are better off being part
of a process. With Boeing involved, ourselves, all the various
companies represented here, we are better off and we have a
better chance of getting environmental issues advanced, labor
issues advanced when we are part of something than when we are
excluded. To exclude us really does nothing to advance labor
and environmental concerns.
Mr. Ramstad. Thank you, Mr. Chairman.
Chairman Crane. Mr. McNulty. Oh, he's not here.
Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman. I don't want to
start off with a defense of the White House on fast track. But
I suppose I ought to utter some modicum of defense to say that
the President has expressed his seriousness on this issue. He
mentioned it in the State of the Union address. He is not
oblivious to what happened last time though. When he attempted
to get it done, it was a very difficult matter to get done. Of
course it takes a lot of work on both sides of the aisle, and
it is not just his sole responsibility to work on this issue.
So as one who has in the past supported fast track issues,
I think it is important to not single out the White House and
beat them up over this issue as we try and find a way to deal
with it.
I want to ask a question in a different vein though. I
found the discussion today instructive. I want to ask you about
Africa. We have touched on our trade policies and goals in the
Americas, in Europe, and in Asia. How important is it to you
that the U.S. fashion a trade and investment policy in sub-
Saharan Africa? As representatives of the U.S. private sector,
what are your thoughts on the importance of increased trade and
investment in this region?
Mr. Condit. Let me start by saying as a company, Boeing
sees real reason to support that trade development. Obviously
one of our primary products is providing equipment that moves
people back and forth and promotes trade. But we see a very
definite need to deal with trade on a global basis, not just a
regional basis, but a global basis. That clearly would include
sub-Saharan Africa.
So we have been in support of that. The Roundtable is
actively looking at that issue in terms of its support, and I
suspect it will also be supportive.
Mr. Jefferson. Yes, Sir?
Mr. Micek. I think it is very important that we have a
trade policy with Africa. I just don't see how the African
people can be excluded from being part of the world community
as we enter the 21st century. I believe the African trade act,
as proposed, would give some opportunity for them to become
part of the greater community.
Our company, for example, has just within the last 2
months, and I was there personally for the ground breaking
ceremonies, are in the process of building a $50 million cocoa
processing plant in Ivory Coast. We were welcomed there as a
U.S. firm.
One of the problems is I think in Africa for U.S.
companies, so much of Africa historically is tied closely to
Europe. U.S. companies really don't know that much about a
number of the African nations. So I think any trade bill that
gives the opportunity for the United States to become involved
I think would be very important.
Mr. Swift. If I could just comment on that. Foster Wheeler
has ongoing operations in Africa. I would second what Mr. Micek
said, that Africa is very much in the realm of the Europeans. I
think that U.S. trade with Africa would be significantly
enhanced if the kind of trade bill that we are discussing today
was, in fact, enacted so that American companies would have
better knowledge of the area, better ability to go in and
compete against the European companies.
Mr. Baszile. Mr. Jefferson, I have had some personal
experience in trying to develop trade with African countries,
most particularly on a smaller business basis. We have
entertained several trade missions from Southern Africa and
other parts of Africa in Los Angeles.
I think what the small business community can do, and most
particularly the minority business can do, is serve as role
models as to how business is done. Some of most basic questions
that we take for granted in this country are foreign to many of
the people in Africa who now, especially Southern Africa, who
have the freedom, but they don't have the know-how to make the
system work for them.
I personally went to Southern Africa, Swaziland and South
Africa, to start an aluminum pots and pans manufacturing
company. I was overwhelmingly received. We still work in that
area.
So I think the small business community, with the support
of U.S. Government, can serve as a role model for many
frustrated Africans who really are entrepreneurs, but they just
do not have the wherewithal to make it happen.
Mr. O'Hare. Mr. Jefferson, I would agree with all the
comments made by the panel. I would point out that a trade
policy with Africa is truly an essential part of dealing in a
global economy today.
As respect to industries that are near and dear to my
heart, the insurance industry, there are still, depending upon
what country in Africa you are referring to, some terribly
restrictive laws governing the level of ownership that a
foreign company can have in an African insurance company. This
is also the case in many of the banking pieces of financial
service industries. So you know, on that basis I think a trade
policy that would encourage the very things that we have talked
about this morning would be extremely useful for that part of
the world.
Mr. Jefferson. I thank you for your comments.
Thank you, Mr. Chairman, for yielding to me.
Chairman Crane. I would simply add a footnote to what was
said. That is that the sub-Saharan African countries included
in our bill number 48. There are over 700 million people there.
Yet that is only about 2 percent of our current trade. It is a
tremendous potential market. But again, getting our African
Growth and Opportunity Act passed is one thing, but to start
the negotiations requires fast track. So that is an essential
component to going forward. I know Mr. Jefferson, I praise his
efforts. He has worked very conscientiously on behalf of both.
I would now like to yield to Mr. Condit's representative. I
know that she is going to be inviting us all to come out to
Seattle. Are we flying Boeing? Is that it, Jennifer?
Mr. Condit. You better.
Ms. Dunn. You bet. No other way.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman. I am happy to
welcome this panel this morning. It has been a fascinating
discussion. I think each of us has had a lot of questions we
won't be able to ask because there is not much time.
But I am especially pleased that Phil Condit could be here
because I have many employees who work for his company and live
in my district. So Boeing's success is always a great joy to
us. We are particularly happy to be hosting the WTO Ministerial
in Seattle, called the Seattle Round. We want to call it that,
the Seattle Round, because that will last for a good many
years. There is no more appropriate place, I believe, in this
Nation than the bright crescent of the Puget Sound area in
which to host the WTO.
I do, Mr. Condit, want to shift things back to China for a
moment. There are some in Congress who are very concerned that
in its eagerness to bring China to the table at the WTO
Ministerial this fall, the Administration will cut a deal with
China to bring it into the WTO. Others think that would be a
very good thing, that we should move ahead, and it is
critically important to have them at the table.
I really want to get your views. You mentioned that a deal
should be made only if the agreement were commercially viable.
I would like to have your thinking on how important is it to
have them with us in Seattle this fall? Ought we to go ahead
and do that deal even though they may not be totally prepared
for a session now? Should we hold out for more?
Mr. Condit. As I said earlier, every negotiation is a
balance. To say we want everything in this run I think would be
a mistake because you won't get there. To say that accession
ought to be there no matter what, would also be a mistake.
There is a need for very specific conditions, but it is also
important that China be part of the world trading community.
Just by population and long-term economic force, we are
much better off having them in the world trading system than
outside. So the real issue is what are the key points, how do
we make those key points, and then get an agreement. We use the
words ``commercially meaningful'' which indicate this isn't
just a giveaway, but it does mean we need to reach an
agreement. I think it is very important.
Ms. Dunn. Thank you. Well, we will be sorting that one out
in the next few months.
I want to also say, fast track has been touched on. It is
vitally important to all of us. I think that you are going to
find very strong support for fast track, at least on my side of
the aisle in Congress. But the problem is that when we had our
last vote on fast track, it was a lopsided vote. We lost that
vote by 180 to 243. We are still deciding now how to proceed
with fast track, many different approaches on this.
I see, as I said, that there is good support on our side of
the aisle. We brought the votes we needed the last time. The
business community is obviously interested and engaged.
Certainly the U.S. Trade Representative is very eager to have
us move ahead with fast track. Other parts of the
Administration though talk a lot, but they do not seem to
produce the votes that we need when we need them.
I am interested, Mr. Swift, in what you have said because I
don't think I have heard it publicly before, that the business
community may be willing to sit now and talk about further
negotiations on labor and environment. There was some very
strong language in the last fast track bill. So I am interested
in hearing your point of view on how we would proceed here, and
would we require, for example, that foreign nations change
their environmental laws, their labor laws, in order to be part
of our requirement under fast track? Or would that encourage
them to begin to do other deals bilaterally with countries like
the EU, instead of pursuing agreements with us?
Mr. Swift. Well, when we made the comment that we think the
people should sit down and discuss the labor and environmental
issues, that is simply because if we don't sit down and discuss
them, they will never be resolved.
As we have said, the WTO is a trade organization. It is not
specifically a labor or environmental organization. With
respect to the environment, speaking as Foster Wheeler now, I
would point out that even the Kyoto Accords recognize the many
difference between developing and developed countries. So
therefore, it is difficult to see how specific we can be in[to]
fast track legislation.
However, I do believe that if we say that we shouldn't
discuss these issues, is putting our head in the sand. We think
that the quicker that the Administration identifies exactly
what it is thinking about, and creates a meaningful dialog, to
the point where we can have an omnibus trade bill so that all
of the things that are important to U.S. trade are covered, the
better off we are.
Everybody has been talking around the issue, speaking for
myself, and I think that when people sit down and discuss it
and find out exactly what people are really talking about,
maybe some common ground could be found. But without that, I
don't know how fast track is going to go forward.
Ms. Dunn. Thank you, Mr. Chairman.
Chairman Crane. Thank you.
Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. Thank you to all of
the panelists for being here.
Let me ask a couple of questions if I have time to get
through both of them. Before I do, if I could just add a few
comments to what was said by Mr. Levin as well.
On the whole labor and environmental debate, I think we are
going to have to be a little bit more pragmatic. Mr. Swift, as
Mr. Levin quoted some of your written testimony, I think you
are accurate that the business community needs to sit down and
discuss labor and environmental issues. If we don't come to
terms with it, and really Members of Congress don't' come to
terms with it, it is going to be very difficult for us
ultimately to have a trade agreement that will have broad
bipartisan support.
With regard to the ILO, my concern with the ILO is that it
has no teeth. There are no enforcement mechanisms in place.
What it really does is state principle, but it has no way to
engender practice of the standards that are set forth.
If I can give you a real quick example. There are some 180
or so conventions and standards that have been passed by the
ILO over its some eight decades of history. Of those, there are
seven that are considered core conventions: Two of them are on
the prohibition of forced labor; two are on the right to
organize and collectively bargain; one is on equal pay; one is
on the elimination of discrimination; and one is on the
abolition of child labor.
At this stage, there are only 37 countries out of the 174
countries that participate in the ILO who have signed those
seven core conventions. The United States, by the way, is not
one of those 37 countries. We have only signed on to two of
those seven core conventions.
So not only do we not have a mechanism to enforce what the
ILO preaches, but we also find that there is very little
participation in some of the principal conventions of the ILO.
So to rely solely on the ILO to try to get us where we need to
be on labor is very difficult. That is why I think Congress
will have to grapple with that fact.
The question I would like to ask has to do with a hearing
that we had last week on steel. I would like to ask your
opinion on something. On a bipartisan basis, we had members
coming forward saying we need to do something quickly on steel,
even to the degree of saying that we should do things that
would violate WTO standards. But on a bipartisan basis we had
members saying that. We have one bill that has over 180
signatures, bipartisan, that would require us to do things that
would, I believe, clearly ask us to do things that would
violate WTO.
I would like to know your impressions on what we should do
on steel, given that what we have seen is that there has been a
massive introduction of steel by a factor of two to three in
some cases from some countries, and the impact it is having on
the steel industry.
Mr. Micek. Well, we are in the steel business. We also
trade steel, originate steel. Actually I think this issue is a
very complex one. But you have to look at it in the context of
what has happened in the last 2 years, which started with the
Asian crises, which then spread to Russia, and now to South
America.
I think what we have to resist is our instinct to retaliate
with some legislation. We are much better off to enforce rules
that are in place or to sit down with, whether it is the
Russians or the Japanese or the Koreans, in terms of limiting
the amount of steel imports that come in. Not too dissimilar
from what we did with the Japanese auto industry several years
ago.
I think it would be a real mistake, particularly in the
light of the upcoming WTO negotiations for the United States to
do something that would just really run in the face of trying
to negotiate or expand a new round of trade talks by putting in
place unilateral trade restrictions. This would just send a
very difficult, or really a poor signal to the rest of the
world.
Mr. Condit. Said another way, I think everybody at this
table is a strong supporter of a rule-based system. So we need
enforcement; we ought to use those mechanisms and go after them
hard. Because without the enforcement, rules don't matter. But
to create tools outside of that mechanism calls the fundamental
system into question.
Mr. Becerra. Thank you.
Mr. Baszile. My experience as a metals processor and
distributor, I can recall when the memorandum of understanding
was signed with the Russians on aluminum ingot. I am deeply
involved in ingot. Ingot is a commodity that is traded on the
international market. It is suffering right now. No attempts
are being made to curtail the import of ingot. I think it would
be inconsistent with our trade policies if we took special
measures to curtain the importing of steel.
Further, being from Los Angeles, with two major harbors who
are boasting about the revenues that are generated and the jobs
that are created by the heavy import of metals like steel, I
think it would be very detrimental to that region that we so
vitally need.
Mr. Becerra. Thank you.
Mr. Chairman, thank you. I know my time has expired.
Chairman Crane. Well, I want to thank all of our panelists.
Mr. Levin. Mr. Chairman, let me just say one word or two
words, if I might. There was a reference to Kyoto. I think it
was 95 to nothing, or whatever the vote was in the Senate, that
we should not proceed until the evolving economies were
participants.
So I think, and I have said to my friends in the business
community, if that is your view of Kyoto, and I agree with it,
there ought to be an understanding of the comments in your
testimony, Mr. Swift, about tackling these environmental and
labor market issues as we consider overall trade legislation.
As you leave, to all of you who commented on a rule-based
system and WTO, I hope you will convey that message to people
in the minority and the majority who might be tempted to treat
lightly this issue of a rule-based system as we consider any
issue, including steel. Thank you.
Chairman Crane. I want to thank you all for your
participation, and encourage you all please to get the entire
business community focused on communicating to employees now,
especially in small business, like Mr. Baszile. Because it is
so essential that we advance our own trade interests and it
works for big corporations and the little guys, but especially
for the little guys. That ultimately works to the benefit of
all of us. So please keep up the good work, and stay in touch
with us.
With that, I will adjourn this panel and invite our next.
Dean Kleckner, Kevin Gardner, Leon Trammell, the Honorable
William Pryce, and Michael Ryan.
Ms. Dunn [presiding]. Our welcome to the next panel. We are
glad you could join us today. Before you start, Mr. Kleckner,
with your testimony, I would like to call on our Member, Ron
Lewis from Kentucky, who will say a few words about one of his
constituents on this panel.
Mr. Lewis.
Mr. Lewis of Kentucky. Thank you, Ms. Dunn.
I want to thank you for the opportunity to introduce a
young farmer from my district, Kevin Gardner. Kevin, along with
his wife Glenna own and operate an 800-acre farm in Barren
County, Kentucky, where they grow corn, wheat, soybeans,
tobacco, and alfalfa, hay. Kevin is with us today as chairman
of the American Farm Bureau Federation, Young Farmer and
Rancher Committee. In addition to Farm Bureau, Kevin serves on
the IDEA board, Cave City Ag-Expo Task Force, and the Barren
County Board of Education Long Range Planning Committee.
It has been my pleasure to know Kevin since 1995. He is a
member of my Agriculture Advisory Council Group, and in fact
hosted one of our first meetings on his farm. Since then, he
has been an outstanding source of information for me as I
represent the farmers of the second congressional district.
As Kevin is about to tell you, expanding global markets
affect farms and farming communities of all sizes across this
country. Their futures depend on their access to these markets
and the ability to compete, and especially in this time of some
surpluses.
Kevin, thank you for taking your time to be with us today
and share your experiences and your expertise in this area.
Thank you.
Mr. Gardner. Thank you.
Ms. Dunn. Thank you very much, Mr. Lewis.
We are delighted to have him as a new member of our Ways
and Means Committee.
Let's begin testimony then from Dean Kleckner. We will go
in order.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN FARM BUREAU
FEDERATION, PARK RIDGE, ILLINOIS
Mr. Kleckner. Thank you, Madam Chair, Members of the
Committee. I am Dean Kleckner. I am president of the American
Farm Bureau. I am the elected president. I am a farmer from
northern Iowa. I grow corn, soybeans, and hogs on my family
farm in northern Iowa.
I welcome the opportunity to present this testimony before
the Trade Subcommittee of the full Committee on the importance
of trade negotiations in fighting foreign protectionism. We
stress the need for congressional action on the following trade
priorities. I am going to list six very briefly. I think I can
do it in 5 minutes.
First point, negotiating authority. The Freedom to Farm Act
in 1996 began to phaseout farm price supports. It made us more
dependent on the world market. Yet agriculture worldwide
remains one of the most protected and subsidized sectors in the
world economy. Congress simply must pass trade negotiating
authority to enable our negotiators to create new export
opportunities for farmers and ranchers. We are going to start 9
months from today, Ms. Dunn, or it is going to end 9 months
from today in Seattle, and we are not going to have a
negotiating authority if we are not careful for our
negotiators. I think they could be the laughing stock if that
doesn't happen. In our country, they won't have it. However, I
say such authority should not link environmental and labor
issues to trade.
Second point, negotiations on agriculture. We support in
our organization, expediting the action on agriculture in the
next WTO round. We must conclude a negotiation quickly to put
U.S. ag producers on a level playing field with the rest of the
world. We have four specific objectives in the next WTO round
regarding ag. A, binding agreements to resolve sanitary issues
based on science. B, provide tariff equalization and increased
market access by requiring U.S. trading partners to eliminate
trade barriers within specified timeframes. C, completely
eliminate export subsidies within specified timeframes. Point
D, shorten the dispute resolution procedures and processes.
Third point, regarding enforcing trade agreements. We, the
United States has brought more trade dispute settlement cases
before the WTO than any other nation. We must take all action
necessary to ensure that our trading partners comply, live up
to the WTO rulings.
Due to recent developments just 2 days ago in the U.S. case
against the EU on bananas, I want to add a few remarks that
aren't in the prepared testimony for the record. The U.S. ag
community is very disappointed with the delay in the WTO
arbitration panel's decision on the U.S. request to retaliate
against the EU for not living up to its commitments. The WTO
arbitration panel did not issue a final ruling on Tuesday as we
had hoped. Our producers are counting on the WTO to make timely
decisions on disputes concerning agriculture. We are already
disappointed by the usual long process required for WTO
disputes. The banana case has serious implications for the U.S.
case against the EU on beef. The EU has stated that it will not
comply with the WTO ruling on beef in May as required.
We believe that the customs actions taken by STR yesterday
regarding the banana case is a necessary first step. We hope
that the United States will retaliate in full on the banana
case in the near future, and will exercise its right to
retaliate against the EU on beef if the May deadline passes.
Fourth point, the area is sanctions. U.S. ag producers are
closed off from several export markets due to unilateral
sanctions, just us, just the United States. Our competitors
relish the opportunity to access these markets without our
competition. You know, they just lick their chops when we put
on sanctions. U.S. producers, on the other hand, lose important
markets and are branded as unreliable suppliers. That is for
decades to come.
We support sanctions reform that would exempt food from
sanctions except in cases of armed conflict and provide market
loss assistance payments for lost sales when sanctions are
imposed.
The fifth point, quickly. We have got to increase funding
for export credit and market development programs. That is
things like EP and M-A-P, MAP.
The last one, Trans-Atlantic Economic Partnership or TEP,
T-E-P. Congress and the Administration should closely review
elements of the Trans-Atlantic Economic Partnership agreement
between the United States and Europe to ensure that U.S. ag
interests are adequately represented and that ag exports
benefit from the TEP. We have real questions about that today.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Dean Kleckner, President, American Farm Bureau Federation,
Park Ridge, Illinois
Mr. Chairman and members of the Committee, I am Dean Kleckner,
President of the American Farm Bureau Federation and a hog and soybean
farmer from Iowa. The American Farm Bureau represents more than 4.8
million member families in the United States and Puerto Rico. Our
members produce every type of farm commodity grown in America and
depend on access to customers around the world for the sale of over
one-third of our production. U.S. agriculture is one of the few U.S.
industries that consistently runs a trade surplus, posting a surplus
every year since 1960.
American farmers truly live and function within a global economy.
When our customers face economic and fiscal crisis, as is now occurring
in Asia, Russia and Brazil, agriculture is the first to feel the effect
as our customers lose purchasing power. Economic crises and devalued
currencies result in increased consumer prices, which directly
translate into weakened market demand. Lost sales mean lower incomes
for our producers and economic pressures on America's rural economies.
The ability of U.S. agriculture to gain and maintain a share of
global markets depends on many factors, including obtaining strong
trade agreements that are properly enforced, and enhancing the
administration's ability to negotiate increased market access, remedy
unfair trading practices, and to adequately fund export credit and
market development programs.
We appreciate the opportunity to testify before the House Ways &
Means Trade Subcommittee on the importance of trade to agriculture and
stress the need for Congressional action on the following trade
priorities:
Trade Negotiating Authority
When Congress passed the 1996 Freedom to Farm Act, it phased out
farm price supports, making U.S. agriculture more dependent on the
world market. American farmers and ranchers produce an abundant supply
of commodities far in excess of domestic needs and their productivity
continues to increase. Exports are agriculture's source of future
growth in sales and income.
As you are well aware, U.S. agriculture is reeling from low
commodity prices. Given an abundant domestic supply and a stable U.S.
population rate, expanding existing market access and opening new
export markets for agriculture is more important than ever.
Agriculture's longstanding history of a balance of trade surplus will
not continue if we are relegated to the sidelines as new negotiations
in agriculture commence.
Our negotiators must have negotiating authority to create new
export opportunities for U.S. farmers and ranchers. Inaction--or
sitting on the sidelines without negotiating authority--is
unacceptable. Tremendous resources and efforts have been expended to
create new markets during negotiations for the Uruguay Round and the
North American Free Trade Agreement (NAFTA). Moreover, total
agricultural exports account for nearly a million high paying jobs for
U.S. workers--the vast majority of which are off the farm in processing
and transportation.
Global food demand is expanding rapidly and more than 95 percent of
the world's consumers live outside U.S. borders. Despite significant
progress in opening markets, agriculture remains one of the most
protected and subsidized sectors of the world economy. In addition,
U.S. agricultural producers are placed at a competitive disadvantage
due to the growing number of regional trade agreements among our
competitors.
Negotiating authority is needed to comprehensively address high
tariffs, trade-distorting subsidies, and other restrictive trade
practices through further World Trade Organization (WTO) negotiations.
Negotiating authority is also needed to pursue promising new
opportunities for market opening trade agreements in Latin America,
Asia and elsewhere.
U.S. leadership of the global trade liberalization agenda has paid
off for American agriculture. If the United States now leaves it to
others to form new trade pacts and write future rules for trade, U.S.
producers, processors, and exporters will be severely disadvantaged in
the competitive marketplace of the 21st century.
Congress must support negotiating authority for the President to
ensure a more profitable future for U.S. farmers and ranchers. However,
such authority should not link environmental and labor issues to trade.
Whereas President Clinton emphasized the importance of trade during his
State of the Union address, he also underscored his desire to include
labor and environmental issues in trade agreements. We oppose such a
linkage and stand united with leaders in Asia and Mexico, and Secretary
Ruggiero of the WTO against using the WTO as a forum for resolving non-
trade related environmental and labor issues.
WTO Ministerial
The United States will host its first ever WTO trade ministerial in
December of this year. This ministerial will serve as the kickoff for
the new negotiations on agriculture and other sectors in the WTO. As
the host country for this ministerial, the United States and its trade
policies will be in the spotlight. Securing negotiating authority
before the ministerial commences will demonstrate to the world that we
are committed to increasing trade liberalization and opening new
markets for agriculture. Given the economic turmoil being experienced
in many of our important export markets, the launching of new
negotiations to further open markets has never been more important.
WTO Negotiations on Agriculture
The American Farm Bureau supports expediting action on the next
round for agriculture in the WTO. Our market is the most open in the
world. We cannot sit idly by while our competitors trade openly in our
market, but deny us access to their markets on equal terms. We must
begin the negotiations and conclude them as early as possible to put
U.S. agricultural producers on a level playing field with the rest of
the world.
Regarding specific objectives for the next WTO round, the
negotiations must include binding agreements to resolve sanitary and
phytosanitary issues based on scientific principles in accordance with
the WTO Agreement on Sanitary and Phytosanitary Measures; provide
tariff equalization and increased market access by requiring U.S.
trading partners to eliminate tariff barriers within specified time
frames; and make changes to trading practices that would facilitate and
shorten dispute resolution procedures and processes.
Free Trade Area of the Americas
The Free Trade Area of the Americas (FTAA) will bring together 34
countries in an agreement designed to boost trade in the Western
Hemisphere. Latin America is an important market for U.S. agricultural
products. More than one-fifth of U.S. agricultural exports in 1998 went
to Latin America, an amount that exceeded $11 billion. However, U.S.
agricultural producers are at a competitive disadvantage due to
existing preferential agreements in Latin America. We need the FTAA to
level the playing field for our exports to the region.
Regarding specific objectives, increased market access and
transparency must be the lynch pins for all FTAA negotiations. In
addition, all member countries must have fully complied with their
international obligations prior to its implementation. The FTAA should
cover all production sectors of the member countries' agricultural
industries and no signatory should be permitted to protect any sector
from meeting the terms of the agreement.
Asia Pacific Economic Cooperation
The Asia Pacific Economic Cooperation (APEC) was established in
1989 to promote greater economic and trade cooperation in the Pacific
Rim. APEC member countries have agreed to establish free trade and
investment in the region by the year 2020, with developed countries
reaching for this goal by 2010.
However, there have been several attempts by some APEC member
countries to delay or halt the discussions on further liberalizing
their agricultural markets. This cannot be allowed to happen. While the
economies of many members in the Pacific Rim region have suffered
economic downturns, most members recognize the value of liberalized
markets and have not altered their APEC commitments. Achieving
liberalization in APEC will be extremely important for the upcoming
negotiations on agriculture in the WTO wherein we hope to achieve
further market openings for agriculture. The United States must be
active in APEC discussions and ensure that liberalization in
agriculture maintains a high profile.
Enforcing Trade Agreements
The United States has brought more dispute settlement cases before
the WTO than any other nation. We must take all action necessary to
ensure that our trading partners comply with WTO rulings. The
obligation of compliance should not be taken lightly. Our trading
partners cannot be allowed to unilaterally weaken the very principles
that we negotiated in the Uruguay Round agreement.
American agriculture will not have confidence in the multilateral
trading system if WTO members are permitted to disregard dispute
settlement findings, as the European Union is now doing in the banana
and beef hormone cases.
The United States and the European Union are now embroiled in a
dispute regarding the European Union's compliance with the WTO ruling
on bananas. This case is important to agriculture for many reasons. It
is the first ruling to set limits on the application and administration
of agricultural tariff rate quotas. It is the first action against the
European Union--American agriculture's largest trading partner. Perhaps
most important, it is the first case to test the effectiveness of the
WTO when a losing party refuses to come into compliance with a WTO
ruling. As such, it sets a crucial precedent for the WTO beef hormone
case, in which the European Union has also made known its unwillingness
to come into compliance.
We encourage Congress and the Administration to take whatever
actions are necessary in the banana and beef hormone cases to ensure
successful, WTO-consistent outcomes that will help demonstrate the
effectiveness of the system.
We have an obligation to our producers to ensure that every
available domestic and international trade remedy will be used to
prevent unfair trading practices. To this end, we need Congress and the
Administration to give priority to monitoring and enforcing all trade
agreements and to working aggressively to end unfair trading practices
whenever they are found.
Sanctions Reform
In the last decade, democracy has ascended amidst economic
liberation in Taiwan, Korea, Poland, Hungary, Slovenia, the Czech
Republic, Chile, Argentina, Bolivia, Peru, Brazil, Uruguay and Ecuador.
The opportunities for peaceful American engagement and influence in the
world are greater than ever before. Yet, we are closed off from certain
markets due to unilateral sanctions. Our competitors relish the
opportunity to access these markets without competition from the United
States due to sanctions. U.S. producers, on the other hand, lose
important markets and are branded as unreliable suppliers for decades
to come.
For example, the Soviet grain embargo cost the United States about
$2.8 billion in lost U.S. farm exports and U.S. government compensation
to American farmers. When the United States cut off sales of wheat to
protest the Soviet invasion of Afghanistan, other suppliers--France,
Canada, Australia and Argentina--stepped in. They expanded their sales
to the Soviet Union, ensuring that U.S. sanctions had virtually no
economic impact.
Sanctions and embargoes not only cost us in immediate loss of
sales, but also enable our customers to find or develop other
suppliers. Once this happens, it is very hard to win them back. A case
in point is the growth of soybean production in South America,
primarily Brazil, as a result of embargoes in the 1970s and 1980s.
The United States has an unprecedented opportunity to promote its
values throughout the world by peaceful engagement. Reaching out, not
withdrawing behind sanctions or embargoes, is the best way to achieve
change.
The American Farm Bureau supports sanctions reform that would
exempt food from sanctions, except in cases of armed conflict, and
provide producers with market loss assistance payments for lost
agricultural export sales when sanctions are imposed.
We also support the Administration's recent changes to U.S. trade
policy that will permit food and agricultural input sales to Cuba. It
is imperative that the licensing regulations for this policy be written
in such a way as to facilitate meaningful commercial trade.
Increased Funding for EEP/MAP
Freedom to Farm increases the importance of maintaining and
expanding access to foreign markets. However, in recent years, spending
for export programs has declined, although funding for most programs
was maintained at previous levels for fiscal year 1999. We must
increase funding for these programs in order to remain competitive in
the face of increasing international competition.
We need to adopt a strategic approach to U.S. farm exports that
includes increased export promotion and market development funding.
Doing so will strengthen our hand as we prepare to launch the next
round of agricultural negotiations in the WTO.
We cannot place our producers at a competitive disadvantage in the
world market. The United States should undertake a review of its
existing agricultural export programs, improve their effectiveness and
flexibility and fund these programs adequately.
The American Farm Bureau Federation supports the reallocation of
unobligated funds from the Export Enhancement Program to other programs
such as the P.L. 480 food assistance program, the Food for Progress
program, the Market Access Program, the Foreign Market Development
program, or one of the section 416 commodity donation programs.
Transatlantic Economic Partnership (TEP)
The Transatlantic Economic Partnership establishes a regular
dialogue between the United States and the European Union to seek to
reduce trade barriers and to ensure closer cooperation in preparation
for the 1999 WTO Ministerial Conference. Although the concept of the
plan is commendable, on close examination, the TEP provides little that
is new or substantive for agriculture. Moreover, elements of the plan
cover areas of extreme importance to agriculture including food safety,
plant and animal health, biotechnology and standardization of certain
regulations that directly affect agriculture.
The American Farm Bureau remains very concerned about several
provisions of the plan and related dialogues that do not include U.S.
agricultural representation. It is critical that Congress and the
Administration closely review elements of the TEP to ensure that U.S.
agricultural interests are adequately represented and that agricultural
exports are not negatively impacted.
Raising the Profile of Agricultural Trade Policy
U.S. agriculture is a primary contributor to the nation's gross
domestic product and is highly dependent on export markets for the sale
of over one-third of its production. Farmers and ranchers need a strong
voice in U.S. trade policy to ensure that agriculture's interests are
being vigorously pursued.
Creating a permanent position for the Special Agricultural
Negotiator in the Office of the United States Trade Representative--
with the rank of ambassador--will elevate the importance of agriculture
in the upcoming WTO negotiations on farm products and will place
agriculture at the highest possible level for resolving trade disputes.
U.S. agricultural producers are the most productive in the world.
We need Congress and the Administration to act on agriculture's trade
priorities so that U.S. farmers and ranchers can reap the rewards of
their productivity and provide an affordable food supply to U.S. and
world consumers.
Thank you for the opportunity to speak on behalf of American
agriculture.
[An attachment is being retain in the Committee files.]
Chairman Crane [presiding]. Thank you, Mr. Kleckner.
Mr. Gardner.
STATEMENT OF KEVIN GARDNER, FARMER, CAVE CITY, KENTUCKY
Mr. Gardner. Thank you. Mr. Chairman, and Members of the
Committee, my name is Kevin Gardner. I operate a corn, soybean,
and burley tobacco farm in Cave City, Kentucky. I bought my
farm from my mother nearly 10 years ago when my father passed
away. The farm has been owned and operated by my family since
1792, when land was first granted out in our county. It has
enjoyed mostly prosperous times during the last 200 years.
I am here before you today to share my farming story with
you, and to highlight the growing reliance that my farm and
every other farm in the country has on access to foreign
markets.
Since I was a young boy, I dreamt of being a farmer. I
would watch my dad cultivate the corn, operate the combine,
harvest the soybeans and tobacco, and wean the baby pigs. My
father was an honorable man. He was dedicated to his family,
the farm, and his community. He operated the farm the best way
he knew how, and did a good job. But he never had to worry
about global financial crises closing down his markets or non-
tariff trade barriers shutting him out of the competition for a
sale.
Times have certainly changed. Farmers today are focused not
only on what they grow and how they grow it, but where their
end market is, which is increasingly becoming an international
destination. Today's market is much more global in nature than
the market my father faced. When I open up the morning
newspaper and read about the news of the day, I am well aware
that economic troubles in other countries, as well as good
market news in faraway lands, affect me directly. We live in a
global marketplace, and as farmers we need to be players in the
global game.
For example, I sell my corn to a local feed dealership and
my soybeans to a local processing plant on the Ohio River.
However, I feel the impact of the global corn and soybean
prices when I sell these products to the dealership and the
plant. A large portion of the soybeans I sell I deliver to the
plant are exported to Japan, the Netherlands, Mexico, Taiwan,
and Spain. Mexico, incidently, has become an important market
for Kentucky farmers since the North American Free Trade
Agreement was implemented.
Take another example. My tobacco is sold at auction at a
local warehouse. Five major tobacco companies buy U.S. burley
tobacco at auction for processing. About half the tobacco is
for use for U.S. consumption and the rest is exported.
I am a strong supporter of free and fair trade. My future
depends on it. I supported the Freedom to Farm, but note that
we only got part of the deal that we were promised. We got the
freedom to farm, but we did not get the freedom to sell. We
continue to be shut out of important markets due to a number of
factors. In short, U.S. farmers do not have the freedom to
trade. I believe that our negotiators should be allowed to
return to the negotiating table to level the playing field and
to negotiate better access to more international markets.
Would my life be different if our negotiators could knock
down those phoney barriers and get rid of the subsidies on my
competitors' exports, and open up markets for U.S. farmers? You
bet it would. I would relish the opportunity to sell more corn,
soybeans, and tobacco in the international marketplace if I
knew I was truly squaring off with the competitor that didn't
have two legs up on me before we even got out of the gate.
To boil all this down, I am asking you, our elected
representatives, to remember America's roots. We started out as
an agrarian society and we built a strong Nation, the strongest
in the world from very humble beginnings. Remember the farmer
like me in the countryside. We are the most productive and
efficient farmers in the world. Yet many export doors are
closed for us for one reason or another. The President needs
negotiating authority to re-open export market doors for U.S.
agriculture.
I would like to thank this Committee and especially my
Congressman, Ron Lewis, for their efforts in opening U.S.
trade. I thank you for this opportunity to testify.
[The prepared statement follows:]
Statement of Kevin Gardner, Farmer Cave City, Kentucky
Mr. Chairman and members of the Committee, my name is Kevin Gardner
and I operate a corn, soybean, burley tobacco and alfalfa farm in Cave
City, Kentucky. I bought my farm from my mother ten years ago when my
father died. This farm has been owned and operated by my family since
1792 when land was first granted out in our county and has enjoyed
mostly prosperous times during that 200-year period.
I am here before you today to share my farming story with you and
to highlight the growing reliance that my farm, and every other farm in
the country, has on access to foreign markets.
Since I was a young boy, I dreamt of being a farmer. I would watch
my dad cultivate the corn, operate the combine, harvest the soybeans
and tobacco and wean the baby pigs. My father was an honorable man,
dedicated to his family, the farm and his community. He operated his
farm the best he knew how and he did a good job. But he never had to
worry about global financial crises closing down his markets or
nontariff trade barriers shutting him out of competition for a sale.
Times have changed. Farmers today are focused not only on what they
grow and how they grow it, but also on where their end market is--which
is increasingly becoming an international destination. Today's market
is much more global in nature than the market my father faced. When I
open up the morning newspaper and read the news of the day, I am well
aware that economic troubles in other countries--as well as good market
news in far away lands--affect me directly. We live in a global
marketplace and, as farmers, we need to be players in the global game.
For example, I sell my corn to a local feed dealership and my
soybeans to a processing plant on the Ohio River. However, I feel the
impact of global corn and soybean prices when I sell these products to
the dealership and the plant. A large portion of the soybeans I deliver
to the plant are exported to Japan, the Netherlands, Mexico, Taiwan or
Spain. Mexico has, incidentally, become an important market for
Kentucky farmers since the North American Free Trade Agreement was
implemented.
Take another example. My tobacco is sold at an auction to a local
warehouse. Five major tobacco companies buy burley tobacco at that
auction for processing. About half of the tobacco is used for U.S.
consumption, the rest is exported to countries like Germany, Japan,
Turkey, the Dominican Republic, Belgium or the Netherlands.
Up until last spring, I raised hogs in a farrow-to-finish operation
and even specialized in early weaning pigs for the last two years of my
operation. But in May of 1998, I had to close down my hog operation
because the market died. The price for hogs fell below my cost of
production due largely to excess domestic supply. Imports of Canadian
hogs were also a factor.
My point in sharing my hog story with you is not to say that I am
trade protectionist. On the contrary. I support free and fair trade. My
future depends on it. I supported Freedom to Farm, but note that we
only got part of the deal that we were promised. We got freedom to
farm, but we didn't get freedom to sell. We continue to be shut out of
important markets due to a number of factors. In short, U.S. farmers do
not have freedom to trade. I believe that our negotiators should be
allowed to return to the negotiating table to level the playing field
and negotiate better access to more international markets.
A lot of export market doors have been shut due to high tariffs and
nontariff barriers. For example, I grow Bt-corn and Roundup-ready
soybeans. These are genetically modified crops--or GMOs. Europe has
very limited access for these products and has slammed the import door
closed on new varieties of GMO products. We need new rules on
biotechnology in the World Trade Organization because Europe is the
second largest market for U.S. agriculture. The phony barriers that
Europe erects are hurting the average farmer in the countryside--
farmers like me. I feel the impact of Europe's anti-trade tactics when
I sell my corn and soybeans to the local feed dealership and processing
plant.
Would my life be different if our negotiators could knock down
these phony barriers, get rid of foreign subsidies on my competitors'
exports and open more markets for U.S. farmers? You bet it would.
I have seen first-hand the level of subsidies given to European
farmers and supply managed programs for Canadian farmers. I have
traveled to both Europe and Canada and have been struck by the amount
of government support farmers in Europe enjoy. Farmers in Europe and
Canada are my primary competitors. I cannot compete against the
mountain of subsidies and supply managed programs that benefit my
competitors.
All I am asking for is that we negotiate new agreements that put
our farmers on a more level playing field with the rest of the world's
farmers. I would relish the opportunity to sell more corn, soybeans and
tobacco in the international marketplace if I knew that I was truly
squaring off with a competitor that didn't have two legs up on me
before we even got out of the gate.
To boil all this down, I am asking you, our elected
representatives, to remember America's roots. We started out as an
agrarian society. And we built a strong nation--the strongest in the
world--from very humble beginnings. Remember the farmer--like me--in
the countryside. We are the most productive and efficient farmers in
the world. Yet too many export doors are closed to us for one reason or
another. The President needs negotiating authority to reopen export
market doors for U.S. agriculture.
I would like to thank this Committee, and especially my
Congressman, Ron Lewis, for their efforts in opening trade for U.S.
farmers.
Thank you for the opportunity to testify before you today.
Chairman Crane. Thank you, Mr. Gardner.
Mr. Trammel.
STATEMENT OF LEON TRAMMELL, CHAIRMAN AND FOUNDER, TRAMCO, INC.,
WICHITA, KANSAS
Mr. Trammell. Chairman Crane, Congressman Levin, Members of
the Subcommittee on Trade, I am Leon Trammell, chairman and
founder or Tramco, Incorporated, in Wichita, Kansas. Tramco
creates jobs by selling and manufacturing conveying equipment.
Our primary market is the cereal food processors, such as
wheat, corn, soybean, and other oil seeds. I appreciate the
opportunity to join you in this very important discussion.
I founded Tramco in 1967 with the commitment to quality and
customer satisfaction. Almost 25 years ago, Tramco embarked on
its first out-of-country job. We were fortunate to be involved
in a grain import and transfer facility in Alexandria, Egypt.
When the project was completed, we realized that this modern
facility halfway around the world had been responsible for 20
percent of our business. That meant 15 new jobs for 1 year.
Today we have installations in over 35 countries. Why are
international markets important to Tramco? We could wave the
flag and talk about helping the United States balance of
payment, but the real reason our international partners are
important is that we are an entrepreneurial company. We are
always looking for additional sales. Foreign projects offer the
greatest opportunities, and we create jobs.
I am the guy who signs the paycheck four times a month for
more than 160 families. I am the guy who approves expense
reports on trips our employees take to maintain business
relationships on four continents. I have employees who can take
raw steel and turn it into the finest grain conveyors in the
world. Their job depends on my ability to sell.
I spoke at length about China in my written statement
because of its great size, great potential, and severe
restrictions. But the fact is, we must compete all over the
world and we must win. The livelihood of Tramco's 160 families
depend on it. Thousands of companies like mine and millions of
jobs around the country depend on it. I simply can not
understand why our government seems to be more intent on
imposing economic sanctions and annual NTR renewals that our
competitors don't follow than it is with allying us and our
trade negotiators to get the best deal.
I am a member of the U.S. Chamber of Commerce. The Chamber
represents tens of thousands of entrepreneurs like myself as
well as most large companies, corporations like those
represented here today. I might add that two of those people
that testified today, I get the waterfall effect from them.
That's Cargill and Foster Wheeler. Eighty percent of our
business is in grain processing and 20 percent is in general
industry. The reason a company the size of Tramco can be in 35
foreign countries is we go in on the coattails of those
companies. Once we are there and we are established as a
supplier to the Cargills and to the Foster Wheelers, it is
easier for us to penetrate the rest of the market.
Let me back up here. The Chamber of Commerce represents
tens of thousands of entrepreneurs like myself, as well as most
large corporations like those represented here. We all do
business in our own way, but we all have a common goal, which
are to stay in business and create jobs.
To summarize, the U.S. Congress and Administration should
do everything possible to expand the international marketplace.
This means renewing fast track and rejoining trade
negotiations. These negotiations should be about opening
markets and creating jobs, not closing them. Any effort to
restrict trade through protectionism should be rejected. We
need to end our reliance on unilateral sanctions. This includes
giving permanent NTR status to China and stop threatening to
end it at the end of each year. Ending China's NTR status would
be a major new sanction that would hurt Tramco, as well as
those who seek more liberty in China, but it would not cause
positive change in China.
We need to maintain trade laws that are not themselves
protectionist, but help us to open markets and end
protectionism. Again, this is about jobs. This will give our
negotiators more credibility, and the American public more
confidence. Finally, we need to stay engaged in keep building
relationships with our customers, not turn them off and on like
a lightswitch at the end of each year.
I will be pleased to answer any questions you might have,
and thank you.
[The prepared statement follows:]
Statement of Leon Trammell, Chairman and Founder, Tramco, Inc.,
Wichita, Kansas
Chairman Crane, Congressman Levin, members of the Subcommittee on
Trade. I appreciate this opportunity to join you in this very important
discussion.
The following information is provided as a written submission for
the United States House of Representatives, Committee on Ways and
Means, Subcommittee on Trade.
These materials will provide a record on my thoughts on the
importance of expanding trade, and resisting any protectionism in trade
negotiations.
As background, I am:
Leon Trammell, Chairman and President, Tramco, Inc.
We are located at 1020 East 19th Street, Wichita, Kansas 67214.
Our 160+ employees are involved in the manufacturing and sale of
high-production conveyors and conveying systems. Our primary market is
in the ``cereal foods'' business . . . i.e., corn, soybeans, etc. We
have been active in international sales for more than 20 years, and
have been most active in the China market for the last 14 years.
With your permission, it may be valuable to know of Tramco's
background and introduction to ``international'' trade.
Almost 25 years ago Tramco embarked on its first job outside of the
United States. We were fortunate to be involved in a grain import and
transfer facility in Alexandria, Egypt. When the project was completed
and brought on-line, we realized that this modern facility--half way
around the world--had been responsible for 20% of our business.
As we said, this was ``good'' business.
This one factor alone can be cited as the reason Tramco's quality
products are now known around the world. As a company, we made
international relationships and sales one of our primary missions.
We also know that ``relationships'' must come before any prospect
of ``sales.'' As such, we seem to have one of our employees getting
their passport stamped on a monthly basis. And, while it is not
unexpected to have a $5,000 bill at the end of each trip, we continue
to make this investment in pure relationship building.
I would now like to discuss the changes we have seen in the China
market (specifically) since our first introduction to this
international partner. (I highlight China for this example because,
with our bidding, sales and installation activities currently in over
35 countries, China is among the most restrictive.)
Ten years ago, with roughly 1.3 billion citizens, almost
80% of China's population was involved in farming. Today, after
extensive industrialization, this number has dropped to between 65 and
70%. While this drop is significant, the number of farmers--
850,000,000--is still more than three times the entire population of
the United States. (As a point of reference, 100 years ago, 60% of the
United States population was involved in agriculture. Today the number
is 1%.)
When we first went to China, the grain industry's idea of
transporting grain was one farmer/gardener, one sack of grain and one
bicycle. To be honest, there was no infrastructure. In fact, when grain
was loaded on to ships (during the few years when China was an
exporter) it was not unexpected for the farmer to carry sacks of grain
on to a ship and dump them by hand in to the ship cargo areas.
Ten years ago saw the beginning of the construction of a
system of what we could call country elevators. Their primary purpose
was to ship the grain to a centralized storage facility.
We would like to believe that China is leaving a period of
``labor intensity'' and entering a period of ``brain intensity.''
Obviously this shows great promise for a manufacturer of ``high-
quality, labor-saving'' equipment.
Why are international markets important to Tramco? While we could
``wave the flag'' and talk about helping the U.S. balance of payments,
the real reason China and our other international partners is important
to us is that we are an entrepreneurial company--always looking for
sales--and foreign projects offer the most opportunity in the world.
China is finishing up the greatest grain ``system'' expansion the
world has ever known. It should be noted, due to peculiar aspects of
the Normal Trading Relation status (NTR), no U.S. design and
engineering firms have been involved in these projects. Most of the
work resides in Canada, England, Australia and the Netherlands. (The
major U.S. firms didn't get involved because they did not know if they
would be able to operate under NTR from one year to the next.)
Let me speak honestly about our feelings toward international
activities in general, and granting permanent NTR status to China
specifically:
Our business is not based upon whim and caprice. The
current NTR approach sometimes seems to be based upon whim and caprice.
Americans understand that we cannot impose our religious,
political and social views on China. It would appear as if Congress
does not understand this.
Our company's short-term planning is 12 to 18 months, and
our long-term planning is five years. With the current NTR requirements
with China, everything ends on December 31.
Many of our clients realize that changing specifications
in the middle of a project might necessitate changes in the product
delivery schedule. With the NTR requirements, it doesn't matter how
many changes are requested, everything ends on December 31.
We like to think we are always ``in the ballgame'' when it
comes to designing and delivering equipment. With NTR we have missed
jobs because we couldn't deliver materials before the end of the year.
This situation is brought about because, as the U.S. Congress threatens
to withhold NTR status from China, their government threatens to impose
a 40% duty on all equipment delivered from the U.S. While this has
never happened, the threat always exists.
The current NTR activities take away two qualities we
expect in a long-term client relationship . . . continuity and
consistency.
It should be obvious from my comments to this point that I am a
designer and builder of conveyor equipment . . . I am not a politician.
While I vote every chance I get, I certainly do not understand the way
our government chooses to make laws that hand-cuff our own small
businesses who are trying to do businesses with China.
For instance . . . why would the United States want a policy that
would restrict our ability to compete? Do they think they are
``punishing'' China? No. The world's largest potential marketplace will
buy from some other country. The people being ``punished'' are our own
manufacturers and engineering experts.
Or, to paraphrase the general focus of this Ways and Means
Subcommittee on Trade . . . I would urge you to do everything possible
to expand trade, and resist the introduction of any form of
protectionism in any trade negotiations.
Who is Leon Trammell:
I am is the guy who signs paychecks--four times a month--
for more than 160 families. I have employees who can take raw steel and
turn it into the finest grain conveyors in the world. And, I am the guy
who approves the expense reports on those trips to make sure my key
people maintain their key relationships on four continents.
The sad thing is that Tramco is not alone. I fully expect that you
will receive similar comments from others who are just as frustrated by
a restriction on trade through the inclusion of protectionism in trade
negotiations.
Let me thank you for the opportunity to express these thoughts and
to show how passionate I am when it comes to establishing a ``level''
playing field. (I honestly do not want for Tramco to ever be given an
unfair advantage. We have gained our reputation and success in the
toughest arena of all . . . the free marketplace.)
To summarize:
1. The United States Congress should do everything possible to
expand the international trade marketplace.
2. Any effort to restrict trade, through protectionism, tariffs or
short timetables should be rejected.
3. On the subject of Normal Trade Relations status, I would support
all efforts to give permanent NTR status to China.
4. We should be able to continue our relationship-building in any
country, while projecting beyond New Year's Eve.
5. While we work well with engineering firms from Europe and
Australia, it would be nice once-in-a-while to deal with companies who
are a ``local'' call away.
6. Finally, long-term relationships should not end on the last day
of the year, and then restart when someone in Congress says they can
recommence.
Thank you for this opportunity to share some thoughts with United
States House of Representatives Committee on Ways and Means,
Subcommittee on Trade.
Thank you.
Chairman Crane. Thank you, Mr. Trammell.
Mr. Pryce.
STATEMENT OF HON. WILLIAM T. PRYCE, VICE PRESIDENT, WASHINGTON
OPERATIONS, COUNCIL OF THE AMERICAS, AND FORMER AMBASSADOR TO
HONDURAS FROM THE UNITED STATES
Mr. Pryce. Good morning, Mr. Chairman, Congressman Levin,
and Members of the Subcommittee. I am Bill Pryce, vice
president of the Council of the Americas. The Council
appreciates the opportunity to testify before you today. The
Council of the Americas is the leading business organization
dedicated to promoting regional economic integration, free
trade and investment, open markets, and the rule of law
throughout the hemisphere. The Council's membership represents
the majority of U.S. private investment in Latin America.
Members include manufacturing, natural resources, technology,
communications, banking, and financial services firms.
The Council was founded on the belief that the future
prosperity of the hemisphere depends on the triumph of liberal
economic policies such as free trade and open markets. Despite
the recent turbulence in the global economy, it is clear over
the last decade that the trend in Latin America has been in
that direction. The result has been stronger democracies and
greater market opportunities for U.S. companies. These are
trends we should be encouraging.
Last April, the presidents of the hemisphere's 34
democracies agreed in Chile to open negotiations for a free
trade area of the Americas, and to launch new initiatives to
promote education, reduce poverty, and strengthen democratic
institutions throughout the Americas. The Council believes that
the FTAA represents a great opportunity for growth and
development of the region. Trade leads to prosperity, and
provides an enhanced ability to address the summit's broader
social and political agenda.
The Free Trade Area of the Americas represents a potential
market of 800 million people. It is a huge market, for
everything from cellular telephones to industrial machinery.
U.S. trade with Latin America and the Caribbean is already
growing faster than with any other part of the world. U.S.
exports to Latin America have increased by more than 100
percent since 1990, and are growing about twice as fast as
exports to the rest of the world. The United States sells more
to Brazil than to China, more to Central America than to
Eastern Europe and the former Soviet Union combined, and more
to the 14 million people of Chile than to the 900 million
people of India.
Last month, the Council was in Miami at the FTAA
negotiations. Mr. Chairman, we heard once again directly from
the negotiators that the lack of trade negotiating authority
was an impediment to progress. The goal of reaching interim
agreements by the year 2000 in order to achieve the concrete
progress referred to in the Miami Summit appears increasingly
difficult to achieve. While the lack of the President's trade
negotiating authority is not the only cause, it certainly
impedes our ability to get taken seriously. Although the FTAA
process is not scheduled to come into effect until the year
2005, the United States is in danger of losing ground in the
region, and ceding opportunity to Canada and the European Union
as they negotiate preferential trade agreements with the
countries of Latin America.
Mr. Chairman, I want to mention our most recent major trade
agreement, the NAFTA. The North American Free Trade Agreement
has been a clear success. In January, the Council released its
NAFTA at Five Years report, which demonstrates even more
strongly than before that this trade agreement has been
beneficial for the United States. U.S. trade with our NAFTA
partners grew 63 percent from 1993 to 1997, and stands are
record levels. Since 1993, U.S. merchandise trade is up 93
percent with Mexico, 51 percent with Canada. In 1997, U.S.
trade with Canada totaled $354 billion, and with Mexico, $180
billion. We now export more to our NAFTA partners than we do to
the European Union and Japan combined.
Since NAFTA went into effect, the United States has seen
the unemployment rate drop to a 28-year low. We clearly have
not seen a massive exodus of U.S. jobs to Mexico as some had
predicted. In fact, NAFTA has led to more high quality, better-
paying jobs for U.S. workers. Without NAFTA, U.S. exporters
would face Mexican and Canadian trade barriers they do not now
confront. Without NAFTA, U.S. exporters would have been hit
much harder by the Asian financial crisis. Just as exports to
Asia plummeted, U.S. exports to Canada and Mexico soared. Half
the manufactured goods export loss to Asia was made up by
increased U.S. exports to Mexico and Canada, which grew by $10
billion over the first 8 months of 1988. NAFTA has fostered
growth in cross-border investment that has improved the
competitiveness of American companies, and consequently, their
ability to keep high-skill, high-wage jobs in the United
States.
The Council also believes that there are ways to improve
NAFTA. For example, by funding its institutions and further
implementing the agreement. By we also believe that NAFTA is
unfairly blamed for some of the trends inherent in a changing
world economy. Moreover, the agreement cannot be expected to
carry all of the facets of a trilateral relationship on its
back.
Under NAFTA, U.S. business has benefited from greater
efficiency, U.S. workers have benefited from the creation of
high-wage, high-skill, export-related jobs, and U.S. consumers
have benefited from lower prices and greater choice. These are
trends we should continue to promote and extend throughout the
hemisphere.
In closing, the FTAA presents an opportunity to link the 34
democracies in the Western Hemisphere by broadening and
deepening relations in ways that benefit the U.S. economy and
its citizens, as well as those of our hemispheric neighbors and
partners. We need to do all we can to support it.
Thank you very much.
[The prepared statement follows:]
Statement of the Hon. William T. Pryce, Vice President, Washington
Operations, Council of the Americas, and former Ambassador to Honduras
from the United States
Good morning, Mr. Chairman, Congressman Levin, and Members of the
Subcommittee. I am Bill Pryce, Vice President of the Council of the
Americas in charge of our Washington operations. The Council of the
Americas appreciates the opportunity to testify before you today.
The Council of the Americas is the leading business organization
dedicated to promoting regional economic integration, free trade and
investment, open markets, and the rule of law throughout the Western
Hemisphere. The Council's membership represents the majority of U.S.
private investment in Latin America. Members include manufacturing,
natural resources, technology, communications, banking, and financial
services firms.
The Council was founded on the belief that the future prosperity of
the hemisphere depends on the triumph of liberal economic principles
such as free trade and open investment. Despite the recent turbulence
in the global economy, I think it is clear that over the last decade
the trend in Latin America has been in this direction. The result has
been stronger democracies and greater market opportunities for U.S.
companies.
Mr. Chairman, these are trends that we should be encouraging and
that is why I am here to speak to you today. As you know, the Summit of
the Americas has begun the process of hemispheric integration. Last
April, the Presidents of the hemisphere's 34 democracies met in
Santiago, Chile and signed a document to open negotiations for a Free
Trade Area of the Americas as well as to launch new initiatives to
promote education, reduce poverty, and strengthen democratic
institutions throughout the Americas. It is an ambitious agenda that
will help to reduce the risks and barriers to investment in the
hemisphere as well as create a more politically stable environment. The
Council believes that the FTAA represents a great opportunity for
growth and development in the region. Trade leads to prosperity and
provides market-liberalizing countries an enhanced ability to address
the summit's broader social and political agenda.
The Free Trade Area of the Americas presents a potential market of
800 million people to whom we can sell our goods and services. It is a
huge market for everything from cellular telephones to industrial
machinery. U.S. trade with Latin America and the Caribbean is already
growing faster than with any other part of the world. U.S. exports to
Latin America have increased by more than 100% since 1990 and are
growing about twice as fast as exports to the rest of the world. The
U.S. sells more to Brazil than to China; more to Central America than
to Eastern Europe and the former Soviet Union combined; more to the 14
million people of Chile than to the 900 million people of India.
The Council believes that expanding this trading relationship is
critical to U.S. corporate growth and overall economic health as well
as to the development of Latin America. Last month the Council was in
Miami at the FTAA negotiations. Although the FTAA process is in its
early stages the groundwork is now being laid to create the world's
largest free trade zone. However, the U.S. government can only lead
successfully in this process if it is given the tools necessary to
bargain with strength. Mr. Chairman we heard once again directly from
the negotiators last month that the lack of trade negotiating authority
was an impediment to progress.
The goal of reaching interim agreements by 2000 in order to achieve
the ``concrete progress'' referred to in the Miami Summit declaration
appears increasingly difficult to achieve. And while the lack of
President Clinton's trade negotiating authority is not the only cause,
it certainly impairs our ability to reach business facilitation
measures. Although the FTAA process is not scheduled to come into
effect until the year 2005, the United States is in danger of losing
ground in the region and ceding opportunities to Canada and the
European Union as they negotiate preferential trade agreements with
countries in Latin America.
Mr. Chairman, while we are discussing the potential impact of
ongoing trade negotiations on U.S. jobs, wages, economic opportunity
and the future competitiveness of U.S. companies I thought I would
mention the most recent major trade agreement that has positively
impacted the U.S. economy and its workers--the NAFTA. Mr. Chairman, the
North American Free Trade Agreement has been a success. In January, the
Council released its ``NAFTA at Five Years'' report. The figures in
this report confirm even more strongly than before that this trade
agreement has been beneficial for the United States. Total U.S. trade
with our NAFTA partners grew 63 percent between 1993 and 1997 and
stands at record levels. Since 1993, U.S. merchandise trade is up 93
percent with Mexico and 51 percent with Canada. In 1997, U.S. trade
with Canada totaled $354 billion and with Mexico $180 billion. Since
NAFTA went into effect, the United States has seen the unemployment
rate drop to a 28-year low. We have clearly not seen a massive exodus
of U.S. jobs to Mexico as some had predicted. In fact, NAFTA has led to
more high quality, better-paying jobs for U.S. workers.
Simply put, without NAFTA, U.S. exporters would face Mexican and
Canadian trade barriers they do not now confront. And without NAFTA,
U.S. exporters would have been hit much harder by the Asian financial
crisis. Just as exports to Asia plummeted, U.S. exports to Canada and
Mexico soared. Half of the manufactured goods export loss to Asia was
made up by increased U.S. exports to Mexico and Canada, which grew by
over $10 billion in the first eight months of 1998. NAFTA has fostered
growth in cross-border investment that has improved the competitiveness
of American companies and, consequently, their ability to keep high-
skill, high-wage jobs in the United States. Beyond the positive
economic impact in the three NAFTA countries, the agreement has also
encouraged economic reforms in Mexico.
Mr. Chairman, the Council believes that there are ways to improve
NAFTA. We lay out in our report some recommendations such as fully
funding NAFTA's institutions and further implementing the agreement.
But we also believe that NAFTA is unfairly blamed for some of the
trends inherent in a changing world economy. The agreement cannot be
expected to carry all facets of a trilateral relationship on its back.
From the trade perspective there can be no doubt that NAFTA has been
successful.
Under NAFTA U.S. business has benefited from greater efficiency,
U.S. workers have benefited from the creation of high-wage, high-skill,
export-related jobs, and U.S. consumers have benefited from lower
prices and greater choice. These are trends we should continue to
promote and extend throughout the hemisphere. The FTAA presents an
opportunity to link the 34 democracies of the Western Hemisphere by
broadening and deepening relations in ways that benefit the U.S.
economy and its citizens. Thank you very much.
Chairman Crane. Thank you, Mr. Pryce.
Mr. Ryan.
STATEMENT OF MICHAEL D. RYAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, STAFFING INNOVATIONS, INC., ATLANTA, GEORGIA
Mr. Ryan. Yes. Thank you, Mr. Chairman, for inviting my
testimony on the importance of expanding trade, to resisting
protectionism through active U.S. involvement in trade
negotiations. I sit before you today as an example of our
Government's commitment to SSMEs, in keeping them involved in
the input process of global trade agreements, as well as being
a product of the late Secretary Ron Brown's efforts.
I am grateful to you and the Subcommittee as a whole for
giving me this opportunity to speak as a small businessman on
why it is crucial that the United States continue its ambitious
trade agenda. Since over 80 percent of the world's economic
consumption is outside of the United States, it is imperative
that the U.S. negotiate and enforce agreements worldwide, which
will create open and fair markets for U.S. products and
services. This process of engagement will ensure our continued
growth and standard of living into the 21st century. My
testimony will touch on why an aggressive trade policy to open
markets is important to small, medium, and micro businesses.
My commitment and my company's commitment to staying
involved in the trade policy process goes back many years. SII
focuses on global information technology. Our areas of
expertise range from project-based management software
development, networking, communications, and technical support
services. Issues affecting information technology companies on
a global scale that challenge SII include areas which are being
negotiated in a number of multilateral, regional, and bilateral
agreements. In particular, intellectual property rights, duty
free, electronic commerce, expansion of the information
technology agreement under the World Trade Organization,
continued liberalization under the Asian Pacific Economic
Cooperation, and the Trans-Atlantic Business Dialog are very
important to SII and other technology companies. Other areas
include reduction of barriers in international personnel
exchange, customs facilitation. It is imperative that a general
consensus is reached regarding further trade liberalization and
these other areas.
SII's involvement during the past 4 years in trade policy
includes my role as a U.S. delegate to APEC, TABD, and
attending meetings and participation in trade mission with the
U.S. Government. It is because of my expansion and ambitious
efforts into the global marketplace and involvement in being a
voice for small, medium, and micro businesses that I am
speaking today in support of continued trade liberalization.
A few issues that I wanted to make sure that I brought to
the forefront this afternoon. First, being trade negotiation
authority. In order for the United States to have credibility
as we pursue our aggressive trade agenda, it is mandatory that
the President be given negotiating authority to negotiate these
trade agreements in good faith. We must get beyond partisan
politics and do the right thing by giving our President this
authority. If Congress does not like the deal being brought
forward, of course they simply have the authority to vote it
down. Granting negotiating authority which would allow the
United States to be more effective in this process is not a
nicety, it is a necessity. I urge Congress to act quickly to
grant the President this authority.
Intellectual property rights being the second issue. Since
this is a growing line of business for my company with our
global expansion, we must work to ensure all WTO members comply
with their obligation to introduce full intellectual property
protection by the year 2000. Global electronic commerce.
Electronic commerce allows small businesses to break into and
compete successfully in a global marketplace.
International personnel exchange, which is a new issue that
we brought up under the auspices of TABD this year. As a
supplier of technical support services, restrictions on
personnel exchange have an adverse effect on my ability to grow
in many of the worldwide markets.
Customs. The WTO should work to simplify and reduce
burdensome customs and trade procedures. Both large and small
companies lose money because of unnecessary red tape in the
customs procedures worldwide.
I also wanted to make sure that I brought to the forefront
the importance of Africa. After several trips to Africa and
exposure, SII is now identifying and researching opportunities
in North Africa with countries such as Mauritania & Morocco,
which has the distinction of having the oldest treaty with the
United States in continuous force. The United States therefore
should support the U.S.-North African Economic Partnership
Initiative. In addition, I encourage Congress to swiftly
approve the African Growth and Opportunity Act.
APEC, TABD, and WTO, these forums provide the United States
with an opportunity to shape the direction of trade
negotiations in the future. The significance of these hearings
are especially valuable at this time, recognizing that we are
coming into a new millennium.
I, on the way to Washington, coined two words, trying to be
a little creative with this discussion. The first word that I
coined, and it just kind of dropped in my mouth, was to be
``millenniumized''. That's kind of a tongue twister. I kind of
define that as those individuals and companies and countries
that are prepared to embrace and meet the challenges of the
next millennium head on.
The next word that I have coined is ``millenniumated'',
those individual companies and countries that are ill-prepared,
overwhelmed, and engulfed by those challenges that the next
millennium will hold.
It will hold with its emergence, the ability to embrace our
next generations with the outcomes of the decisions made today,
or it may hold hostage our succeeding generations with
restitution to pay for our indecisiveness and inability to
reach consensus and establish global democratic economic
uniformity. Countries will have to change the way they manage
the growth with respect to globalization, and their past
approaches to global economic expansion and trade agendas are
not as valuable as they used to be. Only their ability to
adjust and leverage that experience is.
In conclusion, I recall hearing a story about Nelson
Mandela, the president of South Africa. He was once asked how
could you have spent 27 years of your life, for what reason
would you compromise your existence? He said that when he was a
little boy, his mother told him that there were three kinds of
people in the world. The first kind comes in and leaves
nothing. The second kind comes in and does bad things to
people. The third kind comes in and leaves it just a little
better than the way they found it. The moral imperative is
obvious because we all have mothers.
Thank you very much.
[The prepared statement follows:]
Statement of Michael D. Ryan, President and Chief Executive Officer,
Staffing Innovations, Inc., Atlanta, Georgia
Thank you, Mr. Chairman, for inviting my testimony on the
importance of expanding trade and resisting protectionism through
active U.S. involvement in trade negotiations. I am grateful to you and
to the Subcommittee as a whole for giving me this opportunity to speak
as a small businessman on why it is crucial that the U.S. continue its
ambitious trade agenda. Since over 80% of the world's economic
consumption is outside of the U.S., it is imperative that the U.S.
negotiate and enforce agreements worldwide which will create open and
fair markets for U.S. products and services. This process of engagement
will insure our continued growth and standard of living into the 21st
Century. My testimony will touch on why an aggressive trade policy to
open markets is important to small, medium and micro businesses.
Company Involvement in Trade Policy
Staffing Innovations, Inc. (SII) focuses on global information
technology. Our areas of expertise range from project based management,
software development, networking, communications and technical support
services. Currently, SII is engaged in a concerted global outreach
business agenda that includes Asia, Europe, North Africa and the
Caribbean. Issues affecting information technology companies on a
global scale that challenge SII include areas which are being
negotiated in a number of multilateral, regional and bilateral
agreements. In particular, intellectual property rights, duty-free
electronic commerce, expansion of the information technology agreement
under the World Trade Organization (WTO), continued liberation under
the Asian Pacific Economic Cooperation (APEC) and Transatlantic
Business Dialogue (TABD) are very important to Staffing Innovations,
Inc. and other technology companies. Other areas include reduction of
barriers to international personnel exchange and customs facilitation.
It is imperative that a general consensus is reached regarding further
trade liberalization in these and other areas.
SII's involvement during the past 4 years in trade policy includes
my role as a U.S. delegate to the APEC conference, Transatlantic
Business Dialogue (TABD) meetings and participation in trade missions
with the U.S. government. It is because of my expansion into the global
marketplace and involvement in being a voice for small, medium and
micro businesses that I am speaking today in support of continued trade
liberalization.
Trade Expansion and its Effect on Small Businesses
Trade Negotiating Authority. In order for the U.S. to have
credibility as we pursue our aggressive trade agenda, it is mandatory
that the President be given negotiating authority to negotiate these
trade agreements in good faith. We must get beyond partisan politics
and ``do the right thing'' by giving our President this authority. If
Congress does not like the deal being brought forward, you have the
authority to vote it down. Granting negotiating authority which would
allow the U.S. to be more effective in this process is not a nicety--it
is a necessity. I urge Congress to act quickly to grant the President
this authority.
Intellectual Property Rights. As a small business software
developer, end-user piracy of software can severely affect my bottom
line. Since this is a growing line of business for my company with our
global expansion, we must work to ensure that all WTO members comply
with their obligation to introduce full intellectual property
protection by January 1, 2000.
Global Electronic Commerce. Electronic commerce allows small
businesses to break into, and compete successfully in global markets.
Too often we have been closed out of these opportunities due to lack of
capital to expand overseas. Electronic commerce provides smaller
companies with a vehicle to sell their products or services globally
without having to make a tremendous investment in capital therefore
making the playing field more level. It is imperative that we preserve
electronic trade over the Internet as duty free.
International Personnel Exchange. Barriers to international
personnel exchange continue to create significant impediments to global
business. Issues such as a more efficient process of obtaining work
permits for employees and spouses and excessive time in obtaining
driver's permits are impediments to the growth of many businesses who
rely on the ability to attract and retain qualified employees. As a
supplier of technical support services, restrictions on personnel
exchange have an adverse effect on my ability to grow in many of the
worldwide markets.
Customs. The WTO should work to simplify and reduce burdensome
customs and trade procedures. Both large and small companies lose money
because of unnecessary red tape in customs procedures worldwide.
Africa. After several trips to Africa, SII is now pursuing
opportunities in North Africa with countries such as Morocco, which has
the distinction of having the oldest treaty with the United States in
continuous force. The United States has not paid enough attention to
our economic partnership with countries in North Africa and the rest of
the continent. Therefore, I support the U.S.-North African Economic
Partnership Initiative. In addition, I urge Congress to swiftly approve
the African Growth and Opportunity Act.
APEC, TABD and WTO. These forums provide the United States with an
opportunity to shape the direction of trade negotiations in the future.
We must enter these discussions with a new consensus on trade. As
President Clinton said earlier in the year, we must find the common
ground on which business, workers, farmers, environmentalists and
government can stand together.
Conclusion
In conclusion, we have an obligation as the most competitive
economy in the world to continue to push for open and fair trade so
that the entire global economy will prosper. Our decisions today will
directly affect the next generation of world leaders in business as
well as government. This reminds me of what Nelson Mandela once said.
When he was a young boy his mother told him that there were three types
of people in the world--the first kind comes into the world and leaves
nothing; the second kind comes into the world and does bad things to
people; and the third kind comes into the world and leaves it just a
little better than the way they found it. The moral imperative is
obvious. I feel strongly that our future growth and therefore the
legacy we leave the next generation is tied to our ability to tap into
the opportunities of a global market. Therefore, I urge Congress to
work with the Administration to form a bipartisan consensus to support
our ambitious trade agenda for the 21st Century.
Thank you very much, Mr. Chairman and Members of the Subcommittee,
for the opportunity to speak with you today.
Chairman Crane. Thank you.
Mr. Lewis.
Mr. Lewis of Kentucky. Yes. Thank you, Mr. Chairman. I
wanted to ask Mr. Gardner to just kind of expand on the Freedom
to Farm. You know, we passed the Freedom to Farm. I think that
it has been a program that has been successful for the farm
community. But you are absolutely right, it depends on opening
markets, international markets to relieve some of the pressures
that we are facing right now with surpluses.
Could you expand on that just a little bit?
Mr. Gardner. Yes. You know, as I mentioned, I think every
farmer is for the Freedom to Farm. Even today we are still for
the Freedom to Farm without the Government help. We want the
freedom to be able to raise what we can. But the United States
is only 4 percent of the population. The American farmer has
become more and more progressive and more and more efficient.
We just need an export market, a way to market our commodities.
This world trade negotiation is very important for us,
hopefully to open up the door for better trade in the future so
we can get some of these commodities moving and have a better
price.
Mr. Lewis of Kentucky. It is especially important for the
long run and for the short-term. Our surpluses are mounting and
we need to get those markets. I agree. Thank you.
Chairman Crane. I want to thank all of our witnesses for
their testimony today. We look forward to working with you. We
are down to about 6 minutes on the clock in there for this
vote. So with that, the Committee stands adjourned.
[Whereupon, at 11:56 a.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of W. Henson Moore, President & CEO, American
Forest & Paper Association
On behalf of its more than 200 member companies and related
associations that engage in or represent the manufacturers of pulp,
paper, paperboard and wood products, the American Forest & Paper
Association (AF&PA) is pleased to provide this statement on the efforts
of our industry to open markets and expand worldwide trade in forest
products.
American industry over the past year and a half has had to
contend with massive and widespread devaluations of currencies of our
trading partners, with a consequent unprecedented expansion of the U.S.
trade deficit. For American industry, this gaping deficit is not an
abstruse economic concept. It reflects quite simply the simultaneous
decline in exports and the loss of domestic customers to foreign
competitors--and is not sustainable. For our workers, it means that
overseas factories are kept running on the strength of the robust U.S.
economy while--taking our industry as an example--U.S. plants are
forced to close. Current U.S. trade law harks back to an era of stable
exchange rates under a Bretton Woods system which no longer today. We
must take a new look at our trade laws to ensure they can address both
root causes and effects of currency changes on U.S. markets.
In recent decades, the U.S. has tolerated, and even
encouraged, export led growth strategies by some of our trading
partners--both developing and developed--because it served our nation's
geo-political purpose. With the emergence of a new world power system,
we must now question whether U.S. trade policy should offer up U.S.
markets to support overseas economic development and political
stability. We must also examine whether U.S. trade law--or the
multilateral trading system--is equipped to deal with the export surges
which these policies inexorably generate.
American industries today often compete with first world
production facilities located in third world economies. This
necessarily requires a reexamination of our approaches to trade as aid,
and to the competitive implications of lower labor and environmental
standards.
The title of this hearing--the importance of expanding trade and
resisting protectionism--could well summarize U.S. trade policy over
the past half century. Through successive Administrations, and with the
support of both parties in the Congress, the U.S. government has led
the multilateral effort to expand global trade and, consistent with our
economic preeminence, taken the first step by reducing trade barriers
and rooting out protectionist policies in our own economy.
While this approach has served both the U.S. and the global economy
well, we are facing competitiveness challenges today that were not
contemplated by the visionary architects of the post-war system.
In the testimony which follows, I will offer up the hard experience
of the U.S. forest products industry--which entered this era globally
preeminent and fiercely committed to free trade--as an object lesson in
the need to revise our trade policy approaches to fit the exigencies of
the new global economy. We will also take this opportunity to provide
the Subcommittee with our recommendations for specific steps which
should be taken to make U.S. trade policy--and U.S. trade law--more
responsive to the competitive needs of America's basic manufacturing
industries, including the U.S. forest products industry.
In the process, I suggest that we handicap ourselves if we rely on
old labels and brand as protectionism, even those attempts to restore
market function through insistence on balance of benefits in trade
agreements. In the new global economy, U.S. trade policy must be recast
to emphasize the importance of expanding U.S. opportunities and
resisting unequal trading arrangements.
Multilateral Trade Negotiations
With U.S. and foreign sales in excess of $200 billion, our industry
ranked earlier in this decade as among the most globally competitive of
all U.S. manufacturing industries. Export sales are critical to the
future growth and, ultimately, the survival of our industry. However,
our experience stands as an unfortunate example of how U.S. acceptance
of inequitable trade agreements on the sectoral level can undermine the
competitiveness of even the strongest American industries.
Going back to the Kennedy Round--and notwithstanding the best
efforts of a generation of U.S. trade negotiators--our industry has
been unable to achieve anything close to equivalent market access
because our interests have repeatedly gotten lost in the larger
dynamics of comprehensive multilateral trade negotiations. For more
than two decades, the U.S. forest products industry has had its tariff
protection sacrificed to win market concessions for other industrial
sectors, while competitor countries in Europe, Asia and Latin America
escaped making reciprocal concessions on our products.
At the opening of the Uruguay Round, we decided that traditional
approaches would perpetuate this disparity indefinitely, so we
originated the zero-for-zero concept. This was an attempt to change the
fundamental structure of trade negotiations in two important ways:
it focused on reciprocal tariff eliminations within
specific sectors;
it moved away from a formulaic approach to an assured,
level end point.
Although our negotiators succeeded in getting agreement by a number
of countries (U.S., Canada, EU, Japan, New Zealand, South Korea, Hong
Kong and Singapore) to eliminate their tariffs on paper by the year
2004, we were still disappointed in the results of the Uruguay Round
because of:
overly long phase out of paper tariffs--ten years instead
of the usual five years;
failure to achieve a zero-for-zero agreement on wood
tariffs;
no participation in the tariff agreement by developing
countries--some of which are major competitors in forest products and
provide the most attractive growth markets.
Despite these disappointments, we remain convinced that the
achievement of reciprocal market access within individual sectors must
be a specific priority objective in future negotiations. At the same
time, we urge the Subcommittee to take steps to ensure that future
negotiations work toward a greater overall balance of benefits across
our economy. To achieve this objective, we support Congressional
efforts to renew the Administration's traditional negotiating
authority.
Regional Negotiations
Regional negotiations have an important role to play in driving the
multilateral process. Last November, Ministers from 16 members of the
Asia Pacific Economic Cooperation (APEC) forum agreed to move a nine-
sector trade liberalization package to the WTO for completion.
Ministers further agreed to work constructively to conclude an
agreement in the nine APEC priority sectors, including forest products,
in time for the World Trade Organization Ministerial (WTO) in Seattle
in November 1999.
We strongly endorse the APEC initiative, which includes a proposal
to eliminate all tariffs on paper and wood products between the years
2000 and 2004, and we vigorously support Ambassador Charlene
Barshefsky's commitment to achieving global participation under WTO
auspices. However, European and Japanese resistance to anything short
of a comprehensive trade agreement in the WTO could derail early
agreement on the APEC package and again put our interests at risk of
being traded away during a broad round of negotiations where any
economic benefits to our exporters will not come for many years.
The U.S. must not accede to European and Japanese pressure on this
point. We must preserve and fortify the concept of sectoral
negotiations, and the prospect of ``early harvest'' as an essential and
non-negotiable element of any agreement on negotiating modalities. We
strongly encourage the Congress to provide appropriate negotiating
authority to implement sectoral agreements.
Part of the effort to ensure that the standard of substantially
equivalent market access is met must also focus on eliminating tariff
disparities, such as those which have so disadvantaged our exports. We
will aggressively seek to identify the elimination of tariff
disparities as a priority negotiating objective.
Forest Products Trade with Japan
The APEC forest products initiative offers U.S. exporters of paper
and wood products an opportunity to gain substantial new market access
in Asia and elsewhere but, as in the Uruguay Round, Japanese
protectionism, particularly relative to wood products, threatens a
promising agreement. When President Clinton met with Prime Minister
Obuchi last September in New York, the Prime Minister explained that
Japan could not take tariff action in the APEC context, but would do so
in the WTO. Two months later, in Kuala Lumpur, the Japanese, along with
trade ministers from 15 other APEC economies, agreed to refer the APEC
trade liberalization package to the WTO. In an all too-familiar
pattern, the Japanese government now attempts to deny that any such
commitment was ever made and loudly proclaims its victory in resisting
U.S. pressure to end its wood tariffs. This backsliding cannot be
accepted. The U.S. must make clear its determination to conclude a WTO
agreement covering all nine priority sectors in the APEC package,
including forest products. This must be a prelude to the launch of any
new round of negotiations on industrial tariffs, and collecting on the
Japanese promise at Kuala Lumpur must be a top priority in our
bilateral trade relationship.
Our industry's frustration with Japan is long standing. In 1992,
for example, the U.S. signed a market access agreement with Japan
regarding paper products. It is a matter of record that there was not
one single year in the entire five-year term of this agreement in which
the USTR judged Japan to be compliant with its obligations under this
agreement. Nevertheless, in 1997, Japan unilaterally refused to renew
the agreement or even discuss its renewal. In the meantime, with an
industry that is commonly considered to be a high-cost paper
manufacturer, Japan's paper imports have declined and exports have
increased.
The lack of credibility which understandably surrounds Japanese
trade commitments risks more cynicism regarding an ability to reach
negotiated solutions to our market access problems with that country
and must be addressed. The President's decision to renew Super 301 is
an important step, but we encourage him to hold the Japanese leaders
directly accountable for honoring the full range of their commitments--
beginning with their APEC commitment.
An Integrated Approach to the Global Economic Crisis
The Asian financial crisis has had a significant economic impact on
the U.S. forest products industry. In 1998, the Asia-Pacific region
accounted for some 28% of our industry's total exports of $18 billion
down from a 40% share in 1997. In 1998, U.S. exports of wood products
to the region were down a whopping 37%, wood pulp exports went down
26%, and paper and paperboard exports were off 17%. In contrast, U.S.
paper and paperboard imports from Asia went up 73% over the same
period. At the same time, other major supplying countries have diverted
greater amounts of wood and paper products from slumping Asian markets
to the virtually tariff-free U.S. market.
Trade must be an integral part of our response to economic turmoil.
The U.S. has repeatedly assured countries in crisis that we will take
their exports--but fairness for our industry and our workers requires
that these countries also open their markets to our products. Trade
liberalization, which will introduce economies and industries to the
discipline of the marketplace, cannot be a lesser priority than other
structural reforms.
New Global Issues
Today, our industry faces new competitive realities. Even while we
are hopefully nearing the end of our effort to eliminate tariff
barriers, the U.S. industry finds itself at a disadvantage in
international markets for a number of other reasons.
First and foremost, the industry's raw material costs have been
climbing due to domestic policy-imposed constraints on fiber supply.
The availability of wood from our national forests has been cut
dramatically, down 75% in the past decade. While a large portion of the
forest land in the U.S. is privately held (over 60% is owned by farmers
and other non-industrial owners), our ability to sustainably manage and
harvest private timberland is being curtailed by environmental laws,
regulations and legal actions.
Secondly, required investments to meet domestic environmental
regulations are increasing production costs and using capital that
could otherwise be spent on modernizing the industry's plant and
equipment. AF&PA estimates that 13% of the capital spent by the
industry over the past 10 years went into environmental requirements,
and that number will probably double over the next 5 years--and that
does not include any spending for global climate change regulation. At
the same time, our companies are having to compete with producers in
other countries that do not have high environmental standards or strong
enforcement regimes.
Our industry is proud of the role it has played in achieving
standards of environmental protection which are among the highest in
the world, and we are committed to maintaining our environmental
leadership in the future. By the same token, our industry offers some
of the highest paying manufacturing jobs in the world, and we take
equal pride in the role which our industry payrolls play in sustaining
the many communities across the country in which we operate.
For us to continue meeting our obligations to our workers and to
the environment, while also maintaining our ability to compete in
global markets, our government must work to level the international
playing field. We must ensure that our competitors apply responsible
environmental standards and forestry practices. The U.S. must also look
at options to institute disciplines to prevent a new generation of
trade barriers based on subjective environmental requirements that
discriminate against products produced under equally stringent
regulatory schemes.
Conclusion
The U.S. paper and forest products industry has consistently
supported policies designed to foster free trade, even in the face of
past inequitable trade benefits on a sectoral level. We continue to
believe that successful market access negotiations are the best
antidote for protectionism. This is why the APEC initiative is so
important, and why the U.S. must make the achievement of a WTO
agreement covering all priority sectors in the APEC package, including
forest products, the single most important deliverable out of the WTO
Ministerial this November in Seattle. Any less an outcome must be
viewed as a failed ministerial.
In the absence of concrete market opening gains and the
establishment of a more level playing field for our products, our
industry will find it difficult in the future to find an economic
rationale for supporting traditional negotiating approaches. When
international negotiations result in tariff disparities, or domestic
regulatory requirements put our companies at a disadvantage in the
global marketplace, we will insist that balance be restored--in the
name of economic equity, not protectionism. The very survival of our
industry is at stake.
[Attachment is being retained in the Committee files.]
Statement of John Andrews, Mike Murry, and John F. McDermid, American
Natural Soda Ash Corporation, Westport, CT
This statement is filed on behalf of the American Natural Soda Ash
Corporation (``ANSAC''), headquartered in Westport, CT. ANSAC is an
export trading company comprised of six U.S. soda ash producers.
This statement is filed in the context of the March 4, 1999 hearing
before the Committee on Ways and Means Subcommittee on Trade regarding
the importance of expanding trade and resisting protectionism through
active U.S. involvement in trade negotiations.
I. About Soda Ash and the U.S. Industry
Soda ash (disodium carbonate) is the principal raw material for
making glass. Mixing six parts sand to one part soda ash and heating it
to 2,800 degrees yields molten glass which can be formed into any
common application. The United States is blessed with unique natural
deposits of trona, a soda ash raw material, in Green River, Wyoming and
Trona, California, from which this country could supply world demand
for 1,200 years.
U.S. soda ash is the most competitive in the world. Most other
countries produce soda ash through a synthetic process at costs many
time higher and with major environmental pollution. However, U.S. soda
ash exports are restricted in some markets through both tariff and non-
tariff barriers. Because soda ash is a basic chemical commodity
required to make another basic chemical commodity, glass, even a 0.5
percent premium in price can make a difference between a sale. U.S.
soda ash exports have increased from about $120 million in 1981 to over
$600 million in 1997, making soda ash this country's largest inorganic
chemical export.
II. U.S. Government Trade Negotiating Priorities for Soda Ash: Seeking
a ``Zero-for-Zero'' Agreement
The Statement of Administrative Action (``SAA'') implementing the
Uruguay Round Agreement outlined the objectives of zero-for-zero tariff
elimination in key sectors, including soda ash. According to the SAA,
``in some sectors, namely soda ash, complete duty elimination was not
achieved. Obtaining further reductions in these sectors is a priority
objective for U.S. multilateral, regional, and bilateral
negotiations.'' While both the U.S. Congress and the Administration
have identified soda ash as a zero-for-zero priority, under the
Chemical Tariff Harmonization Agreement (``CHTA'') the soda ash
harmonized rate is 5.5%. It is imperative that the Administration
continue to pursue complete tariff elimination of soda ash tariffs in
the context of bilateral, regional and multilateral trade negotiations.
III. U.S. Soda Ash Exports to APEC Economies
Over the past decade, U.S. soda ash exports to the 17 other
``initial'' APEC countries have expanded from $310 million in 1990 to
$540 million in 1997, a 75 percent increase.
U.S. exports to APEC countries account for two third of U.S.
exports. Though U.S. soda ash is the most competitive in the world, it
satisfies only 25 percent of aggregate demand in the 17 other APEC
countries.
Soda ash is currently produced in seven of the 18 APEC economies,
not including the U.S. A 150,000 MT soda ash plant may be built in
Indonesia, and there is a potential for local production in Thailand.
The soda ash production in these APEC economies uses the synthetic
manufacturing process with higher costs and adverse environmental
effects than natural U.S. soda ash. Thus, to enable a new soda ash
manufacturing facility to survive will likely require significant
import protection (e.g., high tariffs) to be competitive with U.S. soda
ash.
With the exception of China, soda ash tariffs in the 17 other APEC
economies are relatively low, ranging from duty-free in Malaysia, New
Zealand, and Singapore to 12 percent in China. The U.S. rate is 1.2
percent ad valorem. Generally, the Uruguay Round was disappointing to
the U.S. soda ash industry in that improved market access to APEC
markets was not achieved.
Among the 18 ``initial'' APEC countries, 1998 applied tariff rates
are above the 5.5 percent CTHA rate in (1) Chile, (2) China, (3) Korea
and (4) Taiwan.
ANSAC continues to be concerned over the possibility that Indonesia
will increase its current 5 percent tariff to the WTO bound rate of 40
percent. Without such protection it is doubtful that the local producer
can operate at a profit.
IV. China's Import Substitution and Predatory Pricing Policies Severely
Reduce U.S. Soda Ash Exports to China and Other Markets
A. Summary
For over a decade, China, the largest synthetic soda ash producer
in the world, has maintained an array of barriers (including
discriminatory and prohibitively high net effect import fees as well as
customs and distribution impediments) aimed at promoting its domestic
soda ash industry at the expense of highly competitive U.S. soda ash.
In 1997, U.S. imports accounted for only 1.4% of Chinese domestic
consumption, down from nearly 30% in 1989 and by far the lowest in
Asia. Between 1990 and 1997, as demand for soda ash increased
significantly, China's production increased 239% while U.S. exports
declined by nearly 80%, from 503,000 MT valued at $76 million to
105,000 MT valued at $16 million. In 1998, U.S. exports to China were
only about $7 million. The combination and effect of China's policies
amount to an import substitution program which it agreed to eliminate
in the 1992 U.S.-China Memorandum of Understanding (``MOU'').
A reduction of China's 12% applied tariff to the 5.5% Chemical
Harmonization Agreement level and elimination of distribution barriers
would increase U.S. exports by roughly $55 million annually.
While not specifically addressed in the Commission's report, an
integral part of China's campaign to foster its state-owned soda ash
industry has been an export drive achieved through sales at below the
cost of production. China's 820% increase in exports between 1993-1997
has been met with predatory pricing based trade remedy actions in
countries which produce soda ash, such as Korea and India. In other
important U.S. export markets which do not produce soda ash, China's
predatory pricing has been keyed to increasing market share at the
expense of U.S. soda ash. Even in the face of Asia's economic crisis,
Chinese exports increased to Indonesia, Thailand, Malaysia, and the
Philippines while U.S. exports to these key markets declined. China's
predatory export pricing practices have a real and direct effect on
U.S. exports to third markets and should, therefore, be addressed by
the Commission.
B. China's Soda Ash Industry is Targeted by the Government
At 7.3 million tons, China is the second largest soda ash producer
in the world (behind only the U.S.) and the largest synthetic soda ash
producing economy. Synthetically produced soda ash is very energy-
intensive and energy inputs in China have been subsidized for years.
Ninety-five percent of China's soda ash producers are state-owned
enterprises.
The Chinese government (specifically the Chinese Ministry of
Chemical Industry) continues to be actively engaged in regulating its
soda ash industry at all levels, from pricing to production. For
approximately 15 years China has implemented a broad campaign targeting
its soda ash industry for development and ``by the mid-1980's the
[Chinese] government had invested more than $1 billion in soda ash
production.'' (Chemical Week, October 29, 1998. ``China Seeks Bigger
Share of the Export Market'' p 37.) Even though its industry had been
well established, in 1994 China's Vice Minister of Chemical Industry
Siwei Cheng emphasized that the government would continue limiting
import competition in this sector. More recently, in announcing China's
ninth Five-Year Plan (1996-2000), which sets forth a comprehensive
chemical industry policy, Cheng indicated that improvement in the
domestic soda ash industry would be among the country's major chemical
sector priorities.
In 1998, there are more than 60 soda ash producers in China, with a
combined annual capacity of 7.3 million tons. Ten of these plants
account for 63% of total production. Only six of the over 60 plants are
producing quantities significant enough to be competitive on a world
scale. All of China's plants have operating costs in excess of current
returns. Further, Chinese producers have increased their densification
capacity while at the same time seeking to lower chloride content.
These quality improvements have increased domestic production costs,
increases which are clearly not reflected in the prices they charge
their customers either domestically or in export markets. Between 1989
and 1997 China's soda ash production increased by 239%.
In 1998 the Chinese government realized it had overstimulated its
soda ash industry and caused ``overproduction and disorderly
competition'' which depressed local and export market prices by 20%
between January and August, 1998. (China Economic News (Beijing).
August 31, 1998. p 6. ``If this continues, the industry will lose RMB
700-800 million (U.S. $85-96 million) domestically and U.S. $12 million
in export earnings this year.'') Clearly the prices charged by the
producers to the customers locally and in export markets bear no
relation to prices that would be set by enterprises in a market/price-
oriented economy. Since January 1998 the government response to this
has been to control production and dictate to its soda ash producers a
minimum sales price of $130/MT FOB (RMB 1080) for domestic sales and
$101/MT FOB (RMB 838) for export sales.
More specifically, the China National Petroleum and Chemical Corps.
and the China Soda Ash Industry association established a minimum FOB
factory price of U.S. $130 MT (RMB 1080 MT) inclusive of the 17% VAT
and U.S. $101 MT (RMB 838) FOB China port for export sales. It costs
approximately U.S. $130 MT to produce soda ash in China. If the VAT tax
were indeed factored into the local sales price, Chinese soda ash
producers would be selling below their cost of production. Clearly the
minimum export price is below China's cost of producing soda ash.
While the minimum price would appear to counter the decline of
prices, Chinese producers are circumventing the decree by quoting
customers a factory delivered price (U.S. $125-U.S. $132.5) rather than
an FOB factory price.
C. China's Soda Ash Tariff and Additional Import Taxes the
Highest in Asia Pacific and Highest Chinese Inorganic Chemical
Tariff
China's Tariff Barrier (HTS 2836.20). Prior to 1990, U.S. soda ash
entered China duty-free since the product was required by state-owned
industries. Today, in its ongoing effort to promote its industry, China
requires distributors to pay the so-called ``normal'' (as opposed to
``special'') 35% ad valorem tariff on imports which, combined with the
17% VAT, results in a 58% net effective import fee. End users such as
China's glass companies pay the ``special'' 12% tariff, which results
in a 31.04% net effective import fee. Since nearly all of China's 60
soda ash producers are state-owned, the 17% VAT is not applied to the
prices quoted to their customers and is simply an additional tax aimed
at curtailing imports.
Both the 58% and 31.04% net effective import fees applied to soda
ash imports give local producers a significant price advantage,
particularly for a basic chemical commodity such as soda ash. For
example, factoring in the 31.04% net import fee, in order to compete
with the $130 MT FOB factory minimum price U.S. soda ash would have to
enter China at $99 MT CIF, a price that would be by far the lowest in
the world. The U.S. has had to slash its prices in China's market to
stand any chance of attracting customers. The 58% net effective import
fee bars distributors from selling directly to customers, particularly
small and medium-sized ones. The 31.04% and 58% net effective import
fees are the most significant Chinese government barriers facing U.S.
soda ash exports since they limit the market to exporting end-users
such as glass companies who receive a tariff and VAT refund.
China's 35% tariff applied to distributors is the highest in the
world. The 12% ``special'' tariff applied to non-distributors is among
the highest in the world and are the highest in the Asia Pacific.
Five of the above Asia Pacific countries produce soda ash
(Australia, China, Japan, Korea, and Taiwan). Among the soda ash
producing economies only China maintains a high tariff compounded by a
high VAT which must be factored into the price ANSAC's distributors
must charge their Chinese customers.
As a result of China's tariff, VAT and distribution impediments,
U.S. exports to China declined by $60 million between 1989 and 1997 and
in the most recent 1998 calendar year declined to only about $7
million. In contrast, 1998 U.S. exports to Brazil, a country which
imposes an effective 13% tariff (10% applied tariff and 3% across-the-
board import fee) and consumes 92% less soda ash than China, were $36
million.
Soda Ash Tariff Highest Among China's Other Inorganic Chemicals.
China's tariff levels applied to other inorganic chemical imports
average 8-10%. It is clear China has singled out soda ash for special
protection from imports.
D. Non-Tariff Trade Measures
Distribution and Customs Barriers. In addition to the high tariff
and VAT fee on imports, since 1990 China has introduced additional
policies aimed at discouraging soda ash imports. Between 1990 and 1992,
all imports of soda ash were subject to import licensing procedures and
administrative review and approval by the Chinese government. Moreover,
U.S. soda ash could only be distributed by the sole government
designated distributor, Sino-Chem, which is part of the Ministry of
Economic Relations and Trade.
Currently, China maintains a complex and unpredictable web of
import restrictions which are heavily dependent upon ``relationships''
(``guangsi''). These restrictions severely limit the level of imports
as well as their distribution in China.
Chinese customers who import soda ash and export the finished
product (i.e. glass companies) are eligible to receive a waiver of the
tariff and VAT. In order to receive this, they must have a ``Handbook''
stamped (i.e. approved); however, there is no guarantee approval will
be given. For example, one end-user of U.S. soda ash which exports its
finished product has still been unable to receive a refund on imports
received in 1997. Overall, the exorbitantly high tariff and VAT
effectively limit the purchase of imported soda ash to Chinese
customers eligible to have the tariff and VAT fees waived.
All soda ash imports take between 30 and 45 days to clear Chinese
customs due to layers of ``red tape'' and bureaucratic delays at the
ports. The delays are particularly acute when they involve imports
eligible for duty and VAT waivers which are destined to customers
outside of the port province. By comparison, in other Asia Pacific
countries it takes only a few days to clear soda ash through customs.
Finally, soda ash distributors are unable to store the product in
bonded warehouses. This forces local distributors to pay the duty and
VAT upon entering customs and absorb these costs until customers are
found. This is yet another disincentive facing local distributors.
Delay in Implementation of an Export Subsidy to Glass Companies
Contingent Upon Purchasing Locally Produced Soda Ash. In mid-December,
1998, China announced it will delay until December 31, 2000 a policy of
granting a 9% tax refund (i.e. an export subsidy) to joint venture
glass companies who purchase locally produced soda ash. Of the
estimated 54,000 MT U.S. soda ash imported into China in 1998, roughly
90% was purchased by China's glass industry. If the trade-distorting
export subsidy for the glass industry is implemented, it will have a
significant effect on U.S. exports to China.
E. U.S. Soda Ash Market Share in China is the Lowest in Asia
In 1998, the U.S. share of China's soda ash was about 1.4% (by
volume). This represented a 51,000 MT decline (valued at $9 million) in
U.S. exports between 1997 and 1998. In 1989, prior to the time China
targeted its soda ash industry for special protection, U.S. imports
accounted for nearly 30% of Chinese domestic consumption. As a result
of the import substitution policies pursued by the Chinese government
for its soda ash industry, the U.S. 1.4% market share in China is
significantly lower than in other Asian countries, even those which
produce soda ash such as Japan, Korea and Taiwan.
F. China's Soda Ash Export Campaign
An integral part of China's targeting of its soda ash industry has
been to stimulate exports. As recently stated by Li Yongwu, China's
Director of the State Bureau of Petroleum and Chemical Industry,
``increasing exports is an important way to safeguard the sustainable
growth of China's chemical industry.'' (Chemical Week, October 28,
1998. ``China Seeks Bigger Share of the Export Market'' p. 37.)
On January 1, 1996, ``in order to promote the exportation of
products of certain industries,'' China's State Council introduced a 9%
direct tax refund calculated at the FOB price for China's soda ash
exports. Thus, if Chinese soda ash producers export $100 FOB of soda
ash, they receive from the Chinese government a $9 tax refund. This is
an undisguised and transparent policy aimed at increasing Chinese
exports of certain favored industries such as soda ash.
As a result, domestic soda ash producers do not have to pay the 35%
or 12% tariff or factor into their price the 17% VAT. Further, they
also receive an additional 9% tax incentive for export. The net effect
of the tax advantages afforded China's state-owned producers has been
to severely erode the pricing of soda ash in third markets at the
expense of U.S. exports. The $101/MT FOB China port minimum export
price translates into $118/MT CIF price at Asian ports. Since it costs
FOB $138/MT to produce soda ash in China, the minimum export price is
$35/MT below the cost of producing soda ash in China.
As could be expected, the government's policies have been
enormously successful (principally through below cost of production
prices aimed at increasing market share) as seen by the more than 800%
increase in exports between 1990 and 1997 (from 76,000 MTs in 1990 to
623,000 MTs in 1997).
The government's export drive has in some countries (e.g. India and
Korea) been met with trade remedy actions. (Both Korea and India, which
have their own soda ash industry, have successfully accused Chinese
suppliers of predatory dumping. In the case of Korea, additional
dumping duties of over 68% were initially imposed on Chinese imports
exceeding specified levels. More recently, Korea has levied dumping
duties on Chinese imports (ranging from 22-25%) below an established
price (CIF $185 MT). In the case of India, in the spring of 1998,
India's Monopolies and Restrictive Trade Practices Commission issued an
order temporarily barring Sino-Chem from selling soda ash at predatory
pricing levels.) In the past several years China has targeted markets
which traditionally have been key to the United States. While China
exports to over 30 countries, four of its priority markets have been
Indonesia, Thailand, Malaysia and the Philippines, all of which have
historically been growth markets for the United States.
Indonesia. In 1996 and 1997, Indonesia--which does not produce soda
ash)--was China's largest and this country's third largest (behind
Mexico and Japan) export market. In 1998, China began an aggressive
predatory pricing export campaign aimed at displacing U.S. exports. In
January, 1998 the U.S. soda ash CIF price range in Indonesia was $155-
$170 MT. At that time, the quoting price of Chinese suppliers was CIF
$150 MT. Chinese prices declined below the $130 MT cost of production
in October, 1998 and below $120 MT in November, 1998. China's export
drive has already yielded results, as China's exports to Indonesia for
the first eight months of 1998 have exceeded total 1997 exports.
Thailand. Similarly, in Thailand the U.S. CIF price range in
January 1998 was $153-$173 MT. While in January China's average price
was only marginally lower at $152 MT, by November its price dropped in
excess of $30 MT, to $122 MT.
G. Lost U.S. Exports Attributed To China's Predatory Pricing.
U.S. exports to Indonesia, Thailand, Malaysia and the
Philippines have declined 10% to 45% since late 1996. While
Asia's financial crisis has resulted in reduced demand for soda
ash, China's predatory export pricing displaced U.S. soda ash.
In 1997 and 1998 China's predatory pricing resulted in an
actual increase in exports to these countries at the direct
expense of U.S. exports. The presence of other competitors in
these markets is negligible.
The United States currently suffers a massive trade deficit
with China, totaling an expected $60 billion in 1998. If that
deficit is to be significantly reduced, it is essential that
competitive U.S. exports not be foreclosed from the Chinese
market by artificial barriers.
The U.S. soda ash industry's problem is an important one
not only because of the concern over China's efforts to limit
U.S. exports that enjoy clear competitive advantages but
because of the serious additional threat to key third markets.
In addition, China will benefit from the elimination of its
tariff and non-tariff measures. For many years Chinese
consumers of soda ash have been eager to purchase U.S. soda ash
because it would improve the quality of their product and
increase the life of capital equipment since U.S. ash contains
less corrosive impurities. These consumers--representing the
Chinese glass, detergent, paper, and chemicals industries--will
benefit from the elimination of trade barriers. The competitive
pricing of soda ash will not only benefit these industries in
international competition, but will benefit individual Chinese
consumers who will be provided alternative choices for higher
quality products.
V. India's Embargo of U.S. Soda Ash
Since 1985 ANSAC has protested with the U.S. government India's
market access barriers facing U.S. soda ash exports. These efforts have
included nearly the entire range of market access trade remedy actions
such as the GSP, ``Super 301,'' and USTR National Trade Estimate Report
submissions.
In 1993, due undoubtedly more to a general trade liberalization
trend than to any specific interest in soda ash, the 1993/94 Indian
Budget reduced the net effective soda ash import fee from 135.75
percent to 112.75 percent. Concurrently, the India Glass Manufacturers
Federation (``Glass Federation'') began to be squeezed by India's local
soda ash producers, three of whom now control nearly 90 percent of the
market. According to the Glass Federation, due principally to the
closed import market, local soda ash prices increased about 40 percent
between April 1991 and April 1993. The monopoly prices extracted by the
local producers have been at the expense of India's glass manufacturing
industry, which is responsible for 70,000 in glass plants and tens of
thousands more in other sectors of the economy. With this, Indian glass
companies began a campaign to convince their own government that the
market should be opened to imports so that the three local soda ash
producers would face price competition. As a result, the 1995/96 annual
budget reduced India's applied tariff from 65 percent to 40 percent.
While this was clearly a step in the right direction and enabled ANSAC
to make a single shipment, the tariff was still among the highest in
the world (only Pakistan's was higher). In fact, the 40% tariff,
combined with other import fees, meant that a de facto embargo remained
in place and India's average price for soda ash remained among the
world's highest. The Central government's final tariff reduction was
made in the 1996/97 Budget when the tariff went from 40 percent to 30
percent ad valorem.
India's local soda ash producers, known collectively as the Alkali
Manufacturers Association of India (``AMAI''), were frustrated by their
inability to convince India's Central Government to increase or
maintain the soda ash tariff. When the 30 percent tariff was
implemented in early 1996, ANSAC received an order for a 23,000 MT
shipment which represented less than 2 percent of the total Indian soda
ash market. In early September 1996, AMAI petition the Monopolies and
Restrictive Trade Practices Commission (``MRTPC'') and obtained an ex
parte order which prohibited ANSAC from exporting to India.
AMAI's complaint before the MRTPC essentially alleges that ANSAC is
attempting to sell at predatory prices below cost for the purpose of
eliminating competition in the Indian market. However, the complaint
contains no evidence on U.S. costs, which are actually the lowest in
the world. Further, no evidence has been provided to the MRTPC as to
how ANSAC's single sale is likely to drive local soda ash producers
from the market.
The complaint before the MRTPC is clearly unfounded and is a
transparent attempt by the local producers to circumvent the Central
Government's trade liberalization initiatives that have been taken
since 1991. AMAI has also used the MRTPC as a vehicle for bypassing
international trade rules embodied in the WTO's Antidumping Rules and
to maintain their stranglehold on the market so as to keep soda ash
prices high and continue their monopoly profits. It is particularly
ironic that the very companies seeking to use the MRTPC as a venue for
countering alleged anticompetitive practices are themselves seeking to
perpetuate their own monopolistic behavior.
The complaint includes certain baseless and unfounded allegations
of dumping of soda ash. However, under Indian law, which closely
follows the WTO model, the only competent authority to address a
complain of this nature is the Designated Authority appointed by the
Government of India under the country's Antidumping Rules. These Rules
afford a fair opportunity to the complainant and to the party against
whom the charge of dumping has been made to address the issues raised
under the Antidumping Rules. They also include a provision requiring
the Designated Authority to give notice to the government of the
exporting company--in this case the Government of the United States.
Since the complaint has been filed in the wrong forum, the United
States Government has been denied the opportunity of refuting the false
charges of dumping.
AMAI fully realized that it could not prove material injury as
required under the antidumping rules. Instead, fearful of legal
competition, AMAI convinced the MRTPC to issue the injunction on the
specious claim that ANSAC priced its 23,000 MT order at such a low
price that it was clearly intended to monopolize the Indian market by
driving out local producers. In point of fact, ANSAC's price was just
barely competitive with prevailing prices charged by local producers.
The U.S. soda ash industry is taking all lawful steps to have the
MRTPC's Order vacated as soon as possible. But the wheels of justice
are slow. In the meantime the Indian soda ash industry's abuse of
process and the order they have secured stand contrary to Indian
Government's trade liberalization initiatives, the government's
obligations under the WTO's Antidumping Rules, and the interest of
local glass and other industrial consumers whose competitive future
depends upon access to high quality and reasonably priced soda ash.
Approximately one year after the Commission issued its preliminary
injunction against ANSAC, petitioner discovered that since June 1995
the MRPTC Director-General of Investigation had been investigating the
three dominant soda ash producers for cartel activity. In fact, in
April 1997, the Director General concluded that there was substantial
evidence that the three dominant producers are a cartel. A formal
inquiry was opened before the MRTPC on August 7, 1997, two weeks before
India's Supreme Court summarily rejected ANSAC's petition to vacate the
injunction.
In the three years since September 1996, ANSAC has lost a projected
$25 million in U.S. exports. What ANSAC is asking for is not
unreasonable, namely, that the preliminary injunction be lifted as soon
as possible and that the Commission expeditiously and objectively
review the facts in accordance with recognized principles of law.
Statement of James W. Johnson, Jr., Chairman, American Sugar Alliance
Introduction
Thank you for the opportunity to submit testimony for this
important hearing. I am James W. Johnson, Jr., president of the United
States Beet Sugar Association. I also serve as chairman of the American
Sugar Alliance (ASA), of which my association is a member. The ASA is
the national coalition of growers, processors, and refiners of
sugarbeets, sugarcane, and corn for sweetener.
The ASA has long endorsed the goal of global free trade because
U.S. sugar and corn sweetener producers are efficient by world
standards and would welcome the opportunity to compete on a genuine
level playing field. Until that free trade goal is achieved, however,
the United States must retain at least the minimal sugar policy now in
place to prevent foreign subsidized, dump market sugar from unfairly
displacing efficient American producers. This policy was substantially
modified by Congress in the 1996 Farm Bill, but remains highly
beneficial to American taxpayers and consumers.
We note, Mr. Chairman, that you recently held a timely hearing on
the plight of the U.S. steel industry. Our concerns are the same. We
are efficient producers, but risk losing American jobs to the predatory
trade practices of subsidized foreign producers. Like steel, American
sugar farmers can compete directly against foreign producers. We cannot
compete against foreign treasuries.
While the ASA supports the goal of free trade, we have serious
concerns about past agreements and about the structure of future
multilateral or regional trade agreements. Listed below are our
specific recommendations, followed by some background on the United
States' role and standing in the world sugar economy and our evaluation
of the effects of past multilateral and regional trade agreements on
the world sugar market and on our industry. U.S. agriculture is
extremely vulnerable as we approach the next trade round. If we are
reckless, we risk converting American agriculture into a Rust Belt. If
we negotiate carefully and rationally, however, there is enormous
potential for responsible American producers to compete and prosper in
a genuine free trade environment, free from the need for government
intervention.
Recommendations for Future WTO Negotiations
The 1999 World Trade Organization (WTO) Ministerial will play a
pivotal role in establishing the scope, parameters, and goal of the
next multilateral trade round. Shaped by our experience and by the
specific failures of past agreements, described later in this paper,
the following are the ASA's recommendations for the Ministerial.
1. Compliance with past agreements, in particular, the Uruguay
Round Agreement (URA) of the WTO and the North American Free Trade
Agreement (NAFTA), must be achieved before the United States forges any
new agreements. The United States, and any other country that has
surpassed its URA commitments, should be given credit for doing so
before being required to make further cuts in the next trade round.
2. The United States must not reduce its support for agricultural
programs, particularly for import-sensitive crops such as sugar, any
further until other countries have reduced their support to our level.
3. Elimination of export subsidies, the most trade distorting of
all practices, and of state trading enterprises (STE's), which were
ignored previously, must be given top priority in the next trade round.
4. The wide gap in labor and environmental standards between
developed and developing countries must be taken into account in the
next trade round, to provide both incentives and penalties that ensure
global standards rise to developed-country levels, rather than fall to
developing-country levels.
5. A flexible, request/offer type of negotiating strategy must be
followed in the next trade round, rather than a rigid, across-the-
board, formula approach. Only in this manner can we address the huge
disparities in supports among nations and turn the United States'
unilateral concessions to our advantage. We must provide foreign
countries the incentive to reduce their government programs by
promising to reduce ours further when, and only when, they have
eliminated their export subsidies and STE's, and reduced their internal
support and import tariffs to our levels.
Background on U.S. Sugar Industry, Policy
Size and Competitiveness. Sugar is grown and processed in 17 states
and 420,000 American jobs, in 40 states, are dependent, directly or
indirectly, on the production of sugar and corn sweeteners. The
industry generates an estimated $26.2 billion in economic activity
annually. A little more than half our sugar is produced from
sugarbeets, the remainder from sugarcane. More than half our caloric
sweetener consumption is in the form of corn sweeteners.
The United States is the world's fourth largest sugar producer,
trailing only Brazil, India, and China. The European Union (EU), taken
collectively, is by far the world's largest producing region. It
benefits from massive production and export subsidy programs.
Sugar is an essential food ingredient and the U.S. sugar producing
industry is highly efficient, highly capitalized, and technologically
advanced. It provides 260 million Americans most of sugar they demand,
in 45 different product specifications and with ``just-in-time''
delivery that saves grocers and manufacturers storage costs.
Roughly 15-20% of U.S. sugar demand is fulfilled by duty-free
imports from foreign countries, making the U.S. one of the world's
largest sugar importers. Many of the 41 countries supplying our sugar
are developing economies with fragile democracies and they depend
heavily on sales to the United States, at prevailing U.S. prices, to
cover their costs of production and generate foreign exchange revenues.
Despite some of the world's highest government-imposed costs for
labor and environmental protections, U.S. sugar producers are among the
world's most efficient. According to a study released in 1997 by LMC
International, of England, and covering the 6-year period ending in
1994/95, American sugar producers rank 19th lowest in cost among 96
producing countries, most of which are developing countries. According
to LMC, fully two-thirds of the world's sugar is produced at a higher
cost per pound than in the United States.
During the last three years studied, 1992/93-94/95, the United
States became the lowest cost beet sugar producer in the world.
American corn sweetener producers are also the lowest cost of all
caloric sweeteners in the world, and always have been the lowest cost
producer of corn sweetener.
Because of their efficiency, American sugar farmers would welcome
the opportunity to compete against foreign farmers on a level playing
field, free of government subsidies and market intervention.
Unfortunately, the extreme distortion of the world sugar market makes
any such free trade competition impossible today.
World Dump Market. More than 100 countries produce sugar and the
governments of all these countries intervene in their sugar markets and
industries in some way. The most egregious, and most trade distorting,
example is the EU. The Europeans are higher cost sugar producers than
the United States, but they enjoy price supports that are 40% higher
than U.S. levels--high enough to generate huge surpluses that are
dumped on the world sugar market, for whatever price they will bring,
through an elaborate system of export subsidies.
World trade in sugar has always been riddled with unfair trading
practices. These practices have led to the distortion in the so-called
``world market'' for sugar. These distortions have led to a disconnect
between the cost of production and prices on the world sugar market,
more aptly called a ``dump market.'' Indeed, for the period of 1984/85
through 1994/95, the most recent period for which cost of production
data are available, the world average cost of producing sugar is over
18 cents, while the world dump market price averaged barely half that--
just a little more than 9 cents per pound raw value. (See Attachment
A.)
Furthermore, its dump nature makes sugar the world's most volatile
commodity market. Just in the past two decades, world sugar prices have
soared above 60 cents per pound and plummeted below 3 cents per pound.
Because it is a relatively thinly traded market, small shifts in supply
or demand can cause huge changes in price.
As long as foreign subsidies drive prices on the world market well
below the global cost of production, the United States must retain some
border control. This is a necessary and effective response to the
foreign predatory pricing practices that threaten the more efficient
American sugar farmers.
Uniqueness of Sugar Market. Aside from the highly residual and
volatile nature of the world sugar price, there are a number of factors
that set sugar apart from other program commodities. These unique
characteristics should be taken into account before sugar is lumped in
with other commodities for across-the-board policy reforms.
Grower/Processor Interdependence. Grain, oilseed, and most
other field-crop farmers harvest a product that can be sold for
commercial use or stored. Sugarbeet and sugarcane farmers harvest a
product that is highly perishable and of no commercial value until the
sugar has been extracted. Farmers cannot, therefore, grow beets or cane
unless they either own, or have contracted with, a processing plant.
Likewise, processors cannot function economically unless they have an
optimal supply of beets or cane. This interdependence leaves the sugar
industry far less flexible in responding to changes in the price of
sugar or of competing crops.
Multi-Year Investment. The multimillion-dollar cost of
constructing a beet or cane processing plant (approximately $300
million), the need for planting, cultivating, and harvesting machinery
that is unique to sugar, and the practice of extracting several
harvests from one planting of sugarcane, make beet or cane planting an
expensive, multiyear investment. These huge, long-term investments
further reduce the sugar industry's ability to make short-term
adjustments to sudden economic changes.
High-Value Product. While the gross returns per acre of
beets or cane tend to be significantly higher than for other crops,
critics often ignore the high cost associated with growing these crops.
Compared with growing wheat, for example, USDA statistics reveal the
total economic cost of growing cane is nearly seven times higher, and
beet is more than five times higher. With the additional cost for
processing the beets and cane, sugar is really more of a high-value
product than a field crop.
Inability to Hedge. The 1996 Freedom to Farm Bill made
American farmers far more dependent on the marketplace. Growers of
grains, oilseeds, cotton, and rice can reduce their vulnerability to
market swings by hedging or forward contracting on a variety of futures
markets for their commodities. There is no futures market for beets or
cane. Farmers do not market their crop and cannot take delivery of beet
or cane sugar. The hedging or forward contracting opportunities exist
only for the processors--the sellers of the sugar derived from the
beets and cane. These marketing limitations make beet and cane farmers
more vulnerable to market swings.
U.S. Sugar Policy Reforms. U.S. sugar policy was unilaterally and
substantially reformed in the 1996 Farm Bill, far in excess of URA
commitments. The key reforms: (1) Production controls (``marketing
allotments'') were eliminated. (2) Government-provided non-recourse
loans, or a government-guaranteed minimum price, are conditional and no
longer guaranteed--unlike all other U.S. program commodities. This
ensures long-standing Congressional intent that U.S. sugar policy be
run at no cost to the U.S. Treasury. (3) The minimum import level,
already about four times the minimum required by the URA, was
effectively raised another 20%. (4) Sugar producers' burdensome and
discriminatory marketing assessment tax was raised 25%, increasing
expected annual revenues to the U.S. Treasury from U.S. sugar policy to
about $40 million. (5) A 1-cent per pound penalty was established to
discourage government loan forfeitures. (6) The U.S. committed to
further support price reductions when other countries surpass their URA
requirements, as the U.S. has done, and achieve levels equal to ours.
The reformed sugar policy of the 1996 Farm Bill does retain the
Secretary of Agriculture's ability to limit imports, and also provides
a price support mechanism, though only when imports exceed 1.5 million
short tons. The 1998/99 sugar import quota is only some 300,000 tons
above that critical trigger level.
U.S. Sugar Industry's Free Trade Goal
Because of our competitiveness, with costs of production well below
the world average, the American Sugar Alliance supports the goal of
genuine, global free trade in sugar. We cannot compete with foreign
governments, but we are perfectly willing to compete with foreign
farmers in a truly free trade environment.
We were the first U.S. commodity group to endorse the goal of
completely eliminating government barriers to trade at the outset of
the Uruguay Round, in 1986. We understand we are the first group to
endorse this same goal prior to the start of the 1999 multilateral
trade round. We described our goals and concerns to the Administration
in a letter in May 1997 to Trade Representative Barshefsky and
Agriculture Secretary Glickman. A copy of that letter is attached
(Attachment B).
The ASA does not endorse the notion of free trade at any cost. The
movement toward free trade must be made deliberately and rationally, to
ensure fairness and to ensure that those of us who have a global
comparative advantage in sugar production are not disadvantaged by
allowing distortions, exemptions, or delays for our foreign
competitors, as we are experiencing under the current agreement.
To achieve a free trade transition process that is rational and
fair, we offer the following thoughts on past agreements, and our
concerns and recommendations regarding future negotiations.
Sugar and the Uruguay Round Agreement
Little Effect on World Sugar Policies. More than 100 countries
produce sugar and all have some form of government intervention.
Unfortunately, these policies were not significantly changed in the
Uruguay Round Agreement of the WTO.
The URA inadequately addressed, or ignored:
Compliance. Many countries have evaded or not yet even
complied with their URA agricultural commitments. In sugar, for
example, the EU has managed to isolate most of its sugar export subsidy
program from URA disciplines. The Philippines has yet to meet its
requirements for increasing minimum access levels to its sugar market.
It was revealed at a WTO Analysis and Information Exchange Group
meeting Geneva in September 1998, nearly four years since the inception
of the URA, that a mere 17 of the 132 member nations have fulfilled all
their notification requirements on domestic support, export subsidies,
and market access. One must wonder how we can monitor compliance with
WTO-mandated reductions in agricultural policies when the vast majority
of countries will not even acknowledge which policies they have in
place.
Export Subsidies. The most distorting practice in world
agricultural trade is the export subsidy. Export subsidies provide
countries the mechanism to dispose of surpluses generated by high
internal production subsidies. In the absence of export subsidies as a
surplus-removal vehicle, countries would have to reduce their
production supports. With export subsidies in place, countries can move
surpluses into markets where they do not belong and depress market
prices. Other countries are forced to respond with import barriers. In
the world sugar market, subsidized exports by the EU alone amount to
about a fifth of all the sugar traded each year.
The URA did not significantly reduce the amount of sugar sold
globally with export subsidies. The agreement failed to reduce the
European Union's generous price support level and requires only a tiny
potential drop in its substantial export subsidies.
State Trading Enterprises (STE's). STE's are quasi-
governmental, or government-tolerated organizations that support
domestic producers through a variety of monopolistic buyer or seller
arrangements, marketing quotas, dual-pricing arrangements, and other
strategies. These practices were ignored in the Uruguay Round, but are,
unfortunately, common in the world sugar industry. Major producers such
as Australia, Brazil, China, Cuba, and India have sugar STE's, but were
not required to make any changes in the URA.
Developing-Country Producers. Developing countries, which
represent about 60% of world sugar production and trade, have little or
no labor and environmental standards for sugar farmers, have no minimum
import access requirements, and often have high import tariffs.
Nonetheless, developing countries were put on a much slower track for
reductions, or, in the case of the least developed countries, were
exempted altogether from URA disciplines.
WTO Non-Members. Important sugar-producing and importing
countries such as China and the former Soviet republics are not WTO
members, and need to do nothing under the URA. Yet, these countries
represent some 40% of global sugar imports and 20% of production.
Labor and Environmental Standards. The gap in government
standards--and resulting producer costs--between developed and
developing countries is well documented and immense, but was ignored in
the URA. In sugar, the gap is particularly pronounced because, while
the EU and the U.S. are major players, production and exports are
highly dominated by developing countries, especially in the cane
sector.
Social Standards Gap. The differences in labor and environmental
standards between developed and developing countries are wide.
American sugar producers operate with the highest possible regard
for workers and the environment. But we should not be penalized in
multilateral trade negotiations for providing these costly protections.
Foreign countries that do not provide such protections should not be
rewarded. If we are attempting to globalize our economy, we should also
globalize our worker and environmental protection responsibilities. If
markets are to be liberalized, standards must be harmonized.
In the next trade round, access to developed countries should be
conditioned on developing countries' achievement and enforcement of
higher labor and environmental standards. Such an incentive system
could help ensure that the next trade round results in a race to the
top, in protection of workers and the environment, rather than a race
to the bottom. Attached is a press release issued by the ASA in support
of President Clinton's remarks at the WTO in this regard last May
(Attachment C).
Widely Varying Levels of Support. Unilateral reforms to U.S.
agriculture policy in the 1996 Farm Bill far exceeded U.S. commitments
made the year before in the Uruguay Round. Furthermore, developing
countries, which dominate world agricultural trade and particularly
sugar trade, were subject to a slower pace of reductions, if any.
As a result, the United States is way out in front of the rest of
the world in removing its government from agriculture and has placed
its farmers in a domestic free market situation. This gap makes
American farmers uniquely vulnerable to continued subsidies by foreign
competitors.
It is key that American farmers not be penalized for attempting to
lead the rest of the world toward free agricultural trade. American
farmers must be given credit for the reforms they have endured.
U.S. Sugar Surpasses URA Requirements. The United States is one of
only about 25 countries that guarantees a portion of its sugar market
to foreign producers and it has far surpassed its URA commitment on
import access. The URA required a minimum access of 3-5% of domestic
consumption. The United States accepted a sugar-import minimum that
amounts to about 12% of consumption. In practice, U.S. imports in 1994/
95 and 1995/96 averaged 24%--double the promise we made in the URA, and
about six times the global URA minimum.
All this sugar imported from 41 countries under the tariff-rate
quota (TRQ) enters the United States at the U.S. price, and not at the
world dump price. Virtually all this sugar enters duty free. Just five
countries (Argentina, Australia, Brazil, Gabon, and Taiwan) that lack
Generalized System of Preferences status pay a minuscule duty of 0.625
cents per pound.
The United States calculated its above-quota tariff rate in the
manner dictated by the URA. These tariff levels are totally WTO
consistent, and are dropping by 15% over the 6-year transition period,
as we promised they would in the Uruguay Round. This duty is frozen in
the year 2000 and must not be reduced further until foreign countries
have complied with their URA requirements, as the U.S. has done.
Playing Field Lower, But Not More Level. The URA's formula-based
approach called for across-the-board percentage reductions, regardless
of the original level of price support, import barrier, or export
subsidy. Countries with the most egregious barriers can maintain their
advantage throughout the transition process. For example, if one
country's price support were 40% higher than another's, and both
reduced by the URA-mandated 20%, the 40% advantage would remain in
place--the playing field has been lowered, but not leveled.
Furthermore, the United States far surpassed its URA commitments,
unilaterally dismantling its already minimal commodity program in the
1996 Farm Bill, while many other nations with higher levels of
government intervention have yet to even minimally comply. This has
tilted the playing field even further to the disadvantage of efficient
American farmers.
Formula Driven Trade Strategy. For the many reasons outlined above,
the rigid, formula-driven, or ``one-size-fits-all,'' approach for trade
concessions does not work for agriculture in general, or for sugar in
particular. Pursuing this approach would: (1) Fail to reduce the gap in
supports between countries--lowering the playing field, but not
leveling it; (2) Again give developing countries virtually a free ride;
(3) Further diminish U.S. negotiating leverage, which was severely
reduced through our unilateral concessions in the 1996 Farm Bill.
To date, U.S. agriculture has led the world in trade barrier
reductions and we are disadvantaged as long as the rest of the world
fails to follow our example.
Sugar and the NAFTA
The ASA is concerned that before the United States embarks on
another multilateral trade round we must be cognizant of serious
problems that remain with our primary regional trade agreement, the
North American Free Trade Agreement (NAFTA). Evasion of NAFTA rules and
violation of international trade rules by our North American trading
partners have left many American sugar producers with a distrust of
trade agreements and a serious reticence about entering into new ones.
Canada. Sugar trade between the United States and Canada, which
imports about 90% of its sugar needs, was essentially excluded from the
NAFTA. U.S.-Canadian sugar trade is governed mainly by the U.S.-Canada
Free Trade Agreement and by the WTO.
Currently, Canada is threatening the integrity of U.S. sugar policy
by circumventing the tariff-rate quota with a new product referred to
in the trade as ``stuffed molasses''--a high-sugar product not
currently included in U.S. sugar TRQ classifications. USDA has
estimated imports of this product could add about 100,000 tons of non-
quota sugar to the U.S. market per year. That amount could grow if this
loophole is not closed, further harming U.S. sellers of refined sugar
and possibly threatening the no-cost operation of U.S. policy.
Mexico. Mexico had been a net importer of sugar for a number of
years prior to the inception of the NAFTA. Nonetheless, the NAFTA
provided Mexico with more than three times its traditional access to
the U.S. sugar market during the first six years, 35 times its
traditional access in years 7-14, and virtually unlimited access
thereafter. The NAFTA sugar provisions are summarized on the attached
table (Attachment D).
These provisions were negotiated by the U.S. and Mexican
governments and contained in President Clinton's NAFTA submission to
the U.S. Congress, which Congress approved in November 1993. The sugar
provisions, as altered from the original NAFTA text, were critical to
the narrow Congressional passage of the NAFTA.
Nonetheless, Mexico is now undermining the integrity of the NAFTA
by claiming the sugar provisions are somehow invalid. This questioning
by Mexico has bred deep feelings of distrust in trade agreements among
many American sugar producers.
In addition, Mexico has not complied with a NAFTA requirement to
phase out its tariffs on U.S. high-fructose corn syrup (HFCS). Instead,
Mexico raised its tariffs on HFCS imports to levels approaching 100%.
Mexico may also be violating international trade rules by sanctioning a
restraint of trade agreement among Mexican sugar producers and soft
drink bottlers to slow the pace of substitution of HFCS for sugar in
Mexican soft drinks. (The ASA has filed a paper with USTR on this
subject, ``Initiation of Section 302 Investigation on Mexican Practices
Affecting High Fructose Corn Syrup,'' June 19, 1998.)
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Statement of David Kaehler, President, Gilbarco, Inc., Greensboro, NC
Mr. Chairman and members of the Subcommittee, I am David Kaehler,
President of Gilbarco North America, the leading producer of gasoline
pumps and related equipment in the United States. Today, we would like
to thank you, Mr. Chairman and the Subcommittee on Trade for the
opportunity to present our views on the importance of the extension of
trade negotiating authority and the impact that trade negotiations may
have on our U.S. operations. Through this statement, we want to
illustrate one particular area of great concern to Gilbarco, which we
believe underlines the importance for U.S. companies and U.S. workers
to have access to world markets.
Gilbarco, Inc., is headquartered in Greensboro, NC, where we employ
1,500 people who design, produce and ship gasoline dispensers and
related equipment for the world. Indeed, we believe that our Greensboro
factory is the largest of its kind anywhere in the World. About 20% of
our U.S. production is shipped to 85 different countries, including
South America.
For several years our company has, through hard work and good
fortune, been the leading supplier of gasoline dispensing equipment in
South America. In response to our success, competitors have established
manufacturing facilities within the Mercosur region of South America,
thereby taking advantage of preferential tariff treatment offered in
that trading bloc. In fact, the absence of a free trade relationship
between the United States and the Mercosur countries today results in
Gilbarco having to pay duties, ranging from 17% to 30%, on the products
we export to these countries. As a result, we find ourselves at a
serious price disadvantage.
In order to maintain our number one market position in South
America, we are currently alleviating the situation by cutting costs
and sacrificing profits. However, this is clearly not a tenable long-
term solution. In the future, the problem could be solved by
eliminating existing tariffs on U.S. exports through the successful
negotiation of the Free Trade Area of the Americas (FTAA).
Should free trade negotiations fail or extend too far into the
future, we would have no alternative but to establish a manufacturing
presence in South America. In this case, however, job opportunities
would be shifted away from the U.S. and on to a foreign market. In
fact, a new facility in South America could potentially impact about
10% of our highly skilled, highly paid U.S. production workers in North
Carolina. In addition, the domestic content of our products is greater
than 80%. Our several suppliers throughout our region and the country
would also suffer the loss of business as components for South American
built gas pumps would be sourced in that region.
The extension of trade negotiating authority will enable U.S. trade
representatives to effectively negotiate ``final'' trade agreements;
authority they must have in order to maintain a leadership role in the
negotiations. The current situation places American companies, our
products, and our workers at a competitive disadvantage. Indeed, while
our trade negotiating authority has lapsed, competitor countries have
engaged in negotiations and are concluding trade agreements without us.
We urge the Congress to grant the Administration trade negotiating
authority so that the United States can be a credible and effective
partner in negotiating the FTAA to a successful conclusion. We also ask
the Administration to exercise its leadership and to work with the
Congress so that trade negotiating authority can be extended as soon as
possible. Gilbarco, like most other manufacturers, looks forward to
competing on a level-playing field with other global manufacturers
because we believe that our workers are the most productive in the
world, and our products of the highest quality.
Statement of R. Thomas Buffenbarger, International Association of
Machinists and Aerospace Workers, Upper Marlboro, MD
The International Association of Machinists and Aerospace Workers
respectfully submits this testimony to the United States House of
Representatives Ways and Means Committee's Subcommittee on Trade. On
behalf of our members and the tens of thousands of wood, pulp, paper
and other timber-dependent workers nationwide, we wish to express our
concerns for international trade policy in the global economy.
The International Association of Machinists and Aerospace Workers
represents over 700,000 workers nationwide including 20,000 woodworkers
in the forest products industry. Our members are increasingly concerned
with international trade agreements and the potential impacts to
American industries, including forest products.
The IAMAW supports global trade that promotes fair and equitable
agreements between the U.S. and competing nations. The forest products
industry is facing increased competitiveness from foreign countries.
Restraints on fiber supply, environmental regulations and restrictions
on market access, are all hampering our performance in the global
community. Now more than ever, it is crucial that U.S. trade policies
reflect the competitive needs of American industries.
Forest product jobs are being threatened by a flood of foreign wood
being dumped into American markets. Over the last year, we have
witnessed similar threats in the steel industry. The crisis originated
from illegal dumping, ineffective trade laws and the fact that U.S.
trade policy does nothing to preserve our nation's industrial
manufacturing base. Today, our brothers and sisters in the steel
industry are struggling to survive, companies are being forced into
bankruptcy and tens of thousands of workers are losing their jobs. The
IAMAW wants to prevent a similar crisis in the forest products
industry.
The U.S. forest products industry is the largest producer of wood
and paper products in the world and accounts for 8 percent of the U.S.
manufacturing output. Our workers produce the raw materials and
products that are used by consumers throughout the world, and we need
trade agreements that promote our continued prosperity. Our concern
lies with imbalanced trade agreements that provide our competitors with
unfair advantages.
Specifically, the IAMAW is concerned with the APEC negotiations and
the proposals to eliminate all tariffs on wood products. We commend the
Clinton Administration and the U.S. Trade Representative for their
significant progress during the APEC negotiations, but are alarmed at
Japan's continued refusal to open its doors to U.S. wood products. The
United States cannot back down from these negotiations and must hold
Japan accountable.
While Japan has failed to meet its commitment, forest products
workers in the United States continue to witness disastrous impacts to
our industry. Asian tariffs on wood products are as high as 45 percent,
whereas U.S. tariffs are at or near zero. Fair and open access to Asian
markets is crucial to preserve the livelihoods of woodworkers across
the nation. While Asian imports to the U.S. skyrocket, our exports to
the region have fallen drastically, a 40 percent decrease of our
industry's total exports of $21 billion. These trade barriers make it
impossible to sell forest products abroad.
Fairness to American workers requires the pursuit of accelerated
market openings. Failure to eliminate Japanese trade barriers will
exacerbate the increased flow of exports to this country as Asian
economies attempt to export their way out of the region's financial
crisis. Immediate steps must be taken to address the flood of under-
priced imported wood products coming into our market. U.S. workers must
not be the victims of international financial collapse.
U.S. negotiators and government officials must provide a level
playing field for American industries as we compete in the global
economy. Trade reform is crucial. Working Americans will support free
trade agreements that are fair and equitable and provide us with the
opportunity to prosper. As we move into the next century and a new
global economy, we cannot leave American industry and our workers
behind. We must negotiate sound trade policies that will provide the
next generation, and many more to come, with the opportunity to achieve
the American Dream.
Statement of Mitchell J. Cooper, Counsel to the Rubber and Plastic
Footwear Manufacturers Association
The Rubber and Plastic Footwear Manufacturers Association (RPFMA)
is the spokesman for manufacturers of most of the rubber-soled, fabric-
upper footwear, waterproof footwear, and slippers made in this country.
The names and addresses of the Association's members are attached
hereto.
Rubber footwear is a labor-intensive, import-sensitive industry:
Labor constitutes more than 40 percent of total cost; imports of
fabric-upper footwear and of slippers take more than ninety percent of
the U.S. market and imports of waterproof footwear take close to fifty
percent. These imports come from countries where wages are from one-
fifteenth to one-twentieth of the level in the domestic industry.
Two years ago the Trade Subcommittee conducted a similar
examination of U.S. trade policy objectives and initiatives, and the
RPFMA submitted its views. Little has changed since then, other than
the fact that the position of the domestic rubber footwear industry
vis-a-vis imports has worsened. This fact is demonstrated by Tables 1,
2, 3, and 4 attached hereto, which show the year-to-year increase of
imports of fabric upper and of protective footwear as a percentage of
total consumption and also the decline in domestic production
employment of rubber and plastic footwear producers and slipper
producers.
The remaining companies in this industry represent the survival of
the fittest. They are convinced that their state of the art production
facilities, the quality of their products, and their name brand
recognition will permit them to continue manufacturing in this country
provided that there is no further tampering with the current level of
tariffs on competing imports.
The rubber footwear industry recognizes that the health of our
economy depends to a considerable degree on America's ability to export
its products to other countries. Unhappily, the ability of low-wage
foreign producers to compete in the labor-intensive industry which
produces rubber footwear presents an enormous obstacle in the path of
this industry's efforts to export its products. Accordingly, while we
understand the desirability of ongoing and anticipated trade
negotiations for the purpose of reducing barriers to trade, we urge
that there be greater recognition that exceptions must be made for
those few industries, such as rubber footwear and slippers, where a
reduction in duties would clearly threaten the continued existence of
what is left of domestic production.
A major concern of this industry with respect to trade objectives
and initiatives is the distinction between our Government's approach to
such multilateral negotiations as the Kennedy, Tokyo, and Uruguay
Rounds and its approach to such bilateral free-trade agreements as
NAFTA. The rules for multilateral negotiations have permitted careful
scrutiny of whether cuts in tariffs on specific Harmonized System items
are warranted, whereas in bilateral negotiations the only flexibility
has been in the length of time over which all duties would go to zero.
Thus, in recognition of the unique import sensitivity of rubber
footwear and slippers, the duties on the core items of this industry
remained untouched in the Kennedy, Tokyo, and Uruguay Rounds. On the
other hand, under NAFTA rubber footwear and slipper duties are being
phased out over a period of 15 years (a period longer than that for
virtually every other American industry, but at the end of which duties
on imports from Mexico will have been eliminated).
Unless current policy is modified so as to permit limited
exceptions to duty-free treatment in bilateral negotiations, what is
left of this domestic industry cannot realistically expect to survive.
The validity of this statement is evidenced by our experience under the
Caribbean Basin Initiative. CBI II removed the exemption from duty-free
treatment which had previously existed for footwear from the Caribbean.
The direct consequence of this change in the law has been that rubber
footwear imports from the Dominican Republic increased from 200,000
pair a year in 1990 to more than 12 million pair in 1997. Most of these
imports are accounted for by American companies which closed plants in
such states as Maine, Pennsylvania, West Virginia, and Georgia and
shifted their production to the Dominican Republic.
It is important to bear in mind that the duty-free treatment of
rubber footwear from the Caribbean is currently limited to footwear
whose components are manufactured in the United States. The dramatic
surge in Caribbean shipments which has occurred despite the
requirements of using domestic components more than justifies our
concern about the enactment of any so-called CBI parity legislation
which would extend duty free treatment to Caribbean footwear made with
components from any other country.
In previous bilateral trade negotiations the United States has
relied on Article XXIV of the GATT in justification of its no-exception
rule. The fact is however, that Paragraph eight of that Article defines
a free trade agreement as one where ``the duties and other restrictive
regulations of commerce . . . are eliminated on substantially all the
trade between the constituent territories or products originating in
such territories'' (emphasis added). If new bilateral negotiations
would adhere to the ``substantially all the trade'' language in the
GATT, the rules of engagement would be closer to those in multilateral
negotiations where the unique needs of particular import sensitive
industries can be taken into account. Our hope is that if and when this
Congress grants the President fast-track authority, it will note the
need for exceptions to total free trade.
The history of past negotiations demonstrates that there are very
few domestic industries whose survival is as threatened by imports as
rubber footwear and slippers. Surely, the benefits that would otherwise
accrue from a free trade agreement would not be diminished by excluding
this minuscule fraction of one percent of this country's trade from
duty free treatment. Accordingly, we urge that any structuring of
policy objectives in upcoming trade negotiations should contain
sufficient flexibility to permit the survival of an otherwise
endangered domestic industry.
In short, while we cannot quarrel with the Administration's
objective of opening markets to American goods, we can and do quarrel
with trade policy which does not take into account the legitimate needs
of an industry, such as rubber footwear and slippers, which is faced
with limited export opportunities and virtually unlimited imports.
Appendix 1
Rubber and Plastic Footwear Manufacturers Association
American Steel Toe Co.
P.O. Box 959
S. Lynnfield, MA 01940-0959
Converse, Inc.
One Fordham Road
North Reading, MA 01864
(with a plant in North Carolina)
Draper Knitting Co., Inc.
28 Draper Lane
Canton, MA 02021-1598
Frank C. Meyer, Co.
585 South Union Street
Lawrence, MA 01843
(with plants also in New Jersey, Missouri, Maine, Mississippi, and
Puerto Rico)
Genfoot, Inc.
Littleton, NH
Hudson Machinery Worldwide
Hudson Industrial Park
P.O. Box 831
Haverhill, MA 01831
Kaufman Footwear Corp.
Batavia, NY
LaCrosse Footwear Inc.
P.O. Box 1328
LaCrosse, WI 54602
(with plants also in New Hampshire and Oregon)
New Balance Athletic Shoes, Inc.
38 Everett Street
Allston, MA 02134
(with plants in Maine)
Norcross Safety Products
1136 2nd Street
P.O. Box 7208
Rock Island, IL 61204-7208
S. Goldberg & Co., Inc.
20 East Broadway
Hackensack, NJ 07601-6892
Tingley Rubber Corporation
200 South Avenue
P.O. Box 100
S. Plainfield, NJ 07080
Table 1.--Shoes with Rubber or Plastic Soles/Fabric Uppers (SIC 30210 10)
[Figures in Thousands of Pairs]
----------------------------------------------------------------------------------------------------------------
Production Exports Imports Consumption % Imports
----------------------------------------------------------------------------------------------------------------
1998*.......................................... 31,300 8,500 286,600 309,400 93.0
1997........................................... 49,200 7,600 273,200 314,800 87.0
1996........................................... 51,400 6,600 266,100 310,900 86.0
1995........................................... 56,000 12,600 309,300 352,700 88.0
1994........................................... 59,300 8,200 300,500 351,600 85.0
1993........................................... 62,500 9,200 260,000 313,300 83.0
1992........................................... 92,700 9,500 257,000 340,200 76.0
1991........................................... 97,500 9,700 213,400 301,200 71.0
1990........................................... 89,700 8,700 199,200 280,300 71.0
1989........................................... 76,800 10,000 190,100 256,900 74.0
1988........................................... 76,700 900 157,700 233,500 68.0
1987........................................... 71,000 800 119,500 189,700 63.0
1986........................................... 57,900 1,000 99,100 156,000 64.0
1985........................................... 54,900 800 84,800 138,900 61.0
1984........................................... 64,516 1,120 107,685 171,865 62.7
1983........................................... 78,054 1,203 102,662 180,019 57.0
1982........................................... 92,896 1,367 99,032 194,398 50.9
1981........................................... 95,399 1,564 137,632 231,003 59.6
1980........................................... 97,516 1,694 120,746 216,207 55.8
1979........................................... 78,130 1,223 111,390 193,381 57.6
1978........................................... 79,278 644 172,700 253,683 68.1
1977........................................... 90,417 800 106,000 196,587 53.9
1976........................................... 115,354 700 115,400 234,471 49.2
1975........................................... 131,155 600 74,100 206,376 35.9
1974........................................... 146,500 1,010 67,352 210,838 31.9
1973........................................... 143,077 29 66,291 214,837 30.9
1972........................................... 159,399 105 58,020 217,314 26.7
1971........................................... 156,489 112 62,872 219,249 28.7
1970........................................... 144,276 129 49,726 193,873 25.6
1969........................................... 142,295 195 44,463 186,563 23.8
1968........................................... 152,257 239 49,200 201,218 24.5
1967........................................... 153,656 211 44,659 198,104 22.5
1966........................................... 157,491 167 35,060 192,384 18.2
1965........................................... 165,741 195 33,363 198,909 16.8
1964........................................... 162,151 225 29,063 190,989 15.2
----------------------------------------------------------------------------------------------------------------
*Preliminary
Source: Compiled from official statistics of the U.S. Department of Commerce
Table 2.--Rubber & Plastic Protective Footware (SIC 30210 20)
[Figures in Thousands of Pairs]
----------------------------------------------------------------------------------------------------------------
Production Exports Imports Consumption % Imports
----------------------------------------------------------------------------------------------------------------
1998*.......................................... 11,600 1,000 9,800 20,400 48.0
1997........................................... 15,500 1,000 11,000 25,500 43.0
1996........................................... 16,600 1,100 9,600 25,100 38.0
1995........................................... 17,400 1,300 9,900 26,000 38.0
1994........................................... 20,200 1,000 11,200 30,500 37.0
1993........................................... 17,800 700 9,700 26,700 36.0
1992........................................... 17,800 800 7,700 24,800 31.0
1991........................................... 15,600 900 8,000 22,700 35.0
1990........................................... 16,000 800 8,700 23,900 37.0
1989........................................... 13,700 600 8,200 21,300 38.0
1988........................................... 13,800 700 8,900 22,000 40.0
1987........................................... 11,100 800 9,600 19,900 48.0
1986........................................... 12,200 500 10,700 22,400 48.0
1985........................................... 16,500 400 12,800 28,900 44.0
1984........................................... 17,734 296 16,010 32,830 48.8
1983........................................... 15,459 305 13,373 26,562 50.3
1982........................................... 13,920 386 11,103 24,611 45.1
1981........................................... 10,652 551 7,485 18,028 41.5
1980........................................... 14,473 653 7,548 21,552 35.0
1979........................................... 23,531 645 12,544 36,517 34.4
1978........................................... 28,893 514 13,444 36,130 37.2
1977........................................... 23,380 400 10,700 34,402 31.1
1976........................................... 17,261 400 9,600 26,800 35.8
1975........................................... 16,135 300 4,100 20,600 19.9
----------------------------------------------------------------------------------------------------------------
*Preliminary
Official government figures on rubber and plastic protective footwear were not compiled for years earlier than
1975.
Source: Compiled from official statistics of the U.S. Department of Commerce
Table 3.--Production Employment
[in thousands]
------------------------------------------------------------------------
------------------------------------------------------------------------
Rubber and Plastic Footware (sic 302)
1973............................. 26.3 1986 9.2
1974............................. 25.3 1987 9.3
1975............................. 22.3 1988 9.7
1976............................. 21.6 1989 9.2
1977............................. 20.9 1990 8.9
1978............................. 21.0 1991 8.8
1979............................. 19.9 1992 8.9
1980............................. 19.8 1993 8.9
1981............................. 19.0 1994 8.9
1982............................. 16.2 1995 6.4
1983............................. 14.1 1996 4.5
1984............................. 14.0 1997 5.5
1985............................. 10.9 1998 4.8*
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
January................................... 9.2 9.0 8.4 9.2 8.7 8.3 7.8 4.9 5.3 5.6
February.................................. 9.3 9.1 8.7 9.4 8.9 8.8 7.8 4.7 5.3 5.3
March..................................... 9.3 9.2 8.7 9.4 9.1 8.9 7.5 4.6 5.6 5.3
April..................................... 9.2 9.1 8.7 9.4 9.4 9.2 7.2 4.6 5.5 5.2
May....................................... 9.1 8.9 8.8 9.2 9.6 9.4 6.8 4.7 5.6 5.1
June...................................... 9.2 9.0 8.8 9.1 9.6 9.5 7.1 4.8 5.9 5.2
July...................................... 8.8 8.6 7.6 8.8 9.2 8.8 5.8 3.7 5.1 3.8
August.................................... 8.3 9.0 9.0 8.1 8.7 9.5 5.6 4.6 4.7 4.8
September................................. 9.5 8.9 9.2 8.2 8.4 9.0 5.4 4.5 5.9 4.5
October................................... 9.6 8.8 9.3 8.8 8.3 8.9 5.2 4.5 5.8 4.3
November.................................. 9.4 8.9 8.8 8.8 8.4 8.1 5.1 4.4 5.8 4.3
December.................................. 9.1 8.6 9.3 8.7 8.4 8.1 5.1 4.3 5.7 4.4*
----------------------------------------------------------------------------------------------------------------
*Peliminary figure
Source: Bureau of Labor Statistics, U.S. Department of Labor
Table 4.--Production Employment
[in thousands]
------------------------------------------------------------------------
------------------------------------------------------------------------
Slippers (sic 3142)
1973............................. 10.2 1986 4.4
1974............................. 9.7 1987 4.7
1975............................. 7.8 1988 4.6
1976............................. 7.2 1989 4.2
1977............................. 7.2 1990 3.7
1978............................. 7.5 1991 3.5
1979............................. 7.1 1992 3.2
1980............................. 7.5 1993 2.6
1981............................. 8.2 1994 3.0
1982............................. 7.5 1995 2.9
1983............................. 6.5 1996 2.1
1984............................. 6.0 1997 2.1
1985............................. 5.1 ........... ...........
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
January......................... 3.6 3.0 2.7 2.5 2.1 2.4 2.5 1.8 2.2 1.3
February........................ 4.3 3.7 3.4 2.8 2.4 2.7 3.0 2.3 2.1 1.6
March........................... 4.4 3.7 3.3 3.0 2.4 2.7 3.0 2.1 1.9 1.6
April........................... 4.4 3.8 3.6 3.1 2.6 2.9 2.8 2.0 1.9 1.7
May............................. 4.4 3.9 3.7 3.1 2.7 3.1 2.9 2.0 2.2 1.7
June............................ 4.4 3.8 3.8 3.3 2.8 3.2 3.0 2.0 2.3 1.7
July............................ 4.3 3.5 3.4 3.0 2.6 3.2 3.0 2.0 2.3 1.8
August.......................... 4.6 3.8 4.0 3.7 2.9 3.3 3.1 2.1 2.3 1.7
September....................... 4.3 4.1 4.0 3.8 3.0 3.5 3.1 2.3 2.3 1.8
October......................... 4.5 4.2 4.0 3.8 3.0 3.5 3.0 2.3 2.2 1.8
November........................ 4.1 3.7 3.5 3.3 2.8 3.2 2.8 2.2 2.1 1.6
December........................ 3.6 2.8 2.6 2.4 2.3 2.7 2.2 2.0 1.5
----------------------------------------------------------------------------------------------------------------
Source: Bureau of Labor Statistics, U.S. Department of Labor
The above data is ``Unpublished Data'' compiled from the Bureau of Labor Statistics, and are not official Bureau
Statistics. This data is for internal analysis only and should not be reproduced or published.
Statement of George Scalise, President, Semiconductor
Industry Association
I appreciate the opportunity to present to the Subcommittee on
Trade of the Committee on Ways and Means the views of the Semiconductor
Industry Association (SIA) on the importance of active U.S. involvement
in trade negotiations. I would like to focus my comments on three
issues: (1) the agenda for the new round of multilateral trade
negotiations under the auspices of the World Trade Organization (WTO)
to be launched at this year's WTO Ministerial meeting in Seattle; (2)
priorities for the ongoing negotiations on China's accession to the
WTO; and (3) the importance of seeking early progress in eliminating
tariffs in connection with the negotiations to create a Free Trade Area
of the Americas (FTAA).
Before discussing the SIA's position on these important issues,
however, I would like to give some background on the U.S. semiconductor
industry.
I. The U.S. Semiconductor Industry
U.S. semiconductor makers employ 260,000 people nationwide, and the
presence of the industry is widespread--35 states have direct
semiconductor industry employment. And these are high paying jobs. The
average wage in the semiconductor industry is approximately $55,000,
nearly twice the average of private industry overall.
Semiconductors are an increasingly pervasive aspect of everyday
life, enabling everything from computers to automobiles to modern
defense systems to the Internet which is, in fact, a world wide web of
silicon chips. They have sparked the growth of the U.S. electronics
industry, which provides employment for 4.2 million Americans in all 50
states.
According to Department of Commerce data, the chip industry
contributes more to this country's GDP in terms of value added than any
other manufacturing industry. The industry is both capital intensive
and R&D intensive: indeed, our members must spend a third of their
revenues on research and capital equipment, among the highest
percentage of any industry in the world.
These tremendous investments in R&D and capital equipment have
yielded a direct benefit to consumers everywhere: the cost of our
products continues to decline, and the functionality continues to
increase. The increase in computing power has allowed the spread of PCs
to homes, schools and small businesses, and it has enabled the
explosion of the Internet and e-commerce. The Economic Report to the
President last year pointed out that without the faster-than-average
recent rate of decline in computer prices, overall inflation would have
risen steadily since early 1994: instead, because of the fall in
computer prices, inflation has actually decreased.
While investing heavily in the industry's future competitiveness
and technological capabilities, SIA members also have always actively
sought to secure foreign market access for U.S. products. Because the
semiconductor industry is so global in nature--roughly half of the U.S.
industry's revenues are derived from overseas sales--the SIA has been
dedicated since its inception to promoting free trade and opening world
markets.
For example, the U.S. industry has been at the forefront of efforts
to eliminate tariffs on semiconductors and related products worldwide.
At SIA's urging, the United States, Japan and Canada eliminated their
semiconductor tariffs in the mid-1980s. Similarly, in the 1990s, SIA
strongly supported the negotiation of the Information Technology
Agreement (ITA), through which a total of 44 countries agreed to
eliminate their tariffs on semiconductors and other information
technology products.
II. The New Round of WTO Negotiations
The SIA favors continued efforts in the WTO to promote greater
trade liberalization, including in the areas of tariff elimination,
duty-free and tax-free treatment of electronic commerce, services and
investment. However, any new initiatives at the WTO should be
consistent with and build upon the agreements reached in the Uruguay
Round, rather than a renegotiation of the hard-won resolutions reached
in those recent negotiations.
A. Recommended Areas for New WTO Negotiations
1. Industrial Market Access. The SIA believes continued attention
should be given to tariff elimination by WTO members. As noted above,
44 countries and customs territories currently are signatories to the
Information Technology Agreement (ITA), which provides for the
elimination of tariffs on semiconductors and other information
technology products. But a significant number of WTO member countries
have yet to join this important agreement. The United States should
encourage all WTO member countries to join the ITA as soon as possible
and thereby permanently eliminate tariffs on semiconductors,
semiconductor manufacturing equipment and related information
technology products.
In addition, the United States should urge countries negotiating
for accession to the WTO to follow the lead of Taiwan and to join the
ITA as an interim measure. China, for example--despite President Jiang
Zemin's announcement last year that it would join the ITA ``as soon as
possible''--has made little progress toward implementation. Every
effort should be made to encourage China to fulfill its commitment.
Continued attention should also be placed on the current ongoing
review of the ITA to expand the product coverage of the agreement (ITA
II). Every effort should be made to reach agreement among the existing
ITA signatories to expand the product coverage of the agreement as soon
as possible. For those countries that have yet to join the original
ITA, it should also be pointed out that joining the original ITA would
permit them to play an active role in determining the future direction
of international efforts to expand the product coverage of the ITA.
Expansion of the ITA to include additional products and signatories
should be maintained as a separate process during the course of broader
WTO multilateral negotiations. A clear goal for the end of any new
multilateral negotiations, however, should be to make ITA participation
mandatory for all WTO member countries.
2. Duty-Free Treatment for Electronic Commerce. SIA supports U.S.
efforts to urge WTO members to continue the current practice with
respect to tariff treatment of electronic commerce. Currently, no WTO
member considers electronic transmissions as importations and,
consequently, no member imposes customs duties on those transmissions.
Given the increasing importance of electronic commerce over the
Internet, SIA believes that the United States should continue its
leadership in this area, and--in addition to encouraging permanent
implementation of duty-free treatment--should urge WTO members to
commit to tax-free treatment of electronic transactions.
3. Services: Distribution. The ability of U.S. firms to import,
export and distribute goods in foreign markets is essential for
ensuring true market access. Foreign government measures that force
U.S. producers to sell through local distributors can add significant
cost and adversely affect service, inventory, and delivery. The
inability to deal directly with end-users is a particular problem in
the semiconductor industry, where the design and development of
application-specific chips requires extensive contact between
semiconductor producers and the ultimate end-users of the chips.
Therefore, as part of any new negotiations relating to services,
the United States should seek commitments from all WTO members to
permit companies of other WTO members to engage in distribution
services without restriction. Especially in countries in the process of
transitioning from centrally-planned to market-oriented economies,
numerous restrictions on the ability of U.S. semiconductor firms exist.
Similar commitments should be insisted upon with respect to all newly-
acceding WTO members. In fact, such commitments should be considered to
be a fundamental obligation of WTO membership.
4. Investment Rules. The freedom to engage in direct investment is
critical to market access in many sectors and particularly for the
semiconductor industry. Unfortunately, existing rules on Trade-Related
Investment Measures (TRIMs) do not adequately discipline many of the
restrictions placed on investment in various countries. U.S.
semiconductor manufacturers frequently must grapple with policies (both
official and unpublished ``administrative guidance'') restricting
foreign ownership, including pressure to enter into joint venture
agreements with local firms. These restrictions may be imposed not only
as strict legal obligations, but also as quid-pro-quos for decisions by
government officials at both the national and sub-national level.
Regardless of their form, these measures are often used as levers to
obtain transfer of technology from foreign firms.
These measures can have a real and significant competitive impact
on U.S. electronics firms, as advanced technology is often the key to
competitive success. To the extent that our trading partners can
maintain such measures, U.S. exports in the electronics sector, such as
semiconductors, may be restricted. Moreover, such investment
restrictions have a negative effect on the country imposing them, as
they discourage the investment necessary to develop a local electronics
industry on a commercially sound basis.
Improving and expanding WTO rules on TRIMs therefore should be a
part of any ongoing WTO negotiations, and should include strengthened
provisions prohibiting WTO members from imposing investment
restrictions--especially those which require a foreign enterprise to
invest, enter into any form of joint venture arrangement with a
domestic entity or to transfer any technology or intellectual property
to a domestic entity. These strengthened provisions should also
encompass measures which are mandatory or enforceable under domestic
law or under administrative rulings, or compliance with which is
necessary to obtain any approval or advantage.
5. Trade and Competition Policy. Any ongoing work in the WTO on
trade and competition policy should be focused on discouraging
anticompetitive practices by and among firms, rather than--as some
other WTO members have suggested--on reopening the WTO Agreement on
Antidumping. If the WTO determines to continue work in this area--and
it is properly focused on disciplining anticompetitive practices--SIA
believes that attention should be given to the potential for
anticompetitive purchasing arrangements by state-invested enterprises.
State-invested enterprises--enterprises wholly or partially owned
by central, provincial or local governments--can seriously interfere
with competition in the markets in which they operate. Unfortunately,
current WTO rules in this area are inadequate. The WTO's principal tool
for addressing distortions in trade that arise from state-invested
enterprises--Article XVII of the General Agreement on Tariffs and
Trade--does not effectively cover the purchasing decisions of state-
invested commercial enterprises. In addition, such enterprises are not
covered by the WTO Government Procurement Code because their purchases
are for the purpose of manufacturing commercial goods rather than for
government use.
State-invested enterprises are particularly active in the
electronics sector in many countries, and frequently control a
significant share of the imports and exports of electronics goods. As a
result, there is a significant risk that other state-invested
enterprises will be encouraged by government officials to purchase
semiconductors from other state-invested or domestic suppliers. Such
discrimination could obviously have a very negative effect on U.S.
semiconductor sales.
Given the development of potentially strong state-invested
electronics sectors--containing both semiconductor producers and
consumers--and the inadequacy of Article XVII, the SIA urges stronger
WTO rules that include affirmative obligations on the part of all WTO
members to:
(1) ensure that state-invested enterprises (including partially
state-invested and recently privatized enterprises that were formerly
state-invested) make purchases on the basis of commercial
considerations; and
(2) afford the enterprises of other WTO members adequate
opportunity, in accordance with customary business practices in market
economies, to compete for sales to state-invested enterprises.
The SIA also believes that WTO members should be required to
refrain from taking any measure, including administrative guidance, to
influence or direct state-invested enterprises as to the quantity,
value, or country of origin of goods purchased or sold, or otherwise
impair the purchase or sale of goods. In addition, the WTO should
review on a regular basis whether state-invested enterprises are in
fact making purchases on the basis of commercial considerations.
6. Rules of Origin Harmonization. In the Uruguay Round, WTO members
agreed to pursue international harmonization of rules of origin based
on the substantial transformation standard. The WTO Agreement on Rules
of Origin (ARO) applies to all origin rules used in non-preferential
trade applications, from collection of trade statistics to product
marking to antidumping and countervailing duty measures. SIA believes
this work program should be reviewed to ensure that it does not
undermine the effectiveness of the U.S. antidumping law.
Under existing U.S. practice for determining origin, semiconductors
that are fabricated in one country but assembled in another country are
treated differently for general trade purposes (such as for customs
purposes) than they are for purposes of administering antidumping
measures. The treatment of semiconductors in a general trade context is
determined by rules of origin, which base a semiconductor's origin on
the country where final assembly takes place. Antidumping
investigations, on the other hand, employ fact-specific criteria to
determine that a semiconductor is ``from'' the country of wafer
fabrication (also known as diffusion). This is because a final assembly
standard would allow exporters subject to antidumping orders to evade
those orders by simply changing the country of final assembly--a
relatively simple and inexpensive change in the semiconductor industry.
Ongoing WTO efforts to harmonize rules of origin, however, may
require the U.S. Government to change its current practice, so that it
would no longer be able to employ these differing approaches. This
requires the establishment of new rules of origin for semiconductors
that will ensure that antidumping orders on semiconductors can continue
to be effectively enforced. In the absence of ``decoupling'' as
proposed below, only a rule of origin based on diffusion would ensure
that antidumping orders on semiconductors can continue to be
effectively enforced.
SIA believes that fact-based scope determinations for antidumping
purposes should be decoupled from general purpose rules of origin.
While the WTO origin harmonization exercise must result in origin rules
that facilitate international trade through easy-to-administer and
consistently-applied criteria--it is equally important that the origin
harmonization exercise not disrupt the existing ability of governments
to administer antidumping and countervailing duty orders.
To address this potential problem, some countries have proposed
content-based origin rules for electronics products to ensure that
their ability to impose antidumping or countervailing duty measures is
not restricted. The European Union, for example, has proposed a 45
percent value-add origin rule for all electronics products, even
through such a rule could pose an obstacle to the free flow of trade in
electronics goods.
To prevent WTO adoption of onerous origin rules while at the same
time ensuring the effective administration of antidumping and
countervailing duty measures, SIA believes that WTO negotiators must
pursue a ``decoupling'' approach that would allow administering
authorities in antidumping and countervailing duty cases to use fact-
based criteria other than rules of origin in determining the scope of
antidumping and countervailing duty measures. In turn, this would
permit the WTO to adopt internationally harmonized rules for general
trade that are different from, and not based upon, the standards used
to administer antidumping and countervailing duty measures. This would
also allow the harmonization of general purpose rules of origin in a
manner that will facilitate, rather than encumber, trade, while also
preserving an effective antidumping and countervailing duty remedy for
all products.
B. Issues that Should Not be on the Agenda for the New Round:
The WTO Antidumping Agreement
SIA supports the maintenance of a strong and effective antidumping
remedy as a critical component of the international trading system. The
antidumping remedy is especially important with respect to the
semiconductor industry given the history of injurious dumping in our
sector.
The WTO Antidumping Agreement permits WTO members to take remedial
action against dumped imports, and prescribes international rules for
the conduct of antidumping actions. These international antidumping
rules were substantially revised in the Uruguay Round negotiations,
which concluded in 1994. These revisions in the WTO rules required
implementation in national legislation and regulations, which were only
fully adopted in the United States last year.
The Uruguay Round changes in the antidumping rules resulted in a
number of new requirements, including special adjustments for
calculating costs of products in the ``start-up'' phase of production,
a review of antidumping measures after five years of being in effect,
and higher de minimis thresholds for margins in antidumping
investigations. All of these changes have made it more difficult for
injured industries to obtain relief under the antidumping law, and the
full consequences of these revisions have not yet been fully assessed.
Given the relatively short amount of time that has passed since
these recent substantial changes to antidumping rules in the Uruguay
Round, it would be inappropriate at this time to launch a new
international negotiation of an antidumping agreement. SIA therefore
would strongly oppose new negotiations in this area as part of the WTO
agenda.
III. China WTO Accession Negotiations
SIA strongly supports China's bid to join the World Trade
Organization (WTO), but only if that accession is accomplished on a
commercially viable basis. The WTO accession negotiations provide the
best means to obtain the fundamental structural reforms in China's
economic and trade system necessary to ensure effective market access
for foreign goods in China. In this regard, SIA has a number of
specific concerns about trade and investment in China which we believe
should be addressed in any agreement to admit China to WTO membership:
Elimination of Tariffs. China currently imposes tariffs of 6-10% on
imported semiconductors. These tariffs present a significant obstacle
to U.S. exports to China. President Jiang Zemin pledged last October
that China would join the Information Technology Agreement (ITA) ``as
soon as possible.'' Unfortunately, to date there has been little
progress on negotiating a specific Chinese tariff phase-out schedule to
implement this commitment. Semiconductor tariff elimination is in
China's interest because it would permit admission of the Chinese
semiconductor industry into the World Semiconductor Council (WSC). The
WSC was created by the 1996 U.S.-Japan Semiconductor Agreement, and is
open to semiconductor industry associations from countries and regions
that have eliminated, or agreed to eliminate expeditiously, tariffs on
semiconductors.
Purchasing by State-Invested Enterprises. State-invested
enterprises control a significant share of the trade in electronics
goods into and out of China. As a result of this active government role
in the electronics sector, there is a significant risk that, as Chinese
semiconductor production increases both in volume and quality, other
state-invested enterprises will be encouraged by Chinese officials to
purchase from domestic suppliers. Such discrimination could
significantly burden or restrict U.S. semiconductor sales in China in
the future. Given the potential long-term significance of state-
invested enterprises in the Chinese electronics sector, China's
protocol of accession should include an affirmative obligation on the
part of the Chinese Government to ensure that its state-invested
enterprises make purchases on the basis of commercial considerations.
Elimination of Investment Restrictions. Chinese foreign investment
restrictions, including restrictions on 100 percent foreign ownership,
export targets and local content requirements are often imposed as
quid-pro-quos for decisions by government officials at both the
national and sub-national level. For high tech industries like
semiconductors, these measures are often used as levers to obtain
transfer of technology from foreign firms. China's protocol of
accession should include an explicit provision requiring China to
refrain from taking any measure which requires a foreign enterprise to
invest, enter into any form of joint venture arrangement with a Chinese
entity, or to transfer any technology or intellectual property to a
domestic entity, except in accordance with WTO rules.
Trading and Distribution Rights. Chinese restrictions on ``trading
rights'' (the ability to import and export from China) are significant
impediments to U.S. semiconductor firms' ability to access the Chinese
market, and, if not eliminated, may undermine the benefit of other
trade liberalization measures agreed to by China. Equally important as
the right to import is the right to distribute goods within China and
provide after-sales service for those goods. The current system forces
U.S. producers to sell through Chinese distributors and provide after-
sales service through a domestic Chinese entity. The inability to deal
directly with end-users is a particular problem in the semiconductor
industry, where the design and development of application specific
chips requires extensive contact between semiconductor producers and
the ultimate end-users of the chips.
Protection of Intellectual Property Rights. China has enacted
patent, copyright, and trademark laws, but their credibility requires
strengthened enforcement. While there has been no piracy of
semiconductor intellectual property to date, China's level of
technological development does not yet permit it to manufacture
advanced U.S. products or misappropriate U.S. chip designs. However,
China's capabilities in the semiconductor sector are rapidly advancing.
Therefore, China's protocol of accession to the WTO should commit China
to abide by the obligations of the WTO Agreement on Trade-Related
Intellectual Property Rights, without any transition period before the
obligations are enforceable.
Non-Market Economy Antidumping Rules. Chinese officials have cited
the use of the U.S. antidumping law against Chinese exports as a
``trade barrier'' they wish to see removed in the WTO accession
negotiations. In particular, China is seeking to eliminate application
of the non-market economy (NME) provisions of the U.S. antidumping law
to Chinese exports, on the grounds that China is now a market economy.
Without the NME provisions of the antidumping law in effect, Chinese
state-invested enterprises could in the future make significant below-
cost sales of semiconductors in international trade, adversely
affecting the U.S. semiconductor industry. A provision therefore should
be included in China's WTO protocol of accession to permit the United
States to continue to apply the NME provisions of the antidumping law
to China. The current draft protocol includes proposed text to this
effect, but it has not been agreed to by China.
IV. Negotiations on the Free Trade Area of the Americas (FTAA)
As noted above, one of the significant successes of U.S. trade
policy in recent years is the Information Technology Agreement (ITA).
At the urging of the worldwide information technology industry, the
United States and 43 other countries have agreed through the ITA to
eliminate tariffs on semiconductors and other information technology
products in these countries by the year 2000. The ITA, which was
negotiated under the auspices of the World Trade Organization,
represents a landmark achievement in the development of global free
trade. It has dramatically sped-up the process of eliminating tariffs
on information technology products by scheduling complete elimination
for over 92 percent of world information technology trade by 2000 and
establishing procedures for eliminating tariffs on additional products.
Despite its tremendous accomplishments, the ITA has some
weaknesses--for example, only two countries in Latin America have
signed onto this important agreement: Panama and Costa Rica. Thus,
elimination of Latin American tariffs on semiconductors remains an
important item of unfinished business for U.S. trade policy.
Currently, tariffs on semiconductors in such key markets as Brazil,
Argentina, and Venezuela, remain very high--with bound rates generally
around 35 percent. Such high tariffs pose a significant barrier to U.S.
semiconductor exports and also inhibit the development of information
technology industries in these countries. Elimination of these tariffs
will spur development of competitive electronics industries in Latin
America, as it has in other nations. It will allow U.S. producers to
sell advanced semiconductors to their Latin American customers at the
lowest possible price, thereby both increasing U.S. exports and
strengthening developing Latin American electronics industries.
The benefit to Latin American countries of semiconductor tariff
elimination is aptly illustrated by comparing developing countries that
have pursued a high tariff strategy with those that have pursued a low
tariff strategy for electronics. Looking around the world, those
developing areas with low or no duties on electronics components and
systems over the past two decades (Hong Kong, Taiwan, Singapore) have
been successful in developing strong, dynamic information technology
industries. Meanwhile, those developing areas with high duties (Latin
America, India) have not been successful in developing their domestic
electronics industries.
Elimination of Latin American tariffs in semiconductors and other
electronics goods would go a long way assisting the countries of Latin
America in developing their own competitive industries. Joining the ITA
would be the quickest way to accomplish this important reform. The FTAA
provides another effective mechanism for reducing Latin American
tariffs. While scheduled to be concluded no later than 2005, the FTAA
calls for, among other things, the progressive elimination of tariffs
and concrete progress toward achieving the agreement's objectives by
2000.
The SIA believes that one important way to demonstrate ``concrete
progress'' in the information technology sector is for the countries of
Latin America to join the ITA now, and agree to eliminate their
information technology tariffs by 2000. Joining the ITA would not only
allow the countries of Latin America to demonstrate their commitment to
the FTAA process and enjoy the benefits of free trade more quickly, but
would also demonstrate how the FTAA can support the WTO system,
ensuring that regional trade liberalization would not proceed at the
expense of cooperation with the broader world trading system. In fact,
the business forum that preceded the most recent FTAA Ministerial
meeting in San Jose, Costa Rica, explicitly endorsed immediate adoption
of the ITA by Latin American countries. In addition, APEC's adoption of
the ITA provides a precedent for immediate adoption of the ITA as a
means to build momentum for a larger free trade region.
The SIA believes that the United States should make near-term Latin
American participation in the ITA a key element of its overall
negotiating strategy for the FTAA. In addition, as the FTAA
negotiations go forward, we urge that the United States press for
strong provisions in the FTAA on protection of intellectual property
rights, removal of barriers to foreign direct investment (including
forced technology transfer requirements) and maintenance of strong and
effective antidumping remedies.
V. Fast Track
In addition, I would like to emphasize in the context of both the
new WTO Round and the FTAA negotiations that the SIA strongly believes
that fast track negotiating authority is crucial to reducing trade
barriers that impede the development and growth of high-value-added
U.S. industries such as the semiconductor industry. In addition to
reducing tariffs around the world, U.S. trade policy must continue to
be focused on eliminating non-tariff barriers. Fast track legislation
is essential to U.S. efforts to reduce complex non-tariff barriers that
remain as significant obstacles to our exports in many countries around
the world. We therefore urge the Congress and the Administration to
work together to enact bipartisan fast track legislation at the
earliest possible opportunity.
VI. Conclusion
The SIA welcomes this opportunity to present its views on the
importance of active U.S. involvement in upcoming trade negotiations at
the WTO and in the context of the proposed FTAA. U.S. leadership on the
trade issues discussed above is critical to the continued health and
growth of the U.S. semiconductor industry.
Statement of Michael V. Draper, Regional Vice-President, United
Brotherhood of Carpenters and Joiners of America, Portland, OR
On behalf of the United Brotherhood of Carpenters and Joiners of
America, I would like to thank the U.S. House of Representatives Ways
and Means Committee's Subcommittee on Trade for the opportunity to
share our thoughts on international trade policy in the global market.
As a Regional Vice-President, I represent carpenters, lumber and
sawmill workers, and pulp and paperworkers in the western United
States. As construction workers, we literally build America, from
skyscrapers to office buildings, from schools to the homes where our
families reside. As forest product workers, we produce the raw
materials and paper products offices around the globe used daily. While
our industry adjusts to the grim reality of foreign competitiveness,
our members are increasingly concerned with our ability to compete in
international markets.
Over the last several decades, the U.S. economy has experienced
rapidly increasing flows of international capital, goods and services.
While trade and the movement of capital across borders can bring many
economic and social benefits, American workers are the first to feel
the adverse effects from unfair trade policies. In recent years, United
States' trade agreements have been accompanied by rising trade
deficits, the loss of good jobs in the manufacturing sector, stagnating
or falling wages for the majority of the workforce and decreasing job
security. While working Americans support free trade and the global
economy, international agreements must be drafted in a fair and
equitable manner and include provisions that will protect our
industries and our jobs.
Today, our industry has found itself at a competitive disadvantage
in international markets due to restraints on timber supply,
environmental regulations and restrictions on market access around the
globe. The Carpenters Union is increasingly concerned with bilateral
trade imbalances and the ongoing cooperative agreements between the
United States and Asia, including the Asia-Pacific Economic Cooperation
negotiations. Asian companies rank among our largest competitors in the
forest products industry. Many of these companies are growing
vigorously. Much of that growth is occurring right here in the U.S.
market, while our own exports to Asia are shrinking dramatically. As
America's trade deficit reaches all time highs, and Asia's steep
recessions cut into American exports, the weaker currencies have made
Asian goods more attractive to U.S. buyers.
Our industry is facing a barrage of foreign imports from
competitors who are ``dumping'' resources into American markets in
order to ease their economic woes. A flood of foreign wood, much of
which has been illegally dumped into the American market, is
threatening the jobs of hundreds of thousands of forest product
workers.
A formidable arsenal of trade barriers including tariffs, restrict
U.S. companies from fair competition in Asian markets. While some Asian
nations place tariffs as high as 40% on paper products and 45% on wood
products, U.S. tariffs on those goods are at or near zero. Trade reform
is crucial. Fair and open access to Asian markets is vital to preserve
the livelihoods of the 1.6 million men and women working in the wood
and paper products industry throughout the United States.
Forest product exports have fallen drastically due to Japan's
refusal to lift the barriers. Asian countries have been some of our
best importers and constitute the world's fastest-growing markets for
wood and paper products. In 1997, the region accounted for 40% of U.S.
exports of wood and paper products. In the first ten months of 1998,
the value of U.S. wood product exports to the Far East were down 40%
from 1997. Paper and paperboard exports were off by 19%, while imports
increased 74%. And during the first quarter of 1998, newsprint exports
were down 25%, with imports skyrocketing by an alarming 700%. These
imbalances are among the chief reasons why America's forest products
industry has lost 80,000 jobs over the last decade.
The Carpenter's Union applauds the Clinton Administration's efforts
during APEC negotiations to eliminate wood tariffs, but Japanese
negotiators still refuse to cooperate. The United States must stand
firm and continue to demand tariff reductions. We cannot afford to
trade our interests away. The livelihoods of American workers are non-
negotiable.
The Carpenters Union is increasingly concerned with the direction
of the APEC treaty and future tariff initatives. We need to construct
and enforce international rules that encourage the best kind of
competition. Americans cannot compete if the rules of international
trade are unfair or if our trade laws are being violated without
sanctions. We need to outline our priorities during trade negotiations
and elevate the importance of U.S. industry and our workers.
Working Americans built this country into what it is today. We are
highly competitive and want to compete in the global market, but the
same rules must apply to all players. Our economy is strong and the
demand for our products, high. Let's create an even playing field for
Americans, so we can sell our products around the globe and bring home
the benefits to our nation, our home town communities and our workers.
Statement of the U.S. Chamber of Commerce
The U.S. Chamber of Commerce appreciates this opportunity to
present its views on the importance of trade negotiations in fighting
foreign protectionism. Our country has made fighting foreign
protectionism a priority for decades. Ever since the Great Depression,
presidents of both parties have made it our business to try to remove
foreign trade barriers so companies and workers like ours would have a
better shot at success.
But congressional defeat of fast-track legislation last September
represented a significant setback. It served to underscore the fact
that, in recent years, the principal U.S. tendency on foreign economic
policy has been to restrain or resist U.S. participation and
integration into international commerce. For example, in its August
1998 report on unilateral economic sanctions, the U.S. International
Trade Commission noted forty-two separate U.S. laws that authorize
economic sanctions for various purposes. But by rejecting renewal of
fast-track for the first time since its inception in 1974, Congress
deprived our trade negotiators of the single most important tool they
need to continue their market-opening efforts.
Maintenance of normal trade relations with China--the world's
largest nation and one of its fastest growing economies--remains on a
year-to-year footing. And in the face of continuing economic and
financial crises that have already begun to spread from Asia to other
regions, the U.S. remains reluctant--at best--to exercise the
leadership that is expected of it in the International Monetary Fund
and other international institutions.
As the world changes, continuing U.S. engagement is becoming more
important to the national interest, not less. New players are emerging
on economic and political fronts. Economic issues are increasingly
recognized as important at home and abroad as trade's share of national
output grows. Economic and trade ``blocs'' such as the North American
Free Trade Agreement (NAFTA), the European Union, the Asia-Pacific
Economic Cooperation area (APEC), Mercosur, and others continue to gain
prominence.
The United States must either resume its leadership soon or
abdicate to others. Trade's importance to the U.S. economy has grown
enormously since 1959. The share of U.S. output purchased by foreigners
has grown almost three-fold since then--as has the share of U.S. income
used to purchase foreign goods and services. Over 95% of the world's
population live outside of the United States. It should make common
sense not only to trade with them, but also to work with other nations
to solve international crises and promote expanding trade and sustained
economic growth.
Accordingly, our continuing struggle against foreign protectionism
requires that we pursue both a regional and multilateral agenda for
commerce abroad and a legislative agenda in the U.S. Congress which
advances our interests in all of the world's major trading regions. But
such leadership can be resumed only if certain fundamentals are
attended to:
The United States must resume its place at the trade
agreement negotiating table so that markets can be further opened to
U.S. business. This means providing U.S. negotiators with the tools
they need to close deals and bring them home for expedited
consideration by the Congress. Without such tools, other nations will
continue to initiate negotiations and conclude agreements which
establish preferential terms for our competitors, to the disadvantage
of U.S. interests. For this reason, approval of ``fast track'' trade
negotiating authority should rank at the top of the nation's
international economic and business agenda for 1999.
The United States must cease its continuing reliance on
unilateral economic sanctions and Cold War-era controls on exports of
widely available goods as foreign policy tools. History demonstrates
that the primary result of such sanctions and export controls is to
inflict economic injury on U.S. businesses and their workers while at
the same time strengthening--rather than weakening--the intended
targets of the sanctions and controls. But even more damaging in the
long run, such sanctions and controls cast a lingering pall of
unreliability over U.S. companies whose competitiveness is subordinated
to often vague and counterproductive U.S. policy proclamations.
The United States must meet fully its obligations to
international financial institutions (IFIs) on which it must depend for
stabilizing and growth-enhancing influence in the global economy. IFIs
such as the International Monetary Fund are the only mechanisms through
which global financial and economic crises can be effectively managed
by several nations in a coordinated, complementary fashion. Similarly,
the United States must provide sufficient financial resources for
domestic U.S. trade development institutions (e.g., Eximbank, OPIC,
Trade and Development Agency) that meet financing, insurance and other
needs that are not fulfilled by the U.S. private sector. At the same
time, the U.S. must work to ensure that these institutions are
structured and directed to meet carefully defined objectives that are
consistent with their overall missions. Care should be taken to prevent
enactment or implementation of policies that might undermine, distract
from or conflict with these institutions' missions.
The United States must recognize the importance of
maintaining viable trade remedy laws that are designed to eliminate,
offset or obtain compensation for unfair trade practices or violations
of international trade agreements by our competitors. Such remedies are
necessary to enhance U.S. negotiators' leverage and credibility. They
will also help instill public confidence in the system, so that a
political mandate for future trade negotiations can develop. This will
be easier to accomplish if appropriate checks and balances are
effective.
The United States must find a basis for addressing
substantive labor and environmental concerns without holding U.S.
competitiveness hostage to special interest efforts to achieve
extraterritorial application of policy objectives that are not relevant
to international commerce.
U.S. Regional Interests And Objectives
Fighting foreign protectionism requires that the United States
adopt and pursue clear objectives. Our stake in the world economy and
in more open commerce is unmistakable. Reflecting this reality, the
United States has properly and wisely engaged in major trade-
liberalizing negotiations in at least three major trading areas:
In the Asia-Pacific region, the 18 member economies of the Asia-
Pacific Economic Cooperation (APEC) area represent over half of total
world production and almost half of global trade. Two-thirds of U.S.
bilateral trade last year was with APEC economies, whereas in 1980,
APEC accounted for less than half of U.S. trade. In November 1994,
leaders of APEC nations declared their commitment to achieving ``free
and open trade'' in the region by the year 2020 in the case of
developing countries and 2010 in the case of developed countries.
The European Union (EU) and the United States are each other's
single largest trading partner: in 1997 they traded goods worth ECU
277.000 million--around 20% of world trade in goods. Last September,
U.S. and EU negotiators agreed to a draft action plan on a
Transatlantic Economic Partnership (TEP) which envisions negotiations
and other forms of cooperation with the United States in many areas of
mutual concern. The EU and U.S. have by far the world's most important
bilateral investment relationship, and are each other's most important
source and destination for foreign direct investment (FDI). The EU is
the biggest investor in the U.S., accounting for 59% of total incoming
foreign direct investment stock by 1996. At the same time, over half of
the foreign direct investment stock in the EU originates in the United
States.
In the Western Hemisphere, regional trade grew 15% in 1997--twice
the world average. Two-thirds of the growth in U.S. exports has been in
the Western Hemisphere region. Recognizing this potential, nations
throughout the hemisphere are negotiating with each other and with
competitors from Europe and elsewhere to maximize their potential to
capitalize on this trend. In 1994, with U.S. leadership, most Western
Hemisphere nations agreed to pursue a Free Trade Area of the Americas
(FTAA) by 2005. But absent effective U.S. participation in FTAA and
other regional negotiations, other nations are likely to continue
gaining at our expense as the trade benefits they negotiate with each
other are not extended to U.S. products and services.
Negotiating Objectives
The United States must continue to promote its economic interests
regionally and worldwide through an aggressive negotiating agenda
worldwide that can be summarized as follows:
Faster elimination of tariff and nontariff restrictions on
trade in manufactured goods, agriculture and services,
Fewer investment restrictions,
Improved intellectual property protection,
More transparent and consistent regulations, standards and
government procurement policies and practices,
Modernized and simplified customs networks and procedures,
Facilitation of electronic commerce, and
Elimination of corrupt business practices.
Negotiating ``Rules Of Thumb''
While specific details will vary from region to region, certain
generic rules of thumb should apply to our trade-liberalizing efforts:
As noted above, negotiators must target specific barriers
and obtain remedies which will bring concrete benefits to business and
consumers.
Agreements in each area should be announced and
implemented ``as concluded'' and not be held hostage to completion of
all other agreements.
U.S. and other negotiators should cooperate closely
whenever possible to extend bilateral agreements to the multilateral
trading system.
As U.S. negotiators prepare for a third World Trade Organization
(WTO) ministerial meeting in Seattle in November and December, they
will need to focus on:
implementation of existing agreements and work plans as
formulated in the Uruguay Round Agreements.
negotiation of new agreements in areas not fully addressed
in the Uruguay Round Agreements, e.g., services, government
procurement, subsidies, agriculture, competition policy and
intellectual property.
criteria for integration of the least-developed
(especially poor) countries, taking into account special trade
treatment their economic circumstances may justify.
U.S. Congressional Objectives
In November 1998, the U.S. Chamber's Board of Directors promulgated
a detailed set of legislative recommendations that it believes would
bolster our ability to fight protectionism and otherwise achieve our
objectives in world markets. All of them are important for various
reasons. But Congress can assist our trade negotiators most directly in
our battle against protectionism by taking positive action to:
Renew fast-track trade negotiating authority along the lines of
legislation approved in 1997 by the House Ways and Means Committee
(H.R. 2621) or the Senate Finance Committee (S. 1269). Congressional
defeat of fast track in September 1998 will result primarily in the
continuing surrender of U.S. business and jobs to our competitors in
global markets. While those competitors are continuing to negotiate
mutually beneficial agreements unburdened by unilateral efforts to
impose a social agenda, U.S. trade negotiators are unable to
participate meaningfully without fast track. U.S. absence from the
negotiating tables will result in growing disadvantages for U.S. firms
and their workers arising from trade preferences obtained by our
competitors.
Renew China's ``normal trade relations'' (NTR) status by June 1999.
The United States provides such treatment (previously mis-labeled
``most-favored-nation'') to virtually every other trading nation.
Indeed, the ``normalcy'' of this relationship is tautological, as it is
characteristic of trade relations between virtually all trading
nations. Ending normal trade relations with China would result in a
several-fold increase in tariffs on Chinese products, almost certain
retaliation against U.S. products, and new market advantages for our
Asian and European competitors.
Make China's normal trade relations (NTR) status permanent. The
annual NTR (previously known as ``most-favored-nation'' or MFN) renewal
process itself casts a continuing pall over China-U.S. commercial
relations--without regard to the actual outcome. Historically, pending
China-U.S. deals were in effect held up or suspended for weeks before
each MFN vote until it could be confirmed that the vote would be
``positive.'' U.S. firms' reputations continue to suffer vis-a-vis
their competition. It is time to enact such legislation as may be
necessary to make permanent that status.
Ensure provision of sufficient financial resources for U.S. trade
development programs (e.g., Eximbank, OPIC, Trade and Development
Agency) that meet financing, insurance and other needs that are not
fulfilled by the U.S. private sector. Foreign subsidization of their
``national champions'' and other trade interests via preferential
financing and government ``guidance'' challenges U.S. interests as much
as traditional trade barriers and restrictions. In a perfect world
there would be no such subsidies. But in the real world, such subsidies
abound. Until meaningful, verifiable action to end such subsidies is
taken, we must be prepared to lead the playing field. Accordingly, the
U.S. should (1) provide sufficient funding to these entities to ensure
that they can carry out their missions, (2) ensure that these
institutions are structured and directed to meet their defined
objectives but not others, and (3) prevent implementation of policies
that might undermine or conflict with the trade development missions of
these programs.
Prospectively mandate the application of a series of ``cost-
benefit'' measurements and evaluations that must be considered in the
economic sanctions decision-making phase and before implementation of
such sanctions. How can we persuade our trading partners to open their
markets when we impose non-trade-related unilateral sanctions against
them? Such criteria should include: (a) will the sanctions work; (b)
what are the resultant economic costs to U.S. industry and agriculture;
(c) will the sanctions result in a serious backlash against other U.S.
humanitarian, security, and foreign policy objectives; and (d) have
other policy alternatives such as multilateral initiatives or diplomacy
been tried and failed? In the 105th Congress, H.R. 2708 (Hamilton et
al.) and S. 1413 (Lugar et al.), the ``Enhancement of Trade, Security,
and Human Rights through Sanctions Reform Act,'' were models for
legislation that would achieve these objectives. We expect similar
legislation to be re-introduced in this Congress very soon, if that has
not already happened.
Re-establish tariff benefits of the original Caribbean Basin
Initiative and provide Caribbean countries trade benefits similar to
those provided Mexico under NAFTA. Failure to provide those benefits--
such as proposed in the last Congress in H.R. 2644 (Crane et al.), the
``United States-Caribbean Trade Partnership Act''--will encourage new
competitive challenges from Far Eastern textile manufacturers, whose
products are subject to far less North American value-added, e.g.,
cutting, distribution and marketing, than those produced by Caribbean
manufacturers.
Enact long-term Generalized System of Preferences (GSP)
reauthorization legislation and strictly enforce GSP eligibility
criteria. GSP was first enacted in 1974 as a means to assist developing
countries grow through expanded trade as opposed to aid. In recent
years, the consensus for income-based preferential trade treatment has
given way to concerns over the competitive impact in the U.S. market of
such preferences, and GSP has been renewed only for short-term periods
and with lapses in its application that destabilize commercial
relationships that depend on the program. While such concerns are
legitimate, as long as GSP is an instrument of U.S. foreign economic
policy, the competitiveness of U.S. companies should not be undercut by
the lack of clarity and certainty that has already resulted from lapses
in the GSP program.