[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
FUTURE OF THE WORLD TRADE ORGANIZATION
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MARCH 30, 2000
__________
Serial 106-88
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
67-261 CC WASHINGTON : 2001
_______________________________________________________________________
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
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of March 20, 2000, announcing the hearing............... 2
WITNESSES
American Bar Association, Section of International Law and
Practice, Peter Lichtenbaum, Liaison to the WTO Secretariat,
and Partner, Steptoe and Johnson, LLP.......................... 57
Minnesota, State of Hon. Jesse Ventura, Governor................. 7
National Cattlemen's Beef Association, Charles P. Schroeder...... 45
U.S. Alliance for Trade Expansion, National Association of
Manufacturers, and Purafil, Inc., William Weiller.............. 39
U.S. Chamber of Commerce, and Leapfrog Smart Products, Inc., Dale
Grogan......................................................... 52
Yeutter, Hon. Clayton, Mogan & Hartson, LLP...................... 18
SUBMISSIONS FOR THE RECORD
American Forest & Paper Association, statement................... 68
American Iron and Steel Institute, Barry D. Solarz, letter and
attachment..................................................... 69
American Textile Manufacturers Institute, statement and
attachment..................................................... 75
Griswold, Daniel T., CATO Institute, statement and attachments... 79
Luggage and Leather Goods Manufacturers of America, Inc., New
York, NY, statement............................................ 90
Panda Energy International, Inc., Dallas, TX, Darol Lindloff,
statement...................................................... 91
Pharmaceutical Research and Manufacturers of America, statement.. 94
Semiconductor Industry Association, George Scalise, statement.... 99
U.S. Integrated Carbon Steel Producers, statement................ 104
U.S. Wheat Associates, Wheat Export Trade Education Committee,
Christopher Shaffer, and National Association of Wheat Growers,
Terry Detrick, joint letter.................................... 108
FUTURE OF THE WORLD TRADE ORGANIZATION
----------
THURSDAY, MARCH 30, 2000
House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to call, at 11:28 a.m., in room
1100, Longworth House Office Building, Honorable Bill Archer
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
March 20, 2000
FC-19
Archer Announces Hearing on the Future of the World Trade Organization
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing to
review future prospects for U.S. participation in the World Trade
Organization (WTO), particularly in light of the expected accession of
China and Taiwan to the WTO later this year. The hearing will take
place on Thursday, March 30, 2000, in the main Committee hearing room,
1100 Longworth House Office Building, beginning at 11:00 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Invited witnesses will include Minnesota Governor Jesse
Ventura. Also, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee or for inclusion in the printed record of the hearing.
BACKGROUND:
The Uruguay Round was the eighth round or series of multilateral
trade negotiations under the General Agreement on Tariffs and Trade
(GATT). These negotiations to expand trade, which date back to the
establishment of the GATT in 1948, were a response to the Great
Depression and the political upheaval and conflicts of the 1930s, which
deepened as a result of protectionist policies such as the Smoot-Hawley
Tariff. Work under the GATT system aimed at raising living standards
and promoting international economic growth through the opening of
world markets has spanned six decades.
The trade 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 trade round was to establish the WTO to administer the
GATT agreements and to settle disputes among WTO members.
Sections 124-125 of the Uruguay Round Agreements Act (URAA) (P.L.
103-465) require the President to submit a special report on U.S.
participation in the WTO every five years from the date the United
States first joined the WTO. Congress received the first of these five-
year reports on March 2, 2000. Included in the ``2000 Trade Policy
Agenda and 1999 Annual Report of the President's Trade Agreements
Program'' is the President's review of the WTO, including highlights
and accomplishments that took place during the last five years such as:
(1) expanded market access, (2) intellectual property rights
protection, (3) a sound and effective system to settle disputes, (4)
expansion of the rule of law, (5) historic agreements governing
financial services, basic telecommunications services, and information
technology, (6) progress on the so-called ``built-in'' agenda to
continue to liberalize agriculture and services, (7) progress on
negotiations on electronic commerce, (8) growing membership from 119
nations in 1995 to 135 in 1999, and (9) the anticipated accession of
China and Taiwan, two countries comprising over 21 percent of the
world's population.
Issues related to the future operation of the WTO include: moving
forward with the built-in agenda on agriculture and services, and
addressing new issues such as biotechnology, electronic commerce, trade
and labor, and trade and environmental protection.
H. J. Res. 90, a joint resolution which would withdraw approval of
the United States from the Agreement establishing the WTO, was
introduced March 6, 2000, by Rep. Ron Paul (R-TX) and others and will
be considered by the Committee on Ways and Means within 45 session days
pursuant to the requirements of sections 124-125. On March 8, 2000, the
President submitted legislation to amend the so-called ``Jackson-
Vanik'' amendment to the Trade Act of 1974 to grant China Permanent
Normal Trade Relations treatment, so that U.S. firms, workers, and
farmers can take advantage of the trade concessions associated with
China's agreement to join the WTO.
In announcing the hearing, Chairman Archer stated: ``Although the
recent breakdown at the WTO meeting in Seattle was a missed opportunity
to kick-off a new round of trade talks to further reduce barriers to
U.S. exports, there have never been more compelling reasons for the
United States to continue to have a seat at the table of international
trade. For decades, the WTO, and the GATT system before it, have stood
guard over the integrity of trade rules, allowing American-made goods
and services to compete in virtually every corner of the world and
leading to the prosperity we enjoy today. As China prepares to enter
the WTO, American farmers, workers and businesses are once again
prepared to compete and win in the international marketplace. We must
not miss this historic opportunity.''
FOCUS OF THE HEARING:
The focus of the hearing will be to examine: (1) overall results of
U.S. membership in the WTO and the GATT, (2) whether future
participation of the United States in the WTO and the multilateral
trading system can be expected to benefit Americans, and (3) prospects
for increased economic opportunities for U.S. farmers and workers
associated with Chinese membership in the WTO and the normalization of
trade relations between the United States and China.
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, March 23, 2000. 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 Committee 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 Committee staff at (202)
225-1721.
In view of the limited time available to hear witnesses, the
Committee 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 or MS Word format,
of their prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Committee office, room 1102 Longworth
House Office Building, no later than Tuesday, March 28, 2000. 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 or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Thursday,
April 13, 2000, 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 Committee office, room 1102 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 or
MS Word 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 Archer. Good morning. Today the Committee
continues its review of what international trade means in the
everyday lives of farmers, workers, and businesses of this
country. The WTO manages a system of world trade rules.
Established in 1994, but built on 50 years of experience
under the GATT agreements, the WTO structure of fair trade
rules was shaped by ten American presidents working in
bipartisan agreement with Congress. Put simply, these are our
rules and our trading partners must follow them.
But let us pause for a moment and try to imagine what it
would be like if the U.S. was no longer a member of the World
Trade Organization. A U.S. without trade would be a nation with
12 million less jobs and millions more displaced or laid off.
Small- and medium-sized business, the engines of our economy
that generate 97 percent of all U.S.-based exports would be
crippled if America did not compete in the global marketplace.
One out of every 3 acres farmed would be lost. Families would
be hit with even higher taxes, already a post-war high, and
lose as much as $3,000 each year in purchasing power.
As I said 2 weeks ago, the President should schedule very
soon a national television address about this issue. He did so
on Haiti, Bosnia, Iraq, and Kosovo. Clearly, our relationship
with China is equally valuable to America. We have checked with
the national networks and they tell us they have never turned
down a request by the President to speak to the American
people. So I hope the President will reconsider this. He can do
this because, without his active leadership, our historic
opportunity may be lost and the American people will suffer.
But today, we are going to do our bit and we have a
national spokesman who is with us who will speak on this issue.
And for his introduction, I yield to my colleague and friend
from Minnesota, Congressman Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman. And thank your for
your strong and important leadership on these trade issues. Mr.
Chairman, and Members of the Committee, it is a real privilege
to introduce my good friend of 22 years, the Governor of the
great State of Minnesota, to the Committee today.
I used to say in my younger years that Hubert Humphrey was
the greatest salesman Minnesota has ever had. Well, at the
time, that was right. But our current Governor has replaced the
late Vice President Humphrey as Minnesota's top salesman. There
is no better person to give the Minnesota perspective on
international trade than our top salesman, Governor Ventura.
And I am very pleased to have Governor Ventura as a partner in
this tripartisan effort to shape our Nation's trade policies.
Mr. Chairman, in Minnesota, bipartisan is no longer part of
the vocabulary. It is tripartisan. Governor Ventura tells our
story so well because he brings common sense for middle America
to this highly charged and polarized issue. As the Governor
will explain today, Minnesota has everything to gain from
China's accession into the WTO. Minnesota also has a lot to
lose if Congress does not capitalize on this historic
opportunity before us.
Thank you, again, Mr. Chairman, for holding this hearing.
Thank you, Governor Ventura, for coming here to tell us the
simple truth about the importance of free and open trade to
Minnesota and to our Nation. And I also want to welcome our
Commissioner of Agriculture, Commissioner Hugoson, another
strong supporter of free trade; Mr. Tom Foley, who is director
of our Washington office; and John Woodley, the Governor's
Director of Communications. Thank you also for being here
today.
Chairman Archer. Governor, I apologize for keeping you
waiting, but we had unexpected votes on the floor of the House.
And it is the tradition of this Committee, I must keep you
waiting for at least 1 or 2 more minutes, because I am going to
recognize the minority and Mr. Levin for any opening statement
that he would like to make.
Mr. Levin. Thank you, Mr. Chairman. I would like to welcome
all of our witnesses and thank you all for testifying today.
And I am particularly pleased to welcome you, Governor----
Governor Ventura. Thank you.
Mr. Levin [continuing.]--To this Committee. On many issues,
you have demonstrated both candor and activism. We need both
straight talk and activism in our relationship with China.
Straight talk tells us that China will join the WTO with or
without our consent. Straight talk tells us that if we do not
grant China permanent NTR, we will not gain many of the
economic benefits negotiated in the agreement, while our
competitors will get all of them.
Straight talk also tells us that China is an enormous
country where its markets are still largely under state control
and the rule of law is in the earliest stages of development.
Straight talk also tells us that we must find concrete ways to
press China on human rights, labor rights, and the environment;
that the annual NTR vote has not been effective in such efforts
and that we need instrumentalities to do better.
If we are activists, I believe that we can find a way to
accomplish both. Gain the benefits of the agreement and keep
the heat on China on key issues. If we are activists, we, on
the one hand, will reject the notion that this is a simple win/
win proposition. That all of the benefits flow one way and that
there will be no downside to an intensified economic
relationship with China. And on the other, we will reject the
notion that we should simply turn down PNTR and rely on
existing bilateral agreements.
An activist approach means finding multiple new points of
pressure. As President Clinton said in the State of the Union--
and I quote, ``We need to know that we did everything possible
to maximize the chance that China will choose the right
future.''
To do so, we need a plan of action, and I have suggested
some specific parts of that. To enact into United States law
the vital China-specific antisurge provision negotiated last
November. To set up mechanisms to constantly monitor and
enforce China's commitments. To press China on human rights and
labor rights through a permanent, fully staffed congressional
executive commission. And to intensify efforts to establish a
working group on labor and press for internal reforms within
the WTO.
My visits to China, including this past January, have
convinced me that change there is irreversible, but its
direction is not inevitable. No single factor will determine
that direction. Increased international trade and communication
can be positive, as you indicate in your testimony, Governor,
but they need to be buttressed by other internal and external
forces.
Our actions concerning trade with China will have major
significance for America, for the world, into the future. A
recent World Bank study projects that China could be the second
largest national economy in the world in just 20 years. If we
are activists, we will shape our relationship with China to
maximize the economic benefits and to continue pressure on
China to implement its agreements and to improve dramatically
in the areas of human rights, labor standards, and the
environment.
We should attempt to do nothing less and I am encouraged
there now appears to be movement in that direction. Again,
Governor, welcome, on behalf of all of us.
Governor Ventura. Thank you.
Chairman Archer. Governor, we are delighted to have you
with us today. I watched you on Sunday morning and that
enhanced my expectations for your presentation today. So
welcome and you may proceed.
STATEMENT OF HON. JESSE VENTURA, GOVERNOR OF MINNESOTA
Governor Ventura. Thank you, Mr. Chairman. Congressman
Ramstad, thank you, and Members of the Committee, thank you for
the opportunity to be here today to testify in favor of China's
participation in the WTO and normal trading relations with
China. It is a sincere honor to represent the State of
Minnesota before the Ways and Means Committee.
That said, let me start by declaring what I am not. I am no
trade expert. I don't speak Chinese. I have never negotiated an
international trade deal. They didn't offer international trade
relations at Roosevelt High School in Minneapolis when I
graduated in 1969. What I do bring to you today is a dose of
common sense.
China's participation in the WTO and a permanent normal
trade relations between China and the United States is the
number one marketing opportunity of the 21st century, and it is
being handed to us on a silver platter.
To join the WTO, China has made one-way concessions across-
the-board in agriculture, manufactured goods, services,
technology, and telecommunications. I like the idea of all
countries playing by the same rules, and I like the idea of 134
countries joining us to shake one worldwide finger at China if
they break international trade deals. That is essentially what
the WTO will allow.
There is a Chinese saying that says one hand can't block
the sun. Not my hand. Not the hand of Congress. Not the
President's hand. China is going to trade in the international
marketplace with or without our stamp of approval. We alone
cannot prevent China from entering the WTO and trading with
everybody else.
Closed doors don't work. We have tried that. For 45 years
we have had an embargo to prove that we don't like how Cuba
does business. Well, the joke is on us. Castro has outlasted
nine, going on ten, of our Presidents. While embroiling
ourselves in controversies over little children, communism
remains. Markets are shut to our agriculture products, and we
haven't impacted improvements in their human rights. Let's not
let that happen here.
I am here to tell you who cares about this China issue in
Minnesota. Farmers care. Business, both big and small, cares.
And, finally, a lot of ordinary people with common sense care.
Farmers care because, as Minnesota's agriculture leaders
recently told me, this agreement is the single most important
step we can take to improve market opportunities for
agriculture. And the farm economy could use a boost right now.
Farmers want to be self-sufficient. They don't want to rely
on government subsidies. They want the right to market their
products and get a fair price and profit. Free trade, more than
anything else, can do that. It gives them that chance. Being
handcuffed to government subsidies is prison, not freedom.
Second, business cares. I talked to the CEO of a Minnesota
company called Pemstar. I know full well that this town is full
of people who are glued to these. Well, Pemstar makes these
panels. Now, every time you make a call, you can think of
Minnesota.
Pemstar recently hired 15 to 20 new workers in Minnesota
just to support their growing operation in China. This deal is
about forging a relationship that spans the Pacific for the
good of our economy. It is about individual companies in
Minnesota and around the Nation who want to export because
experience tells us that exports make for healthier companies.
Exporting companies--they grow jobs 20 percent faster than
those that don't export. They pay higher wages and provide more
benefits than those that don't export. And they tend to be more
productive because they are leaner, more innovative, and are
more technologically advanced. Two hundred and twenty-eight
Minnesota companies exported to China in 1997. Over half of
these firms have fewer than 500 employees.
Finally, why do everyday Americans care about this bold
move? Because, simply, it makes common sense. Don't sell our
citizens short. They know that the world is a small place in
this high-tech world. And they basically want a better life for
their children. They want their kids to have access to better
jobs than they have, and they want to see our economy continue
to grow.
Improvements in China's economy also makes them a more
stable part of the international community and opens their
minds to our free market ideals and democratic values. we don't
have to approve of their human rights to help improve them.
Opening their doors to our business practices, our culture, and
our democratic ideas, will open their process. And when China's
egg industry can't feed it's people, isn't simple food on the
table human rights?
Finally, why should I, as Governor of Minnesota, care about
this trade agreement? Because Minnesota, ladies and gentlemen,
is going global. And I don't want protectionist feelings in
Congress to stand in the way of progress for Minnesota.
I can't speak for the other States, but I can tell you that
Minnesota is already a world competitor. Among nations, we
would rank 28th in economic output if we seceded from the
Union. We have the guts to compete on the world stage.
If you don't forge ahead to open China's markets, rest
assured the window of opportunity will be lost. The Europeans
would like nothing better than for the U.S. Congress to
continue fussing over this agreement and I urge you not to let
that happen. We don't have time to sit here and watch the
world's partners go on trading without us. I have traveled the
world in my prior careers, and my trip to Japan, since the
election, will be followed by a trip to China.
I have watched the world become smaller over the years and
I came to this job as Governor of Minnesota determined to leave
my State positioned to seize the day. Please help me by saying
yes to China. This is the biggest economic decision of the 21st
century. Please don't blow it. Thank you.
[The prepared statement follows:]
Statement of the Hon. Jesse Ventura, Governor of Minnesota
Congressman Ramstad, Mr. Chairman and Members of the
Committee, thank you for the opportunity to be here today to
testify in favor of China's participation in the WTO and
permanent normal trading relations with China. It is a sincere
honor to represent the state of Minnesota before the Ways and
Means Committee.
That said, let me start by declaring what I am not.
I'm no trade expert, I don't speak Chinese and I've never
negotiated an international trade deal. They didn't offer
international trade relations at Roosevelt High School in
Minneapolis.
What I do bring to you today is a dose of common sense.
China's participation in the WTO and permanent normal trade
relations between China and the United States is the number one
marketing opportunity of the 21st Century, and it's being
handed to us on a silver platter.
To join the WTO, China has made one-way concessions across
the board in agriculture, manufactured goods, services,
technology and telecommunications. I like the idea of all
countries playing by the same rules, and I like the idea of 134
countries joining us to shake one world-wide finger at China if
they break international trade deals. That's essentially what
the WTO will allow.
There is a Chinese saying that says ``One hand can't block
the sun.'' Not my hand. Not the hand of Congress. Not the
President's hand. China is going to trade in the international
marketplace with or without our stamp of approval. We alone
cannot prevent China from entering the WTO and trading with
everybody else.
If Congress votes down this agreement, China will still
enter the WTO, but won't have to live by the rules we've
negotiated. Obviously, this would put us at a disadvantage and
would cause our U.S. companies to be treated as second class
citizens.
Closed doors don't work. We've tried that. For 45 years
we've had an embargo to prove that we don't like how Cuba does
business. Well the joke's on us. Castro has outlasted nine
going on 10 presidents. While embroiling ourselves in
controversies over little children, communism remains.
Markets are shut to our agriculture products, and we
haven't impacted improvements in human rights.
Let's not let that happen here. Enough about Cuba--that's
for another day.
I'm here to tell you who cares about this China issue in
Minnesota.
Farmers care. Business--both big and small--care. And, finally,
a lot of ordinary people with common sense care.
Farmers care, because as Minnesota's agriculture leaders
told me, this agreement is the single most important step we
can take to improve market opportunities for agriculture. And
the farm economy could use a boost right now.
Farmers want to be self-sufficient. They don't want to rely
on government subsidies. They want the right to market their
products and get a fair price and profit. Free trade, more than
anything else we can do, gives them that chance.
Producers are also interested in PNTR for China and China's
participation in the WTO because they are tired of being the
pawn in the game of international relations. Time after time,
U.S. foreign policy negotiates trade deals that are often on
the backs of America's farmers. Such and such a country does
something wrong, so our wheat or soybean or corn or livestock
producers can't export there. This gets old. Here's an
opportunity to right those wrongs of the past and do something
positive for American agriculture trade.
Let me tell you more about Minnesota farmers and their
common sense thinking on this issue:
The U.S. Department of Agriculture (USDA) projects that in
the next century, Asia will account for 75% of the growth in
U.S. farm exports, 50% of this growth will be to China. China
has 7 percent of the world's arable land to support 20% of the
world's population. They need our food.
Nathan from the Corn Growers--sitting right here in the
front row--told me that USDA projects China to be a net
exporter of corn this year. Their high export subsidies allow
them to offer cheap corn on the international market. This
agreement will change that. It will allow the U.S. to export
177 million bushels of corn in the first year and China will
have to drop export subsidies. Not only will our corn exports
to China increase, but U.S. corn will be very competitive in
markets that have been buying subsidized Chinese corn. This
means about $3 billion to our corn producers. That's not pocket
change.
Our pork producers think this is a pretty good deal, too.
Chinese people consume far more pork than any other country,
but right now its markets are practically closed. Minnesota
pork is a highly competitive product, coveted around the world.
When China joins the WTO, it will lower its tariffs on pork
from 20 to 12%, with no quantity limits.
Minnesota is the nation's 3rd largest producer of soybeans,
and China is the world's largest growth market for soybeans.
According to the Minnesota Soybean Growers Association, China's
1.3 billion people have a per capita consumption of only 4.75
lbs. of soybean oil annually. In Taiwan, the average per capita
consumption is 47 lbs. If China's consumption were to grow to
Taiwan's level, it would need almost 6.8 million metric tons
more. That's equivalent to the oil in almost 105 million metric
tons (3.86 billion bushels) of soybeans. That's 46% greater
than the entire U.S. soybean crop in 1999.
And, the Chinese like to drink beer, and that's a good
thing for our barley growers. Under this agreement the 30%
tariff on barley will decrease to 10%. The U.S. Grains Council
forecasts Chinese imports of malting barley will double to more
than 91 million bushels in this decade. As the nation's 5th
largest producer of barley, this market is critical to
Minnesota.
And have you ever heard of the Chicken Council? Minnesota
is the number one turkey producing state in the country and
China is the United States' largest export market for poultry.
The Chicken Council and the Turkey Growers think that China
could easily become a $1 billion market in a few years, if this
agreement comes to fruition. Right now, poultry must go through
Hong Kong. After PNTR, direct exports to China will be allowed.
We grow 180,000 birds per day. Well, Minnesota's producers see
the benefits of opening a market to one point two billion
people who eat their product.
There have also been recent negotiations to open the market
for fertilizer and I urge the negotiators to resolve this
fertilizer issue now, so that Minnesota fertilizer companies
can compete on an open, level playing field in the Chinese
market.
There is a multiplier effect for agriculture. Supply and
demand drives the market. China wants our poultry. We increase
production of poultry, that in turn increases the demand for
corn and soybeans to feed those birds. It also increases the
processing needs here on American soil.
In summary, agriculture tariffs will be cut in half.
Second--business cares.
I talked to the CEO of a Minnesota company called Pemstar.
I know full well that this town is full of people who are glued
to these phones. Well, Pemstar makes these. Now every time you
make a call, you can think of Minnesota.
Pemstar recently hired 15 to 20 new workers in Minnesota
just to support their growing operation in China.
They want to see this agreement happen because under WTO,
China will totally get rid of its tariffs on many computer-
related products.
This deal is about forging a relationship that spans the
Pacific for the good of our economy.
It's about individual companies in Minnesota and around the
nation who want to export because experience tells us that
exports make for healthier companies.
Firms that export experience 20% faster employment growth
than those that don't. They pay 13-18% higher wages and
salaries and they provide 11% higher benefits than companies
that don't export. These firms are 30-50% more productive
because they are leaner and more competitive, more innovative,
and more technologically advanced.
Two hundred twenty-eight (228) Minnesota companies exported
to China in 1997. Over half of these firms have less than 500
employees. We're talking about small and medium-sized companies
here, not just big business.
Finally, why do everyday Americans care about this bold
move?
Because, simply, it makes common sense.
Don't sell our citizens short. They know that the world is
a small place in this high tech world.
Ordinary Americans probably don't pay a lot of attention to
what happens in this Committee, or to what happens at the State
Capitol in St. Paul.
Most normal people are too busy working, paying their
bills, checking up on who their kids are talking to over the
Internet and watching the NCAA basketball tournament to care
about PNTR with China. But when they stop to think about it,
and I challenge the American people to stop and think about it,
I believe that they'd say ``vote yes.''
Why? Because people want a better life for their children.
They want their kids to have access to better jobs than they
have, and they want to see our economy continue to grow.
Improvements in China's economy also makes China a more
stable part of the international community and opens their
minds to our free market ideals and democratic values.
And to those who say this agreement is a problem for human
rights, I ask you, whose human rights are you talking about? I
met with a group of Chinese students who are studying at the
University of Minnesota. Currently, our very own University of
Minnesota has the largest population of Chinese students and
scholars in the United States, numbering 1200. These students
estimate that ninety-five percent of Chinese people back home
want to see this happen.
Why? Because they want the ability to have access to our
food, our technology, and our culture. China experienced one of
the biggest famines in this century. More than 20 million
people died in three years of famine. They remember what it was
like to have their market closed to outside sources of food.
We don't have to APPROVE of their human rights to help
IMPROVE them. Opening their doors to our business practices,
our culture, our democratic ideas will open their process.
The old way of dealing with China hasn't worked. Despite
your yearly review, there are still human rights abuses in
China. I think we can all agree that structural changes within
China will be necessary to change China for the better in the
long term. Year-to-year debates on how they're doing won't give
us the structural changes that are needed inside China. If we
slap their hand by putting restrictions on this agreement,
we'll hurt China but we won't injure them. We might embarrass
them, but we won't empower them to change.
The Chinese students at the University of Minnesota also
told me their concerns. They know that this change to a free-
market economy will not be easy. Reforms will be painful. But
the Chinese people are willing to hurt in the short term
because they know that this will benefit them greatly in the
long term. The true judgement of this agreement will come in 10
or 20 years.
Finally, why should I, as Governor of Minnesota, care about
this trade agreement?
'Cause Minnesota is going global. And I don't want
protectionist feelings in Congress to stand in the way of
progress for Minnesota.
I can't speak for other states, but I can tell you that
Minnesota is already a world competitor. Among nations, we
would rank 28th in economic output in the world if we seceded
from the Union. We have the guts and the confidence to compete
on the world stage.
I urge you, Mr. Chairman and Members of the Committee, to
take into consideration the opinions of the vast majority of
middle Americans on this topic. The far right of the right and
the far left of the left aren't going to be convinced. Don't
waste your time.
If you don't forge ahead to open China's markets, rest
assured the window of opportunity will be lost. The Europeans
would like nothing better than for the U.S. Congress to
continue fussing over this agreement. I urge you not to let
that happen. Let America be the first in line to reap the
benefits of this trade agreement. It's the most important step
you can take to boost our economy in the new millenium.
We don't have time to sit here and watch the world's
partners go on trading without us. I've traveled the world in
my prior life, and my trip to Japan since the election will be
followed by a trip to China.
I've watched the world become smaller over the years, and I
came to this job as Governor of Minnesota determined to leave
my state positioned to seize the day.
Please help me by saying yes to China.
Thank you.
Chairman Archer. Governor, thank you. You said on
television Sunday that you would be at your best. You have done
better than your best. You just hit a home run. Thank you so
very much for giving us that common sense presentation. Over
the years, we, on the Ways and Means Committee have believed
that trade policy is a bipartisan activity and you have, today,
made a tripartisan activity.
Governor Ventura. Thank you.
Chairman Archer. And I thank you for that. I may keep my
questioning as short as possible because I know you have to
leave at 12:15 in order to catch a plane and we delayed--we
didn't delay, but the votes on the floor of the House delayed
this hearing.
From your testimony, I know you agree that erecting
protectionist walls around the United States will not keep our
firms, workers, and agriculture lean and tough enough to
compete for the 96 percent of the world's market that is
outside of the United States of America. And you have even
given us examples in Minnesota, and I am not going to ask you
to give us more, and if I had more time, I would. But I do want
to ask you--you said on television that you are a member of two
unions or you were a member of two unions, I believe.
Governor Ventura. Still am.
Chairman Archer. And labor unions are a key part of your
constituency in Minnesota. And, yet, we find some of the
greatest opposition to the presentation that you have made
today coming from the labor unions. Is it possible that we
might see some shift, in your opinion, of the position of
unions on trade issues?
Governor Ventura. In my opinion, I certainly would hope
they would shift their position. I think this is something
that, Mr. Chairman, that exporting creates jobs. I think if you
will think back a couple of years ago, when I belonged to a
different party that I recently am no longer a member of, I
remember the leader of the party saying that we would hear a
giant sucking sound of jobs leaving the United States of
America.
Well, I can tell you right now that Minnesota has the
lowest unemployment in the history of the State and the lowest
unemployment in the history of America, really, right now. We
are in a situation in Minnesota where we have 44,000 jobs
currently and don't have the people available to fill them. So
we are in a unique situation and I don't see one bit how jobs
are going to leave--union jobs are going to leave America based
on a trade relationship with China. It is simply not going to
happen and the statistics bear it out.
Chairman Archer. Thank you, Governor.
Mr. Rangel.
Mr. Rangel. Let me join the Chairman, Governor, in
welcoming you here, and especially for your straightforward,
candid testimony. In the House and Senate, we have the most
fierce anticommunist fighters that the world has ever seen.
And, yet, in recent months and years, we have found that these
fighters have now come to believe that the best thing that you
can do to bring down the--break down the walls of communism is
to expand trade and to have cultural and economic exchange.
And, yet, while they feel very comfortable in doing this with a
billion Red Chinese Communists, they find it very awkward to do
business with President Castro in Cuba. What are your thoughts
on that?
Governor Ventura. Congressman Rangel, I agree with you. I
think that--in fact, I--at the National Governors' Association
meetings that we had with President Clinton, when it was my
turn on the floor, I presented the same argument. I said, Mr.
President, you know I support world trade. You know I support
WTO. You know I support including China. But I said, I sense a
bit of hypocrisy here that I need cleared up. I don't
understand how China is different than Cuba. And I, in my usual
manner of speaking, I also made it clear that I am very tired
of feeling like a criminal every time I want a Cuban cigar. And
I do like one on occasion.
I--to me, it is a failed policy, Congressman. It is--as I
said in my statement, Castro is now moving up to our tenth
president. We thought that by doing this we would somehow drive
him out of office in Cuba. I think it has had the opposite
effect. I think it has solidified his position in Cuba. I think
it has made the Cuban people more solidly behind him because of
the fact that we take this posture.
And I would, likewise, agree that both in opening up trade
with China, as well as Cuba, it would certainly help human
rights on both sides because you can't--ultimately I believe
Chinese human rights must be solved by the Chinese people, not
by the United States of America's people. And I feel the same
way with Cuba. Cuban human rights will likewise be solved by
the Cuban people, not the United States of America. We can show
them by example. We can have our businesses there conducting
our business at the high level that our industry does it, and
it will ring to them. It will--when they go home from work at
the end of the day, they will talk. And ultimately, I think--I
believe sincerely this trade agreement with China is so
powerful that we will--we could well see to a great extent, the
fall of communism in China, not quickly, but over 15, 20, 25
years from now.
Mr. Rangel. Thank you very much. I would like to publicly
thank the Chairman. As you know, the House and Senate has
passed the African Growth and Opportunity Trade Bill and it
seemed as though it was in limbo and conference. And I just
would like to report that Chairman Archer has been very
instrumental in trying to break down the log jam and we hope
that Africa will join the family of continents and nations for
really free trade. Thank you, and thank you, Mr. Chairman.
Chairman Archer. And that----
Governor Ventura. Mr. Chair, could I make another
statement.
Chairman Archer. Certainly.
Governor Ventura. Thank you. I would also like to
acknowledge to my right, the Hmong soldiers that we have here
today that I had a small part in being able to stand up on
their behalf. And, as I understand it, there--the bill passed
and that they will be getting American citizenship and I would
personally like to welcome them as citizens to the United
States of America.
Chairman Archer. Thank you, Governor.
Mr. Thomas.
Mr. Thomas. Thank you, Mr. Chairman. Also, I would like to
compliment you on your speech, Governor. I would compliment you
by saying I thought it was a body slam.
Governor Ventura. We all have our sordid past.
Mr. Thomas. I also compliment you on the pride that you
take in the position that Minnesota has. And I am also pleased
to say, as a Californian, that the State of California is
coming around economically as well. If California were to
secede from the Union, when the world had a big seven
conference, California would be one of them. And so, in that
sense, all of us are somewhat bewildered by those individuals
who still strongly believe that the solution for America's
wealth is to build a wall around America.
You indicated that you were not, one of those people. There
is something that you are that many of us have not been, and
you alluded to your former party membership. You had an
opportunity to interact with a number of these people who seem
to be the focal point for opposition to America's continued
involvement in world trade.
Could you just give us a little bit of a feel for what you
believe to be their rationale? Because some of these folks, so
emotionally, almost viscerally, oppose our involvement with
peoples of other countries, you would tend to think it might be
xenophobia. But when I have talked to them, they really do
believe they have an economic model that would benefit America
if we cut off world trade. Could you give us an idea of what
you believe their motives are and the relative value of their
motive?
Governor Ventura. Well, Mr. Thomas, I will say this, their
motives have puzzled me also. And that was probably one of the
major reasons I chose to leave that particular party. Because I
don't get it why they would, at all, think that isolationism
and cutting us off from trading partners throughout the world
is beneficial for our country. It is not. It, plain and simple,
is not. And I think it has been proven already that it is not.
I think what you have here is, it is a group of strange
bedfellows in a way. You have the ultra-left left now uniting
with the ultra-right right and becoming bedfellows over a trade
and economic issue. I think that what I represent and what my
beliefs and--of my former alliance with the Reform Party is a
very much centrist common sense movement of people in the
middle, people who are not far left; they are not far right,
but they take the best ideas from the right and the left and
combine them into common sense. And I think and hope that is
what I represent.
And I certainly would think and hope that would be what a
third-party movement would want to represent. But they don't
seem to want to do that. I think they have become a playground
for very extreme positions now and a way to foster those
positions and get them into the mainstream limelight, which I
don't believe is what the third-party movement is about. Thank
you.
Chairman Archer. Mr. Shaw.
Mr. Shaw. Thank you, Mr. Chairman. And, Governor, it is,
indeed, a pleasure. I have heard you refer to yourself as Jesse
the Mind. And I think that you have certainly exhibited that.
They may not have taught you international relations in high
school, but somewhere along the line you picked up a lot of
common sense. I am not going to belabor your--the hearing by
questions, because I think you have--your statement was so
concise and so complete and I was in such total agreement with
what you said, I will leave it right there and just
congratulate you on a very fine statement before this
Committee.
The strongest antidote for Communism is free trade. And----
Governor Ventura. Yes.
Mr. Shaw [continuing]. It is the only way that these people
are going to be--China has made great strides because people
now can move from one part of the country to another and find a
job. They are not totally dependent upon the government. They
still have horrible problems. And I think Sandy, or someone,
mentioned in their opening statement that they are really at a
embryo stage, really, in developing business law. In some
cases, they really have done some bad things with regard to
trade and with regard to protecting their government-owned
businesses and lawsuits after judgments. And they have got a
long ways to go. But to shut them off is certainly not the
answer and you certainly picked up on that very well. And a
pleasure to have you before this Committee. I yield back.
Governor Ventura. Thank you, Mr. Shaw. I would like to
respond, if I may, to something. The University of Minnesota
has more Chinese students than any university in the United
States. And I met with 40 to 50 Chinese students before I came
out here. And they told me very clearly that this is very scary
to China also and that China initially is going to suffer. They
are going to feel some pain from opening their markets to the
world. But they have an insight and a belief that in the long
run, it will be good not only for the world, but good for their
own country of China.
And these students were very sincere. I enjoyed very much
meeting with them. And, to be honest, I had never been in a
room with as many Ph.D.s in my life as what was sitting at the
table around me that day. But they made it very clear that--and
as--and I want to repeat, too, they told me that Chinese
farmers today cannot feed their country. There simply is not
enough land to do it. And they were the ones that looked at me
and said, isn't it human rights to simply have food on the
table for every human being? So they need us. This is a good
situation that I think, as I stated, this will be the biggest
economic decision that we make in this century and I am humbled
to be a part of it in any way, shape, or form.
Chairman Archer. Thank you.
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman. Governor, welcome and
thank you for your testimony.
Governor Ventura. Thank you.
Mr. Coyne. I was just wondering, does it concern you at all
the wage disparity that exists between unionized workers in the
United States and what the average laborer in China makes?
Governor Ventura. Certainly it bothers me somewhat. But,
again, as I talked about job situation in Minnesota right now,
we have jobs we can't fill, 44,000 of them in the Twin City
Metro area right now. We have people that will not do those
labor-type work at those type of wages and, yet, they are
important jobs that need to be done. I think, if I could--my
friend from California will tell you that California, above
all, has labor jobs that, if there wasn't this available work
force, California would grind to a halt because many
Californians won't do that particular job.
And my view is, in today, in light of statistics, that we
don't have the people to fill the jobs, I don't have a worry
about that----
Mr. Coyne. Yes.
Governor Ventura [continuing.] At this point in time.
Mr. Coyne. You alluded, in your testimony, to the fact that
there would be American corporations going to China and you
felt that that was a positive thing. Does it concern you at all
that some of those corporations may be doing that to take
advantage of the low-wage workers that are in China?
Governor Ventura. Well, if it's an American corporation,
then it is our job to look after these workers. Isn't it?
Mr. Coyne. By putting them into a country that pays low
wage, subsistence wages?
Governor Ventura. Well, is it tapping a work force that can
reap the benefits of our presence there.
Mr. Coyne. You mean the Chinese workers.
Governor Ventura. Sure.
Mr. Coyne. Oh. Thank you.
Governor Ventura. Thank you.
Chairman Archer. Mrs. Johnson.
Mrs. Johnson of Connecticut. Thank you for your testimony,
Governor. You do represent a state in which there are very
large unionized work forces. They are generally associated with
the products that are going abroad, that are exported. I know
you meet with them. When you talk with them, I want to know
what your conversation has been. Have you been able to get any
understanding among people on the ground running of not just
the degree to which new jobs depend on exports, but also how
their jobs can be eliminated if your companies can't compete?
Because if our big companies that are now at the top of the
competitor list don't get into the Chinese market and their
European counterparts do, it won't be many years before the
greater profitability of the European countries will give them
more R&D money to create the next revolution in product. And,
finally, we will be the second-rate producers, not the top-rate
producers, and that will eliminate the very jobs they are
trying to protect.
You know, and I just wonder, when you sit and talk with
the--because I know you talk to everybody--when you sit and
talk with the AFL-CIO leadership and with the workers--do you
ever get down with the work force? You know, and you give them
some of the common sense reality stuff, what--do they hear it?
The line guys hear it, not the top leadership.
Governor Ventura. Let me just say that by opening up China
to our businesses, we are opening them also up to our business
practices, our democratic ideas, and our values toward workers.
And that is a win for the world. And I agree wholeheartedly
with you that this is a dangerous situation that we are going
to lead ourself into, and it is almost they are cutting off
their nose to spite their face with the way they think.
As far as my dealings with unions, maybe I will give you a
little history that myself and the Lieutenant Governor, we are
the only two vested union members to run for Governor and
Lieutenant Governor in Minnesota and, yet, we couldn't get one
union endorsement. And let me just say though, that is not a
slight upon union workers because we won the rank and file.
Mrs. Johnson of Connecticut. Right.
Governor Ventura. The problem was with leadership who
wouldn't endorse us. Even though their rank and file voted, we
won rank and file votes. So my view is, I take my message--I
bypass the union leadership usually and take my message
directly to the people and to the workers.
Mrs. Johnson of Connecticut. Yes. Well, I have found the
same thing. When you talk to people one-on-one, they understand
perfectly. And I just hope that you would try to get in as many
work places as you can in the next month or two to get those
people to really write letters and understand that this is
America's future--economic strength we are talking about here.
Thanks so much for your testimony.
Governor Ventura. Thank you very much.
Chairman Archer. Mr. Ramstad.
Mr. Ramstad. Thank you, Governor, for telling it like it is
on trade. Your testimony was almost as good as watching KG get
a triple double. We Minnesota Timberwolves' fans understand
what that means. Let me just ask you a question, Governor. You
are an athlete and a coach and, to carry this metaphor one step
further, you know how important it is in sports to ensure that
everyone plays by the rules. And today you said you like the
idea of all countries playing by the same rules.
Just, if you would, please, expand on this analogy--why you
believe it is essential for countries and companies to compete
under this same set of rules, under an internationally
recognized, mutually agreed-to framework.
Governor Ventura. Well, Congressman, thank you. I think it
is as simple as--simplified into a sports game. If one team has
a different set of rules than another, there is an unfair
advantage. It is that clear and simple. And by us not trading
with China, they certainly are going to trade with every other
country throughout the world and we will be left out of the
process on it. And I think that it--with a united front of all
the countries of the world working with China, it will be a
much more positive impact on the country of China to play
within those rules.
As I said in my statement, with just our country shaking a
finger at them, they may not pay much mind of that. But if
there are 134 countries, along with us, shaking a finger at
them, they will pay attention to that, I believe. Because then
it is their economics and their country that is on the line at
that point, rather than ours. And so my answer would quite
simply be, it is--you can't play sports with two sets of rules
and I don't believe you can do business with two sets of rules.
And you don't have two separate leagues and expect them to play
equal. You--they have to be under one set of rules in one
league for it to be fair competition.
Mr. Ramstad. Well, thank you again, Governor.
Governor Ventura. Thank you.
Mr. Ramstad. I certainly agree with you. And I just wish
every Member of Congress could be in this room today. I don't
have any questions that we would pass a permanent NTR with
China. You are an effective spokesperson on this and many other
issues. And thank you for bringing your pragmatic, common
sense, tripartisan approach to public policy.
Governor Ventura. Thank you, Mr. Ramstad. And I will
finish, because I do have to leave. And, again, encourage you
all, this is, to me, I will repeat myself, the greatest
economic issue of this century and we dare not lose it. We dare
not allow this to happen. Because, always remember, we won't be
judged by the decision that we necessarily make immediately
today. We will be judged on the decisions made today around 20
years from now, I believe. And if we miss the boat on this one,
there is going to be a very harsh judgment, I believe, 20 years
from now. Thank you very, very much. I appreciated my time
here. It is always a joy to come here to Washington, and good
luck.
Chairman Archer. Governor, thank you very much. We
appreciate your time and, again, my apologies----
Governor Ventura. Oh.
Chairman Archer [continuing.] For starting a little bit
late.
Governor Ventura. No apologies necessary, Mr. Chair. You
have busy jobs to do and I am flexible.
Chairman Archer. Thank you very much.
Governor Ventura. Thank you.
Chairman Archer. My next witness is Ambassador Clayton
Yeutter, no stranger to the Chairman, having been my next-door
neighbor for a number of years. We are delighted to welcome you
to the Committee and we will be happy to receive your
testimony.
STATEMENT OF HON. CLAYTON YEUTTER, OF COUNSEL, HOGAN & HARTSON,
L.L.P., (FORMER UNITED STATES TRADE REPRESENTATIVE, AND FORMER
SECRETARY, U.S. DEPARTMENT OF AGRICULTURE)
Ambassador Yeutter. Thank you very much, Mr. Chairman. And
the first thing I would do would be to say amen to what
Governor Ventura had to say with respect to the China issue.
Second, let me say it is great to be back, Mr. Chairman, and to
have an opportunity to appear before this Committee. It has
been 25 years since I first started testifying before the Ways
and Means Committee when I was Deputy STR all the way back in
the Ford Administration.
These are important topics before you, Mr. Chairman. You
have my prepared testimony which I will summarize here in brief
fashion.
The two basic questions before you today are, one, whether
or not the United State ought to continue to be an active
member of the World Trade Organization, and, second, whether or
not we ought to welcome China into the WTO and grant permanent
normal trade relations in the process.
To me, the obvious answer to both of those questions is
yes, and, to me, both are no-brainers. It is clearly in the
best interest of the United States to be involved with the
GATT, now the WTO, and also to have China in the WTO--which
implies fulfillment of the permanent normal trade relations
requirement.
Let me start first with a big picture look at the WTO
issue. What we say about the WTO is also very relevant to the
China issue that is before you today. As you know, the GATT--
the WTO predecessor--launched in 1948, so it has a track record
of about 50 years. It was one of the most innovative
institutional developments, of the 20th century.
As you will recall, the GATT, the IMF, and the World Bank
were all created at the same time in the aftermath of World War
II. In retrospect, if one looks back over the last 50 years,
the most important of those three institutions has probably
been the GATT. Those of us in this room are clearly
beneficiaries of the work that has been done in the GATT over
the last half century. There are an awful lot of people in this
country and in the world who are living a whole lot better
lives today than they would have been had the GATT not been
created. And, of course, the WTO continues that.
The expansion of world trade over the last half century has
benefitted billions of people in this world. We should never
underestimate the importance of that achievement. Not only has
this been important in economic terms, but in terms of
contributing to peace in the world as well.
Who has been the major beneficiary of all this? The United
States, without question. We are the largest exporter in the
world, the largest nation involved in world trade. We are the
largest importer too, and American consumers benefit enormously
from that. So we have all gained much from the GATT/WTO over
the last half century.
We have also gotten a lot of bang for our buck. The GATT,
and now the WTO, are not what many of us would deem to be
``typical'' United Nations organizations--bureaucratic, bloated
and cumbersome in their operations. This is a lean, mean group
with a very austere budget, de minimus budget from the
standpoint of the United States. The WTO is not bureaucratic at
all. It is controlled and run by the member nations, and with a
very strong U.S. influence. We, the U.S. really have the best
of all worlds in terms of our relationship with the World Trade
Organization.
But let me go into a few specifics on why we need this
entity; many of these points are relevant to your discussion of
China as well. The first one is some entity must open up
markets around the world. We can do a lot of negotiating on a
bilateral or multilateral basis (I did a whole lot of that, as
you well remember, during my tenure in the government.) But
that is an inefficient way to do it. It is just a whole lot
more efficient to get the benefits of an agreement with 150
nations, which is what the WTO will soon have, than to do it
one-by-one or five or six at a time. The only practical way to
do that is through the WTO. So we need to take advantage of the
economies of scale in working with 150 nations.
And we need badly to get additional market-opening
measures, as you well know, because most of our market
opportunities in the future will be outside the United States.
I believe you made the point, Mr. Chairman, that only four
percent of the world lives within the borders of the United
States. It is the other 96 percent where we are going to have
our growth in customers in the coming years. And if we are
going to reach out to that 96 percent, we have to have a
mechanism like the WTO to do it.
Nor can we afford to operate under the law of the jungle.
If we were to abandon the World Trade Organization, that is
what we would have. And as the largest participant in world
trade, clearly we would have to reconsider the way we do
business throughout the world. It would be most regrettable,
and enormously costly, to have the United States operating in a
situation where the law of the jungle applies. The biggest
loser--the United States.
We also got an awful lot of work to do multilaterally. The
internet poses numerous new challenges. We have ongoing
negotiations in services and agriculture. And we are embryonic
in the WTO with intellectual property protection. Investment is
going to be a huge issue in the future, maybe an even bigger
issue than trade over the next 20 or 30 years. Again, the WTO
has just began to work in that area. There are a lot of other
new issues coming along that likewise deserve attention. There
just has to be an international mechanism to focus on all those
issues and as a practical matter that must be the WTO.
As this hearing indicates, we also need to bring other
nations into the WTO which are not now there, and that
includes, particularly, China and Taiwan--and perhaps,
ultimately, Russia. There must be a mechanism to bring that
about.
So there are a lot of reasons, Mr. Chairman, why the WTO if
we did not now have it, we would have to go back and recreate
that would take several years to do, after loads of effort, and
it would be just utter foolishness to go down that path.
Let me quickly say a few words about China. First of all,
we need to understand that if we are to have an impact on human
rights, worker rights and all the other issues that are of
concern to the critics of permanent normal trade relations, our
track record of going so outside the WTO is really pretty bad.
We've tried economic sanctions in similar situations and as
Governor Ventura indicated, fundamentally they have been one
big bust. So it seems incongruous to suggest the way we are
going to change things in China is by trying to keep it out of
the WTO or by denying permanent normal trade relations. Do we
really think that by going through a vote on normal trade
relations every year we are going to affect policies within
China in a positive way? We haven't yet and, in my judgment, we
are not likely to do so in the future. In my view this is a
foolish endeavor which occupies a lot of time in the Congress
and among the American public, time which could be used much
more productively elsewhere.
Now, looking at the specifics of this situation, we have an
excellent negotiating outcome in the United States-China
agreement, preparatory to China entering the WTO. My successor
at USTR, Ambassador Barshefsky, did an outstanding job in that
negotiation. Fundamentally we, the U.S., got nearly everything
we wanted out of it.
Unfortunately, the White House initially rejected that
agreement when they concluded it might not fly politically here
in the Congress and with the general public. But that was a
mistake. When lots of people around the U.S. responded and
said, Mr. President, you are off on the wrong direction on
this, USTR went back on bended knee and fortunately was able to
put the agreement back together again. We now need to embrace
it because it is an excellent agreement from the standpoint of
the United States.
Now, the question is can we use the WTO entry process as
leverage on these other matters that are occurring in China of
which we don't approve? The fact is that leverage is going to
disappear, if it exists at all, very, very quickly.
China is going to enter the WTO whether we like it or not.
Negotiations with the European Union are still to be completed.
There are some additional negotiations pending with Japan, and
then a WTO working party report will have to be presented to
the WTO Council and adopted. It is very likely that all of that
will occur this year. If it does occur, China will then be come
a member of the World Trade Organization.
So do we grant permanent normal trade relations to China or
do we go a different route and persist with our present policy?
To do the latter, in my judgment, would be a huge mistake for
the United States.
With China in the World Trade Organization, its economic
activity will expand rapidly with the rest of the world. And,
as Governor Ventura indicated, as did Congresswoman Johnson, we
will be left behind. That is significant indeed when we are
talking about economic involvement with a fourth of the world's
population. There will be no motivation at that point in time
for the Chinese to do anything that we would wish them to do.
Our influence on human rights, worker rights, or environmental
protection, other similar issues, will diminish very, very
rapidly. We will accomplish nothing in that regard by delaying
approval of permanent normal trade relations with China.
The other factor involved here is that if we isolate
ourselves with such a vote, we are going to be the villains of
the piece in all of China. Do we really want to convert China
into an enemy of the United States, comparable to the
relationship we had with the Soviet Union not many years back?
I mean, do we really want an adversarial relationship with
China? Is there some benefit to the United States in doing
that? Will we improve human rights or worker rights in China if
this bilateral relationship becomes far more adverse? To me,
none of that makes any sense whatsoever.
The proper course of action then is to bring China into the
WTO, on the conditions that have already been negotiated by
Ambassador Barshefsky, provide for permanent normal trade
relations, and then do an effective job of making sure that
Chinese commitments are followed in the future. The latter, of
course, is a question of implementation and a very important
one.
The benefits of that scenario are that not only do we have
a chance to focus in on the implementation of whatever China
agrees to in this process, but we have the leverage of another
150 nations to help us once China becomes a member of the WTO.
This becomes a win-win proposition if we have a viable WTO and
if we bring China in on the terms that I have outlined.
Mr. Chairman, I'll be pleased to answer any questions the
Committee may have.
[The prepared statement follows:]
Statement of the Hon. Clayton Yeutter, Of Counsel, Hogan & Hartson
L.L.P. (former United States Trade Representative, and former
Secretary, U.S. Department of Agriculture)
Mr. Chairman and Members of the Committee, it is a special
pleasure for me to testify before you today. The topic at
hand--the role and merits of what is now the World Trade
Organization (WTO)--is one that has garnered my personal
attention for much of the past quarter century. A few of you
will recall that my first appearances before this Committee
took place when I was Deputy Special Trade Representative
(1975-1977) during the Tokyo Round and continued when I served
as U.S. Trade Representative (1985-1989) \1\ during the Uruguay
Round. This Committee gave me splendid bipartisan support
during all those years, and for that I will be eternally
grateful.
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\1\ Mr. Yeutter also served as U.S. Secretary of Agriculture from
1989-1991. He is currently Of Counsel to Hogan & Hartson, L.L.P., a
Washington, D.C. law firm.
---------------------------------------------------------------------------
The Big Picture
To me it is astonishing that anyone in America would
seriously advocate U.S. withdrawal from the WTO. We've now had
five years of experience with this organization in its present
form, preceded by nearly 50 years of experience with its
predecessor, the General Agreement on Tariffs & Trade (the
GATT). By any standard, the track record of this international
organization has been outstanding. It fostered an unprecedented
expansion of trade in the aftermath of World War II and, in my
judgment, may have done more to contribute to world peace than
any international institution in the economic arena. Without
question a vast majority of the world's population has a higher
level of living today than would have been the case had the
GATT not been created, and had its impact not been extended via
the WTO.
This may not be a utopian organization. Show me one that
is--in governments anywhere or even in the private sector! But
some entities are far more admirable than others, and this is
one of those. Because of its name \2\ some believe this to be
either (1) a new ``one world'' organization, or (2) another
bureaucratic United Nations entity. In either case the
assumption is that the WTO is accountable to no one, and is a
costly burden to everyone.
---------------------------------------------------------------------------
\2\ Were it still the GATT, I wonder if we would even be having
this hearing today.
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Those interpretations are totally off base. Member nations,
big and small, have been actively involved with the GATT from
the very beginning. The reason: because it has never made a
major decision except by consensus, and such a modus operandi
demands active participation. Would U.S. involvement be so
categorized? Absolutely. In fact, most member nations would
suggest that we've thrown our weight around a bit too much, but
I would answer them by saying ``That's the price we pay for
world leadership, and we do not apologize for it.''
The WTO is also one of the leanest of all international
bodies. If anything, its staffing is inadequate and its budget
too small. For what the GATT/WTO has meant to the world since
l947, the cost has been de minimus for every member nation. It
has certainly been the bargain of the 20th century for the
United States, the biggest beneficiary (by far) of an improved
global trading environment.
The Specific Case for the WTO
But let's look more specifically at some of the reasons why
it would be utterly foolish for the U.S. to withdraw from the
WTO. \3\
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\3\ A far more comprehensive summary of what the WTO has meant to
the U.S. may be found in Section II of the President's 1999 Annual
Report of the Trade Agreements Program. It is a superb reference piece.
---------------------------------------------------------------------------
First, it is still the most efficient, effective mechanism
for opening up market opportunities throughout the world. With
only 4 percent of the world's population within our borders, it
is patently obvious that much of our economic growth long term
must come through international commerce. We're not paying much
attention to that challenge today because of the phenomenal
performance of our domestic economy over most of the past 20
years. But let's not be complacent; nothing lasts forever. Over
the long pull we must be internationally competitive, and we
must compete. Therefore, our omnipresent need is the chance to
compete, in what I would define as a free and open marketplace.
We'll reach that objective only by negotiations, and we'll
get there more quickly by multilateral negotiations (in the
WTO) than in any other way. We can open up foreign markets
bilaterally (country by country) or plurilaterally (through
regional free trade agreements) but that's a much slower
process. The pace of change is crucial these days, and if we
can simultaneously bind 150 nations to market opening measures
that's a huge advancement over binding only one, or a half
dozen. Some will suggest that the GATT/WTO model has not been
known for speed in the past, since recent rounds of
negotiations have had multi-year timetables. But that's a
question of leadership, of commitment on the part of the
participating nations, and of where those nations use their
most experienced, talented negotiators.
Second, the world cannot afford to conduct international
commerce through ``the Law of the Jungle.'' We in the U.S. take
for granted our excellent legal infrastructure, but many
trading nations barely comprehend what this is all about.
Examples of the latter abound in Russia today, and universal
acceptance of the ``rule of law'' is far from assured in a good
many other countries. Hence, it is imperative that we have an
oversight mechanism somewhere, and the WTO is the logical place
for this. That is why we, the U.S., worked hard in the Uruguay
Round to secure approval of a vastly improved dispute
settlement format. And it is vastly improved, even though we're
not winning all of our cases.
Rarely, in the entire history of the GATT and the WTO, has
the U.S. lost a case that it did not deserve to lose. What is
more important is that in the past we would win a case, but
then nothing would happen. Under the WTO we're now getting a
more definitive resolution of the cases that we're winning,
though not in all instances. We need to further tweak the WTO's
dispute settlement mechanism, but it is performing much better
than most people realize. In the absence of this mechanism we'd
have infinitely more difficulty fighting ``rule of law''
battles throughout the world.
Third, we need the WTO for surveillance purposes.
International commerce has grown so much in recent decades, and
has become so complex, that a vast increase in the number of
contentious disputes is almost inevitable. But governments
cannot take every disagreement through a formal dispute
settlement process. Were they to do so, the entire process
would bog down fatally. The WTO couldn't handle it, and neither
could traditional diplomacy. There has to be another way.
Alternative dispute resolution methods--at the WTO and
elsewhere--may help, but they are a partial answer at best. The
better way is for member nations to follow the basic precepts
of the GATT and WTO in their trade policies (and for their
participating business firms to do likewise).
In that regard a little surveillance, i.e., moral suasion,
can go a long way. The WTO should periodically comment formally
on how well a given member nation is living up to its
obligations as a signatory. That may sometimes be
embarrassing--even for the U.S.--but so be it. If such
surveillance deters a WTO member from taking actions contrary
to its obligations, it most likely will also preclude the need
for a costly, time consuming dispute settlement proceeding.
Without the WTO it would be far more difficult to apply
multilateral moral suasion to the conduct of international
commerce. All WTO member nations should be held accountable for
their policies. It is not unreasonable to expect them to honor
the spirit, as well as the letter, of their obligations.
Fourth, we need the WTO for the evaluation, oversight and,
if necessary, discipline of regional free trade agreements.
We've had a veritable explosion of free trade agreements in the
world over the past dozen years or so. As you know, I led the
negotiation of the U.S.-Canada FTA, which later became NAFTA,
and lots of others have followed since. They are now too
numerous to list.
Without doubt these agreements foster and facilitate trade.
For the U.S., Canada, and Mexico, NAFTA has been a huge
success--far greater than most Americans realize. Nations which
are not represented in NAFTA recognize that, for they are
excluded from many of those benefits. Hence, they feel
compelled to counter the regional FTA trend in some manner. One
way is to ``join the club,'' by creating another FTA, as did
several South American nations through the creation of
Mercosur. A second way is to ``hook on'' to an existing FTA.
The European Union did that recently, at least to a degree,
through its FTA with Mexico, one of the NAFTA partners.
We'll undoubtedly see many other iterations of the FTA
model as the future unfolds. Hopefully regional FTAs will
always advance the cause of free and open trade, but that is
not necessarily a given. Some of the recent agreements are far
less comprehensive than they should be. They've simply
neglected some of the tough issues, and those are the areas
where progress is most needed. Furthermore, no one is
evaluating the level of discrimination against non-
participating nations that is inherent in such agreements.
Someone needs to do so, to make sure that the overall
advantages of each regional FTA outweigh the disadvantages.
Otherwise such an agreement should be declared as violative of
those nations' WTO obligations. Aside from the WTO, there is no
international institution which can provide sorely needed
discipline over these FTAs.
Fifth, there's a lot of multilateral trade work to do, and
that task must be assigned to some institution. The logical
place is the WTO.
For years, the GATT focused almost exclusively on tariff
reductions. It was not until the Tokyo Round in the mid-70s
that it began to focus on non-tariff barriers as well. And it
was not until the Uruguay Round, a decade later, that it began
to broaden its negotiating agenda (at the behest of the United
States) to encompass new areas such as services, intellectual
property, and investment. (Agriculture might well be added to
that list, for earlier attempts to confront the severe trade
distortions in that area of commerce had been futile.) The WTO
has more recently produced specific agreements in financial
services, basic telecommunications services, and information
technology.
But there is lots more to do in each of these new areas.
The U.S. has a huge interest in preserving the global scope of
the Internet, unhampered by barriers of any kind. WTO rules in
services are embryonic at best, and we're still 30 years behind
the curve in agriculture.\4\ The OECD developed a proposed set
of investment rules, but that effort then aborted. Barriers to
investment can be just as damaging and distortive as can
barriers to trade, so the WTO needs to take on that challenge
and put a sound set of rules in place.
---------------------------------------------------------------------------
\4\ Negotiations in both those areas are already underway at the
WTO, by virtue of commitments made at the conclusion of the Uruguay
Round.
---------------------------------------------------------------------------
In addition, the WTO needs to determine whether to add
competition policy to its agenda and, if so, in what manner.
Concomitantly it needs to determine how to deal with
antidumping issues in the complex, interrelated world in which
business must operate today. At the Seattle ministerial the
U.S. sought to take antidumping rules off the table, which was
a mistake. We should be prepared to negotiate all legitimate
trade policy issues of consequence, and antidumping assuredly
fits that definition.
Much of the controversy in Seattle--at least on the
streets!--centered around environmental and worker rights
issues. Such issues are indeed important, but it was not
evident that the demonstrators (or their supportive
organizations) knew how the WTO was dealing with them today,
let alone how it might deal with them in the future.
Criticizing the WTO for its alleged failure to take
environmental and worker rights issues into consideration in
the development of trade rules is nonsensical when one realizes
that the WTO still operates on a basis of consensus. That is
equivalent to ``shooting the messenger'' when one dislikes the
message. Labor and environmental groups need to determine how
best to work within the system of international organizations
in confronting such questions, rather than trying to torpedo
the organizations themselves.
Sixth, the rules of international commerce need to be
applicable to all major trading nations, and that can happen in
the immediate future only if the WTO remains in existence. In
particular this applies to China and Taiwan, which should be
granted WTO membership almost simultaneously, and soon. That
alone will subject the trading patterns of almost a fourth of
the world's people to international rules, scrutiny and
discipline for the first time ever--with the United States
being the principal beneficiary. In time, Russia and other
nations of the former Soviet Union might well join this list.
The WTO has a long tradition of negotiating conditions of
entry for new member nations. When the Uruguay Round began,
fewer than 100 nations participated. Now, 14 years later, we
can expect the involvement of more than 150 nations in the next
negotiating round. There is just no practical way for any other
international organization to handle in a timely, orderly
fashion the entry and ``rules of the road'' indoctrination of
so many new member nations. If those nations are to play a
meaningful role in the world economy, and reap the benefits
thereof, the WTO has to be there for them.
Seventh, nations (and particularly the U.S.) need a
trustworthy international forum where critical trade issues can
be massaged, nurtured, abandoned, embellished, etc. Few such
institutions exist, for any purpose. Most international
organizations are either too politicized, too bureaucratic, too
lacking in economic understanding, or too narrowly focused to
handle the complex issues of international commerce. The GATT
was specifically designed for that function and it (and its
successor, the WTO) has filled such a need in exceptional
fashion. For more than half a century this organization has
been a role model of practical, pragmatic decisionmaking.
Whereas many international organizations might be described as
``lots of talk, little action,'' the GATT and WTO have been
just the opposite. They've provided a superb forum for talking
through the tough issues of the day, but they've also provided
solutions. The WTO is an active, vigorous problem solver, and
that's one of the main reasons international trade has grown so
much during the last half of the 20th century.
The Case for Walking Away
There are many other persuasive reasons for continued U.S.
involvement with the World Trade Organization, but let's now
examine the other side of this question: ``What would we gain
by walking away from the WTO?''
The big gain, some would contend, is that we'd get our
sovereignty back. This Committee had considerable discussion of
the sovereignty question when the Uruguay Round agreement was
submitted for Congressional approval. The alleged loss of
national sovereignty is a bizarre argument, with respect to
this or any other international agreement. We do give up a
corner of our sovereignty each time we sign such agreements.
Why then do we do it? Because we ask other nations (in this
case, about l50 other nations) to give up a corner of their
sovereignty in return. Why do they do it? Because of the mutual
benefits offered by a particular agreement.
I have already delineated many of the benefits of the GATT/
WTO to the U.S. Obviously the other WTO member nations
concluded there were benefits to be had by them as well--or
they wouldn't have signed up. We willingly gave up a bit of our
sovereignty, and so did all the other signatory nations. None
of this is unique to the WTO; similar tradeoffs have been
involved with every international agreement this country has
ever signed during its 200+ year history. So ``getting our
sovereignty back'' is a baseless argument.
A second argument for abandoning the WTO is that we'd be
able then to ``leverage'' the rest of the world at will. In
other words, we'd be able to set the rules of trade,
unobstructed by past precedents or GATT/WTO agreements. By
threatening economic sanctions against nations with which we
disagree, and by denying access to the American market,
presumably we'd get our way in international commerce. If all
went well, we could ``have our cake and eat it too.'' We could
be protectionist if we wished, and we could discriminate among
trading partners whenever we saw it in our interest to do so.
We could hold down imports, expand exports, and get rid of our
troublesome trade deficit. American hegemony at its best!
If only economic life were that simple, and that
accommodating. But it isn't. What I've outlined is a U.S. dream
world. If such a world ever existed, it was only for a few
years in the immediate aftermath of World War II. Today it is
just a dream, and one that would turn into a nightmare if we
ever sought to make it come to pass!
In economic terms our planet is shrinking every year.
Consequently, policies such as those just described, with an
inherently selfish dimension, are doomed to fail. As Americans,
we cannot lift ourselves up by pushing others down. We are now
far too dependent on the global economy for that. The correct
prescription is to pull others up, enriching them and us in the
process. We've done that with considerable success over most of
the past 50 years, and we ought to think long and hard before
abandoning that model.
A third argument is more subtle. The contention would be
that we should not abandon the concept of global trade rules,
but what we need is an improved institution for developing and
implementing such rules. In other words, let's get rid of the
WTO and replace it with a new organization that would be more
acceptable to the United States.
Can that be done? Of course (at least on paper). No
organization is sacrosanct, in this country or in the world.
The WTO can be replaced. The relevant question is: ``At what
cost?'' In my view that price tag--in economic, diplomatic,
national security, and foreign policy terms--would be
unacceptably high!
Were the U.S. to walk away from the WTO, the other member
nations would then have to decide whether to (1) proceed
without us, or (2) negotiate provisions applicable to a
successor organization. If the rest of the world chose to
proceed without the U.S., we'd have a situation of the kind
described in the second argument above, and one that would
severely disadvantage the U.S. in the short run. If, as is more
likely, the WTO would soon collapse and a successor entity
would have to be put in place, the question becomes: ``Is it
realistic to expect that a 'new WTO' would be more favorably
disposed toward the U.S. than is the present organization?''
Having worked with the GATT/WTO for much of the past 25
years I would respectfully suggest that the odds of creating a
more favorable environment \5\ from our standpoint are between
slim and none! The U.S. has had enormous influence in the
evolution of these organizations over the past half century.
During that time other nations have grown in stature, economic
strength, and sophistication. Not surprisingly, they are now
less inclined to defer to the U.S. on major policy questions.
They want to do their own thinking, evaluate their own self-
interest. And they do it very well. I am confident that we
could negotiate parameters for a new multilateral trade
organization that would be satisfactory to the U.S., but I'd be
willing to wager they'll be no more satisfactory than those
applicable to us today. So why go through at least two or three
years of negotiating turmoil, coupled with equivalent turmoil
in the international marketplace, to accomplish little or
nothing?
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\5\ Particularly in light of the enmity that would be generated by
our withdrawal.
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A fourth argument might be: ``But aren't there some
political benefits to walking away? We'd be sending a strong
message to the rest of the world about American toughness, and
our willingness to go it alone if we don't like what others are
doing.'' Yes, trade policy is ready-made for demagoguery, in
any country. We can stir people up with ``America first''
statements, which will then stimulate an equivalent response by
political figures in other nations. When the dust settles, what
will we have accomplished? Essentially nothing where substance
is concerned. We will have created unrealistic expectations
within the U.S. as to what kind of institution will replace the
WTO, and we will have generated lots of animosity throughout
the world. That's not a great way to make friends, and we still
do need friends in the world.
All the arguments for walking away from the WTO have a ring
of plausibility--but nothing more. When one examines the
tradeoffs, the arguments all fail. In each case, the cost to
the U.S. in the image we present to the world, and the cost to
America's citizens emanating from the trade turmoil that would
be created, is just too great for this to be seriously
considered. Proponents of walking away choose not to recognize
the costs, but that is naive. These decisions are made in the
real world, and American families would quickly suffer those
costs--and hold their political representatives accountable for
them. That is, of course, one of the great advantages of a
democratic society.
China
Finally, since this hearing also encompasses the issue of
Chinese membership in the WTO, along with permanent normal
trade relations for China here in the U.S., I would like to
offer a few comments on that subject.
First, Chinese behavior--on trade, human rights, and a host
of other issues--has not yet reached the norms that we in the
U.S. consider acceptable. That is changing for the better, but
not at a pace that we would prefer. Some Americans are even
concerned that China may become a global adversary, perhaps
even comparable to the Soviet Union of this past century. Let
us hope and pray that such will not be the case.
All of the above merits intense contemplation on our part,
and careful, skillful creation of a strategy for nurturing the
U.S.-China relationship. In my judgment, we've not done that
well in recent years. Our China policy has often been passive,
inconsistent and, at times, even incoherent. We must do better
in the future.
But none of that has much relevance to the issues now
before this Committee and the Congress. From a U.S. standpoint
the simple question is: ``Will we be better off with China
inside (the WTO) or outside?'' They are outside today, and
we've discovered that we have limited influence on Chinese
policy. We want them in only under acceptable terms, of course.
But Ambassador Barshefsky has done a fine job of negotiating
those terms, so that issue is fundamentally behind us. Since
our marketplace is relatively open, we've not had to offer much
to the Chinese. Most of the economic benefits of the agreement
flow to the U.S.
Therefore, we should now ask ourselves whether we're likely
to have more influence within China after they become WTO
members, and my response would be in the affirmative. Why?
Because we can then bring to bear not only whatever leverage we
as a nation have, but also the leverage of about 150 other
nations, the full membership of the WTO. With China seeking to
expand its position in world trade, it cannot afford to ignore
the views of its customers, particularly when those customers
are bound together by common rules, as occurs in the WTO. That
joint leverage does not exist today, with China being outside
the WTO and thereby able to play off one customer nation
against another.
China today has some semblance of rules of law, at least on
paper. But so long as it is outside the WTO, Chinese officials
can follow or ignore those rules solely on the basis of their
own self-interest. As a sovereign nation they can still do that
once they are in the WTO, but then there is a price to be paid.
That is quite a difference, and a vast improvement over the
present situation.
Some people will, however, suggest that we should continue
to deny permanent normal trade relations to China even if that
nation is accepted as a WTO member. That would simply not be
rational. Our objective should be to cultivate and nurture the
U.S.-China relationship in the coming years. If we do this
well, not only should China become a fine export market for
American business, but hopefully we'll also persuade the
Chinese to alter their conduct in human rights and others areas
of concern to us. That is the potential win/win element of this
debate, but it will never materialize if we have a contentious,
divisive normal trade relations debate every year. It is time
to move beyond that, to a more confident, mature relationship
based on earned respect.
Conclusion
In summary, we should now do what we can to facilitate
China's entry in the World Trade Organization, followed
immediately by the entry of Taiwan, accompanied by the grant of
permanent normal trade relations to China. The rationale for
this is compelling, and nothing is to be gained by delay.
Then we should exercise American leadership to make the WTO
a more effective, functional institution than it is today.
Expanded trade offers a better way of life to billions of
people in our world. For some of them it is the only way. To
cast aside that potential in a moment of American pique would
border on the criminal. And it would clearly not be in our own
self-interest, for we're the biggest winner of all when trade
expands.
Walking away is not an option. Slugging it out in Geneva is
hard work, but nothing good comes easy! If we stay and slug it
out, rather than cut and run, later generations of Americans
will thank us--and so will lots of other folks elsewhere in the
world.
Mr. Chairman, I'll be pleased to respond to any questions
you may have.
Chairman Archer. Ambassador Yeutter, thank you for coming
and giving us the benefit of your extended experience and
knowledge in this field. And you do have that historic
experience and knowledge that none of us here on the roster has
as your--as having been STR and also having been Secretary of
Agriculture.
Ambassador Yeutter. Thank you.
Chairman Archer. I couldn't help but think, as you began to
go over a little bit of the history, that trade has not been a
controversial issue for the most part for many, many, many
years. I remember the Kennedy round and there was great
bipartisanship. There were no allegations that we can't open up
trade because we don't like what some government is doing in
other social areas. We don't like what their pay scales are. We
don't like any of these things. That never entered into the
picture until just recently at a time, interestingly enough,
when we are at a peak of prosperity in the United States of
America.
It seems very ironic to me, and yet it is clear that--I
think it is clear, in any event--and I think any objective
reading of history is that gap, as you say, was extremely
important to creating better standards of living all over the
world that would not otherwise have existed without it.
And I, frankly, am at a loss to understand how all of this
controversy is being inserted today. And I just wondered if you
have got any sort of analysis of that that might be helpful.
Ambassador Yeutter. It is perplexing to me, too. It is
amazing, Mr. Chairman, that we seem to be tempted to shoot
ourselves in the foot just when things are going well. I don't
know what explains that phenomenon, but it does seem to be the
case.
As you know, I sit on a whole host of major corporate
boards, many of them doing business all over the world. And I
can guarantee you that the United States has never been so
competitive internationally. We are in a wonderful position to
expand American influence--economic, political, and all other
elements of influence--internationally. Our lead in much of the
high-technology area, Mr. Chairman, is so great today, it is
almost embarrassing. But that is the future and we need to be
nurturing that future.
On the China situation, Mr. Chairman, my experience from
traveling the world is that we influence other nations by
osmosis. We don't do it by pounding the table and sermonizing
to the Chinese, the Cubans or anybody else. We do it by
involvement with them, by the international exchange of people,
goods, services and everything. It is the osmosis process that
brings American values into their systems.
We will deny all of that to China if we say no to permanent
normal trade relations and if China enters the World Trade
Organization notwithstanding our objections. This is, by far,
our best opportunity of influencing Chinese conduct. Holding a
vote every year on normal trade relations is not the preferred
course of action!
Chairman Archer. Well, at the risk of being redundant, but
in the arena in which we operate, I find that redundancy has a
great deal of value. If you don't keep repeating things, people
don't seem to pay much attention to them. Number one, you have
said it, Governor Ventura said it, and it is so important--
China will enter the WTO with or without our approval. Congress
will have no vote on whether China enters the WTO. This has
even been misreported in some of our better print media, which
has implied that the Congress will be taking a vote on entry of
China into the WTO.
Ambassador Yeutter. Yes.
Chairman Archer. And it should be said over and over and
over again, Congress will not vote on this. So that is number
one. Number two, what you have said and Governor Ventura said,
I think, even more specifically----
Ambassador Yeutter. And the other element to add to that,
Mr. Chairman, and excuse the interruption, is that when it
occurs (probably later this year) we will forego most, if not
all, the benefits of Ambassador Barshefsky's negotiation.
Chairman Archer. That was going to be my second point. My
second point, which should be said over and over again, is that
the United States has given up nothing in the bilateral
negotiations with the Chinese. Our market will still stay as
open or as closed, depending on how you want to look at it,
irrespective of what happens with China entering the WTO. But
the unilateral reductions and barriers that China has given up
and, as Governor Ventura said, that some of the Chinese that he
has talked to, said it is going to be tough on us for a while.
We are going to be the one that are going to see the
dislocations. That, as they open their market, we will not be
able to take advantage of that.
Ambassador Yeutter. Yes.
Chairman Archer. But all of the other countries in the
world will.
Ambassador Yeutter. Exactly.
Chairman Archer. Now, those are the powerful arguments that
I think are involved in this issue.
Ambassador Yeutter. They are. And just to add to your final
point, Mr. Chairman, this is a big deal. As I read the
newspapers in Arizona and here, and see some of the commentary
emanating from opponents, the opposing view seems to be this is
no big deal if we turn the Chinese away now. We can reconsider
later. But it is a very, very big deal. As Governor Ventura
indicated, this is one of the major decisions this Congress
make in this century. It is astonishing to me that many Members
of Congress have not yet recognized the importance of this
decision at this point in time.
Chairman Archer. Thank you, Mr. Ambassador.
Mr. Thomas.
Mr. Thomas. Thank you very much, Mr. Chairman. Hi, Clayton.
It is good to see you again.
Ambassador Yeutter. Thank you.
Mr. Thomas. It is ironic that you follow Governor Ventura
because he was very direct in denying any expertise in the
area, and now we have somebody who probably claims as much
expertise as anyone in the area.
When you look at the history, a portion of which I have
shared with you, it is just ironic to me when I think back in
those days in the seventies and in the eighties, when, one, we
had to try to get you on a plane and that as you got on the
plane, I would urge you, for example, if you were going to
China, to be sure and push the red wine and beef issue because
we were always on the fringe. We were never formally and
structurally at the table. And with the GATT, although our
agricultural exports were always a significant factor in the
balance of trade, we were outside the real structure.
Through your work, hard work, and others, with the WTO,
perhaps misnamed, we actually are at the table. If anybody
looks at progress, in terms of taking what are some of our most
important exports and placing them at the center of the trade
question and providing a structure for the resolution of
problems, we have made enormous advances. So, again, it is
ironic to me that people would say you can't measure the
progress. Hogwash. They haven't looked at the history.
But here is the concern that I have. You mentioned the
President cutting Ambassador Barshefsky off at the knees. If
anybody knows anything about Chinese culture, they know how
important face is. And given what happened to them for their
willingness to come back at the table, they really must want
this deal. That is a measurement that I think people don't
appreciate. And the point is made, and I don't need to belabor
it, since we are one of the most open and the largest open
trading regimes in the world, any deal we strike with anyone
else is bringing their barriers down, not ours.
I, frankly, lay a lot of the current problems at the
President's feet. The President must lead. He has been in and
out on his focus. He was pushing NAFTA; he wasn't pushing
NAFTA.
Ambassador Yeutter. Yes.
Mr. Thomas. He let fast track lapse and then acts as
though, well, it is not that important. Well, now, it is
important. And we are beginning to see this same kind of flow
of Presidential leadership on not only the question of normal
trade relations with China, but even our vote, which we will
take about staying in WTO. So to a certain extent, the American
people needed to have someone steadfastly in front of the push
on all aspects for world trade. That, I think, is something
that we will hopefully have him engaged fully and completely so
we can solve it.
Here is my dilemma. At the very time we are on the verge of
creating a much better system, while we have been engaged with
the Europeans over time on beef hormones, on citrus, on
bananas, on canned peaches, minor, minor issues, the Europeans
seemed willing to almost go nuclear on the foreign sales
corporation question. Never has anyone dealt with a $4\1/2\
billion hammer.
At the very time, we have got to show as much harmony as we
possibly can. From your perspective on history, can you just
give me some indication of European motivation? Now, just let
me say, if someone wants to fundamentally change our tax code,
I think going through the alphabet to DSC to FSC and onto other
letters, we have to face the fact that our system is not
compatible with the current world trading system and this helps
us, cold water in our face, change our tax system. But, boy,
the timing could not have been worse in my opinion. And, in
your opinion, what is it that the Europeans hope to gain by
this, what I consider to be a fairly reckless and dangerous
move?
Ambassador Yeutter. I am not sure that I can answer that
very satisfactorily, Mr. Thomas. But what I do know is that
trade relations between the United States and the European
Union are by no means the best. This is another example of the
administration not exercising the kind of leadership that is
called for in this area.
You are absolutely correct, Mr. Thomas, in that the United
States must lead on trade. If we don't lead, nothing much
happens. We haven't been doing a very good job of that in
recent years, and now some of that is coming back to haunt us.
One of the areas in which that is occurring is FSC. The FSC
case has gone before the WTO and we have lost. I might say, by
the way, that this loss should not generate any criticism of
the WTO dispute mechanism for it is working very well, far
better than in the past.
Fundamentally, when we lose in the WTO, we deserve to lose.
The fact is, we deserved to lose on FSC. It is just unfortunate
that the administration wasn't able to work out an arrangement
to put that issue to rest before it ever went through the full
WTO process. In my judgment, what this Committee ought to do at
the moment is throw that ball back in the administration's
court and say, do something with it. That is a responsibility
of the executive branch, initially at least.
Maybe the administration will have to come back and ask you
for legislation to fix this problem, but all executive branch
options ought to be exhausted first.
Mr. Thomas [presiding.] Thank you very much. Gentleman from
Pennsylvania wish to inquire?
Mr. Coyne. Thank you, Mr. Chairman. Welcome, Ambassador
Yeutter.
Ambassador Yeutter. Thank you.
Mr. Coyne. I don't know if you were here with the testimony
of Governor Ventura, but----
Ambassador Yeutter. I was.
Mr. Coyne [continuing.] He indicated that he thought it
would be a good idea to have our American corporations in China
and they would better serve us in being able to have an
equitable trade atmosphere between the two nations and other
nations as well. And he didn't have any problem with American
corporations going there and taking advantage of the very low
wages that are paid in China to their workers. Do you have any
trouble with that?
Ambassador Yeutter. Not really. Because international
competitiveness is determined by a lot of factors of which wage
rates are only one. There is no question that wage rates are
far lower in China than here and probably always will be. But
as the Governor was indicating, we ought to be able to turn
that to our advantage and, in fact, create additional jobs here
in the United States, rather than lose them.
Right now, as the Governor indicated, we need more labor in
the United States rather than less. I live in Arizona and, if
you walk down the streets in Phoenix, about every third door
has a ``help wanted'' sign on it. So we may well have some
labor shortages for a long period of time here in the United
States And we want the high-income jobs rather than the low-
wage jobs. So to the degree that American companies can get
inputs in their manufacturing process from China or somewhere
else in the world, benefit from the low wages in doing so,
bring those inputs into the United States and finish a product
off here using our high-wage employees, it seems to me that is
truly advantageous.
Mr. Coyne. So you wouldn't have any problem with
corporations that you represent, or sit on the board of, going
to China and paying wages that are significantly lower than
what we pay union wages here or, worse than that, substandard
safety conditions that exist in China.
Ambassador Yeutter. Well, substandard safety conditions are
another matter. There are legitimate worker rights issues in
the world as a whole--not just in China, but in a good number
of countries. We ought to see if we can't have an influence on
that. I don't happen to believe that WTO entry is the right
issue on which to make that stand. It seems to me we have other
form in which to deal with worker rights abuses around the
world. We need to crank up the International Labor Organization
and find ways of being more persuasive and creating in dealing
with worker rights issues throughout the world.
But in terms of wage rates, that is another kettle of fish
entirely. As I said earlier, low wage rates elsewhere can be
worked to our advantage if we approach this issue intelligently
and seek to complement American workers, rather than substitute
for them.
Mr. Coyne. Well, do you see companies and corporations in
this country actually moving there to move away from the high
wages of the United States to the lower wages?
Ambassador Yeutter. No. I don't see that as a major problem
at all. The companies with which I am associated, are really
looking at how they can put together a package of factors of
production that will make whatever it is they are producing
internationally competitive in the world. To the degree they
can do that here in the United States, they do it in the United
States. They don't reach outside unless there is a particular
need. In many cases, they are able to preserve jobs here and,
in fact, pay higher wages here by being able to do some of
their labor intensive jobs outside of the United States at
lower wages.
They make that combination of factors work out so that they
have a product or service at the end of the day which can
compete with anyone. It seems to me that in a global economy,
that is an inevitable objective. We stop that trend with
protectionism or anything else here in the United States. It is
in exorable. What we need to do is make sure that it works out
to be in the self-interest of the United States. And I believe,
in most cases, it does.
I don't see China, Mexico or other countries with lower
wage rates taking many jobs away from the United States, the
sucking sound that we talked about earlier, other than those we
rather not do. Those countries don't have the other factors of
production to fit with low wage rates; hence their ``total
package'' is uncompetitive with us. Putting it into a
basketball model they have to be role players. The principal,
and most rewarding, factors of production are here in the
United States. That is true, Mr. Coyne, with every major
company on whose board I sit.
Mr. Coyne. Thank you.
Mr. Thomas. The gentlewoman from Connecticut wish to
inquire?
Mrs. Johnson of Connecticut. First of all, the Honorable
Mr. Yeutter, it is a pleasure to have you here----
Ambassador Yeutter. Thank you.
Mrs. Johnson of Connecticut. [continuing.] And with your
long experience, both in trade and in manufacturing. And I
would like to return to the--to pursue the line of questioning
of my colleague from Pennsylvania. What percent of low-wage,
U.S. manufacturing jobs have already gone to a low-wage
country, whether it is Puerto Rico, under our special tax
provisions, whether it is Mexico, whether it is Brazil, whether
it is China, whether it is Thailand, Cambodia, wherever. What
percentage of those low-wage jobs are still in American
manufacturing?
Ambassador Yeutter. Not very many of them are here any
longer, Congresswoman Johnson, because Americans don't have to
work for those wages anymore.
Mrs. Johnson of Connecticut. Yeah.
Ambassador Yeutter. They have better jobs available here
they don't want to carry out most of those tasks. It is hard to
fill them.
Mrs. Johnson of Connecticut. Now, let me ask you a second
question. I am beginning to see as--and I spend a lot of time
on factory floors. I am beginning to see jobs come back from
China.
Ambassador Yeutter. Yes.
Mrs. Johnson of Connecticut. Why? Because one little
company, who was up against China's ability to package because
they pay such low wages, had figured out a little machine that
as the stuff came off the--these were screws, very little
things. They are hard to make in America because of the cost.
And they could--they had figured out a new machine that just
put these into packages, did the whole thing, so they could
keep this job in America. They added value to their product.
Now is this just my creative little plan or are we actually
learning to do some of the things that were low wage in China?
Because, after all, there is transportation costs associated
with this in America.
Ambassador Yeutter. Well, as I indicated earlier, companies
really look at the total package of costs. They do add in
transportation costs, packaging, and everything else that is
associated with the product or service they sell. Nowadays,
with information technology that is available, we can do this a
lot better than in the past. Companies have access to
information that they didn't have previously years. All this
has happened in just the last few years. Firms now know the
cost of their manufacturing operations with much more precision
than before.
As a consequence, they are making these very rational
decisions on a global basis. A lot of people in America, of
course, fear that outcome because they think somehow this is
going to shift lots of jobs elsewhere. I don't fear it at all.
I think a better knowledge base clearly works to the advantage
of the United States.
Mrs. Johnson of Connecticut. If you could get us any
information on the number of jobs that are beginning to move
back as we learn to do the technology--one of the problems with
the minimum wage issue is that when you push it up, restaurants
are figuring out how to serve food without people.
Ambassador Yeutter. Sure.
Mrs. Johnson of Connecticut. So price and technology are
intimately related. And what I see happening is the creativity
in our technology capability is now beginning to address itself
to keep production here more holistically. Then the last
question I wanted to ask you was, what percentage of the jobs
that have moved abroad, whether to China--and, of course, it
would be very useful to know, you know, country by country--are
coproduction jobs that have to go? Because we did not like the
Chinese--the Japanese automakers building cars in our country
and importing all the parts and we did something about it.
Ambassador Yeutter. Right.
Mrs. Johnson of Connecticut. So we need to sort out this
old issue of cheap labor and whether or not it actually is
taking jobs abroad anymore and where we are with the jobs that
have to go abroad in order--and then last, because my time has
run out now, I would like to get some--if you can help me with
figures that talk about manufacturing productivity increases.
We are producing so much more stuff. And we have, what, four--
we are 4 percent--you had it here--4 percent of the world's
population within our borders and it is slow growing. So when
we produce three or four times as much product, we can't sell
it to ourselves. And if we can't----
Ambassador Yeutter. That is so true.
Mrs. Johnson of Connecticut [continuing.] Sell it abroad,
we can't sell it. Then we don't have jobs. So if you can help
me with any of the data that lie behind that. I do think
Members are rational, although it is hard to stand up to union
leaders. You don't have to stand up to union membership because
when you give them the information, they, too, have common
sense. Thank you.
Mr. Thomas. Would the colleague yield briefly?
Mrs. Johnson of Connecticut. Yeah. I would be happy to.
Mr. Thomas. What I find ironic is that in this discission,
this is the kind of discussion that we have in terms of where
the jobs go, labor and the rest. We have just been handed a
catastrophe. The Foreign Sales Corporation decision goes right
to the corporation's bottom line and that there are people
looking to move tomorrow by the virtue of that tax decision
that never would have moved----
Ambassador Yeutter. Yes.
Mr. Thomas [continuing.] Playing the labor structure game.
And so here we try to divine the understanding of automatic
packaging and not let the labor market deal with itself. Yet,
somehow, we aren't directly already in a panic creating a
resolution to a problem which will produce corporations
leaving, simply because the bottom line won't let them stay.
Ambassador Yeutter. Right.
Mr. Thomas. And I find that very ironic.
Ambassador Yeutter. Going back to some of your points,
Congresswoman Johnson, very quickly. One is, data are really
very inadequate in the whole trade arena--very distorted.
Because so many products are now combinations of work
accomplished in maybe as many as 20 countries before they
become a final product. Is that an American product? Is it
somebody else's product? Is it an import or is it an American,
domestically produced product? It is often impossible to tell.
So the data are very inadequate, and I think this is one of the
reasons that we have become mislead by the trade deficit.
I don't happen to believe the trade deficit is anywhere
near the problem that is indicated by the numbers we see. I
don't believe those numbers accurately reflect what is really
happening in international commerce. I also think that is one
of the reasons our economy continues to perk along in such
great fashion, even though we supposedly have this gigantic
trade deficit.
And the other factor is information technology. We have to
emphasize over and over again, that this technology has made
thousands of U.S. companies far more sophisticated than in the
past. They now know how to do things in the most cost-effective
way, and there by enhance their international competitiveness.
Mr. Thomas. Thank you, Ambassador.
Ambassador Yeutter. But let's give Congressman Levin a
chance.
Mr. Thomas. The gentleman from Michigan wishes to inquire.
Mr. Levin. Thank you. Well, we have had a far-ranging
discussion, so let me just comment briefly. Mr. Yeutter and I
are old friends. I just urge that we try to find some balance
here. I think what the Chairman said, Mr. Archer, that China is
going into the WTO with or without the United States. That is
true. In terms of the benefits, I think it is an overstatement
to say that if we don't grant permanent NTR, we will get none
of the benefits. That isn't true. But it is also not true that
we will get all of them.
Mr. Archer asked why these last years has trade policy
broken down? And I think realistically, in part, the answer is
because conditions have changed and more and more of our trade
is with countries that have very different economic and related
conditions to the United States.
More and more of our trade is with evolving economies that
have very different labor market standards, very different
environmental standards, and also, and China is the supreme
example, very different structures or lack of them, regarding
human rights. That wasn't true basically of Europe and Japan
and our trade relationships were primarily in the '70s and '80s
with them. And our disputes were with Japan, which had these
basically similar labor and other structures. So it isn't so
unusual or, I should say, unexpected that we would run into
these difficulties. And I am hopeful that we can resurrect a
bipartisan policy.
In that respect, let me urge we resist being too partisan.
And, Mr. Yeutter, Clayton, I just urge on FSC, let's avoid
casting stones too readily. I do not think it is fair to say
that that problem is basically because of the lack of
administrative--administration leadership. I just don't think
that is really what happened. We had an agreement with the
European community. Maybe you negotiated it. I forget who did.
And they essentially reneged. They have reneged on an agreement
that we had with them, an agreement that they essentially were
not going to challenge and they decided to do that. And they
have used a structure that we helped to create and we better be
careful about haranguing the administration or WTO because some
of the opponents who want to have us withdraw from the WTO talk
about this structure and that it has binding effect on the
United States. And those who believe there should be such a
structure had better be careful in how we handle the cases we
don't like as well as the multiple of decisions that we do
like.
So, and by the way, in terms of the competition with low-
wage economies, I think it is foolish to deny there is
competition. Look, I voted against the steel quota bill because
it violated our WTO obligations, but we were competing with
Chinese steel, which flooded in here, as well as steel from
other countries. And the labor market factor was one of them.
That is why we have 201. That is why after April--it wasn't
there then--Ambassador Barshefsky and others negotiated a
strong antisurge provision in the Chinese agreement, which is
an important tool for us, which I think we should embed in
legislation. It is an important tool. It is there because we
are competing with these countries, potentially and we need
some kind of a defense.
So I mean, there is something between a sucking sound and
nothing. So I just urge that we have a sense of perspective and
a sense of balance and work together to try to make, as the
Governor said, some sense out of all this. And I would just
urge on the Foreign Sales Corporation, look, we need to work
together to see if we can find an answer to this. And I don't
think it is helpful to cast stones where I don't think they
belong.
My guess is, Mr. Yeutter, if you had been running our
policy these last years, because the Europeans reneged, in
simple terms, we likely would be where we are today facing the
issue of how we respond to their, I think--I won't use the word
betrayal--their backing down on a commitment they made to us.
Ambassador Yeutter. You may be right in that respect, Mr.
Levin; there is no way to know that. And I agree with you that
we should try to keep international trade policy on a
bipartisan basis. But I get frustrated by the fact that we are
just not getting some things done that ought to be accomplished
in the trade policy field. The United States just has to take
responsibility for that. A lot of this what kind of
relationships we have with our counterparts in other countries,
a lot of it is a question of preparation, and a lot of it is a
question of how well we design and carry out our strategies.
We could get into the Seattle situation, but I don't want
to belabor that issue. The fact is, we just didn't perform very
well, and we have to accept the consequences of unsatisfactory
performance.
Mr. Levin. But I don't think whatever were the problems
that Seattle had, a darn thing to do with the Foreign Sales
Corporation.
Ambassador Yeutter. Oh, no. But they had----
Mr. Levin [continuing.] And----
Ambassador Yeutter [continuing.] But they had to do a lot
with short comings in American leadership.
Mr. Levin. Well, OK. I--my guess is it had more to do with
European decisions looking after other issues, whether it is
bananas or the air bus. And I think it is a mistake for us to
oversimplify these issues and rather easily throw stones when
what we need to do is less of that and more rebuilding a
bipartisan consensus.
Ambassador Yeutter. Yes, but let's have some accountability
too.
Mr. Levin. And I hope we can do that on the China issue,
Mr. Thomas, as we have discussed.
Ambassador Yeutter. I hope so, too. The only final comment
I would have Mr. Levin, is that we have a lot of trade problems
on your front burner in the Congress and on the front burners
of the American public as a whole. Many of those are going to
have to be solved in the next administration, whether it be
Democratic or Republican. Too many of these have festered for
too long and they need attention.
Mr. Levin. I agree. We also had problems in the seventies
and eighties.
Ambassador Yeutter. Well, sure.
Mr. Levin. A lot of them.
Ambassador Yeutter. Sure. But I am a little more worried
now than I was back in those years.
Mr. Thomas. Does gentleman from Georgia wish to inquire?
Mr. Collins. Thank you, Mr. Chairman. Mr. Yeutter, speaking
of Seattle, I think the most fruitful statement that I saw was
on a marquee. As I came out of the Western hotel, the morning I
was leaving, and that used to be a little theater, but now it
is a little restaurant. And it says, thanks, WTO. It has been a
riot. That was an interesting experience out there.
I recall, too, that in 1995 in a trip with the Trade
Subcommittee to China, we were meeting with the senior minister
of trade. And the question was asked about what will it take?
What does the United States have to do in order for China to
enter the WTO?
We need specifics. Those were the--that was the statement
and the question that Ms. Barshefsky asked us to ask when we
left Singapore.
Ambassador Yeutter. Yes.
Mr. Collins. And to the surprise of all who were there,
including the Deputy Ambassador to China, because, at that
time, the Ambassador was here in the States traveling with the
defense minister, Mr. Ju stated that China would enter the WTO
before the end of this century, which is this year. So this
is--we have been knowing that this was coming.
Many have said that this is an opportunity. You know,
sometimes we get opportunity mixed up with temptation. And when
you look at the concessions that China has made, it does look
like a great opportunity----
Ambassador Yeutter. Yes.
Mr. Collins [continuing.] Because they have made a lot of
concessions in a lot of areas that will be better beneficially,
especially to the industries in this country that have moved
into high tech. But the reason, I think, that it maybe getting
a little bit confused with temptation is because when you look
at the area of textiles, you won't find them in the
negotiations.
Now, I am not talking about the cut-and-sew--the apparel.
It is hard to high tech a sewing part of the cut-and-sew
business. But the textile industry, otherwise, has moved into
high tech. They have moved into higher paying jobs. And they
are not asking for total protection. They are asking for
transition. And I don't see those in the negotiations that we
have made with China.
I have long said that it would be better for this nation,
for China, to be in the WTO because there will be concessions
made for our market access in their country. And we discussed
that too in 1995 with Mr. Ju and he also informed us in that
same meeting that they were going to reduce the tariff on
textiles into their country and also increase the quota that we
would ship in. So they have--there are areas that can be
negotiated with them in the area of textile. I do notice that
in the area of agriculture, that one of the commodities that is
greatly increased is cotton. Now, you don't eat cotton. At
least, I don't think you do, not much of it anyway. But you do
make cloth from it, yarn, cloth. You are using textiles. So I
am very concerned that we have moved away from one industry
that has moved into the high tech area, moved into higher job
pay, but we are moving off and leaving them in these
negotiations. It looks as though they are the sacrificial lamb.
That is my concern.
Ambassador Yeutter. Well, obviously I can't speak for
Ambassador Barshefsky as to how she handled that issue in the
negotiations. My understanding, though, is that textiles are
handled in accordance with the Uruguay Round agreement on that
subject which called for a phaseout of the old MFA program over
a period of 15 years, if I remember correctly and that----
Mr. Collins. With 5 years left to go.
Ambassador Yeutter. Yes. And if new countries enter the WTO
during that period, quota programs will be appropriately
adjusted. So my understanding is that China, upon entry to the
WTO, will have to be considered in that process. But this would
not increase the amount of Textile imports flowing into the
United States. China's entry into the WTO would not alter that
number, to the best of my knowledge.
Mr. Collins. Well, yes. And I understand that. But in all
of the negotiations to increase the export from here and import
into China of other products and other industries, we left them
out. And that is my concern, because it is a large industry
still in parts of the country.
Ambassador Yeutter. Sure.
Mr. Collins. And, you know, a job loss to anyone is a loss.
And many people can't transcend from one job to another job
very easy.
Ambassador Yeutter. Yes. That is true. But you also got
some winners for Georgia agriculture in that process, too.
Mr. Collins. Well, I--not too long ago, I met with several
industries within one county that I served. And I had some
there who would be winners and some who would be losers. It was
interesting to have the dialogue at a luncheon.
Ambassador Yeutter. Yes.
Mr. Collins. But I thought it was needed because I think
both needs to understand the difference between opportunity and
temptation. Thank you for being here.
Chairman Archer. [presiding.] And, Mrs. Thurman.
Mrs. Thurman. Just a comment, Ambassador. I want to be
associated with Mr. Levin's remarks somewhat because we all
really are struggling very hard on this issue for lots of
reasons. And, quite frankly, as you talk about areas festering
in some of the trade issues, some of it is because of exactly
the problems what we are having in this country and that is,
who are the winners and losers.
No person or people in any other country is not having the
same hesitations and the same arguments--the European Union,
with their farmers. So to try to just kind of broad brush any
of this, I think, is--each area is very different. Each has
their own isolationist point and struggling through this change
in the economy across this world is very difficult for
everybody. So I don't think we can just broad brush that one
administration or another has not been strong. I certainly can
tell you on this issue, this President has sent everybody and
anybody that they can to come talk to me about it. So--I can
tell you his strength is----
Ambassador Yeutter. I am glad to hear that.
Mrs. Thurman [continuing.] Being shown in this Congress.
So--I just--I need to make that point with you--because I have
sat at some of those negotiation tables. I have a very strong
agricultural background from the State of Florida. And I have
worked on many of these agreements. I have looked at what has--
happened in--under the NAFTA agreements. And all of these
related to what brings us to the tables today. But the fact of
the matter is, there are--they may be festering, but it is not
always because we haven't developed the right action.
Ambassador Yeutter. Well, as Congressman Levin indicated,
there have been trade problems around for a long time and I
have personally had 30 years of struggles with them.
Congressman Levin has had almost that many. So we have gone
through a lot of these battles. But when you look at the big
picture, which is what one ultimately must do on a national
basis, it is hard to conclude that this would not be a really
good thing for the United States as a whole.
There are going to be some winners and losers. There are
with every trade agreement, every entry of a nation into the
WTO. There is always some trauma involved in this, and it is
greater in some congressional districts than others. So I know
what you folks go through with your own constituencies. But
finally, when the chips are down, you have what is best for the
United States is a whole? And it seems to me the answer in this
case is quite obvious.
Mr. Houghton. [presiding.] Well, Mr. Ambassador, I agree
with everything you have said. You and I have never had an
argument, have we?
Ambassador Yeutter. I don't believe so, Mr. Houghton.
Mr. Houghton. And so it is wonderful to have you here.
Thanks so much for your presentation.
Ambassador Yeutter. Thank you.
Mr. Houghton. I would like to ask the next panel to come
on, Mr. William Weiller, as Chairman of the Board of Purafil
and representing the U.S. Alliance for Trade Expansion and
National Association of Manufacturers; Mr. Schroeder, Chief
Executive Officer of National Cattlemen's Beef Association;
Dale Grogan, President of Leapfrog Smart from Orlando, Florida,
a member of the U.S. Chamber; and Peter Lichtenbaum, Partner,
Steptoe and Johnson on behalf of the Section of International
Law and Practice, American Bar Association. All right. Mr.
Weiller, would you like to----
Mr. Weiller. Thank you.
Mr. Houghton [continuing.] Give your testimony?
STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER, PURAFIL, INC., ATLANTA, GEORGIA, ON BEHALF
OF U.S. ALLIANCE FOR TRADE EXPANSION, AND NATIONAL ASSOCIATION
OF MANUFACTURERS
Mr. Weiller. Thank you. And good afternoon, Mr. Chairman.
My name is Bill Weiller. I am the Chairman of the Board and CEO
of Purafil, a leading manufacturer of air purification systems
based in Atlanta, Georgia. I would like to thank you for the
opportunity to testify before the House Ways and Means
Committee on U.S. participation in the World Trade
Organization. And I am here on behalf of the U.S. Alliance for
Trade Expansion, and obviously also for Purafil. I have a
prepared statement for the record and some remarks.
The U.S. Alliance for Trade Expansion, commonly referred to
as U.S. Trade, encompasses an impressive, broad-based group of
agriculture, consumer, manufacturing, retailing, and services
organizations representing $2 trillion in annual trade and over
150 million Americans. The coalition seeks to promote the
benefits of economic growth, job expansion and higher living
standards in the United States as a result of free trade and
specifically U.S. participation in the WTO.
Many might be surprised that Purafil, a small American
business with about 70 employees, is even remotely interested
in the WTO and its objectives. In fact, we often encounter the
notion that global free trade is good for big companies and bad
for the little guy. Small and medium-sized businesses do not
attract the headlines the multinationals do, and often our
successes in the global marketplace go without notice. But I am
here to let you know that open trade is not only good for
Purafil, it is the backbone of our business and our strategy.
In fact, Purafil is representative of many small
businesses. I have attached a chart to my testimony, which you
may find interesting. In '89, nearly half of the National
Association of Manufacturers' small- and medium-sized member
companies said they did not export. Today, 80 percent of all
those manufacturers export. This important sea change has taken
place over the past decade. It would not have been possible
were it not for the trade liberalization brought about by the
WTO and, of course, more credit is given for the GATT preceding
it.
No matter how good our products, we would not be able to
export overseas if foreign country barriers were too high or if
world trade were not based on rules. This is where the WTO has
come in. Over the years the WTO and its predecessor, GATT, have
cut tariffs and trade barriers, have developed more fair
trading rules, and have done an enormous job in leveling the
playing field. Tariffs on U.S. manufactured goods exports to
most developed countries, for example, are about 3 percent or
less today; but not too many years ago, they were high enough
to limit our sales prospects severely. Similarly, rules
affecting standards, custom valuation, intellectual property
rights, and other essentials of trade have all improved
dramatically as the WTO has worked to liberalize trade.
A letter signed by over 300 companies and associations was
sent to each Member of the House today. The message is very
simple. No more Smoot-Hawleys. We urge you to oppose House
Joint Resolution 90, introduced by Representative Ron Paul,
which calls on the Unites States to withdraw from the WTO.
Trade--exports and imports--now represent about 30 percent of
the U.S. economy. And no rules of the road governing 30 percent
of the U.S. economy, is unthinkable.
Removing ourselves from the rules-based trading system
would have disastrous consequences for the American economy,
jeopardizing both the longest economic expansion in U.S.
history and continued U.S. global economic leadership. The
consequences would impact agriculture, and my colleague on this
panel will address those issues in greater detail.
Intellectual property rights: TRIPs, Trade Related Aspects
of Intellectual Property Rights, are critical to American
holders of patents, trademarks and copyrights. Total foreign
sales of the core copyright industries amounted to an estimated
$45 billion in 1993. TRIPs implementation has produced the most
significant progress to date for protecting pharmaceutical
patents in developing countries. We should not make the world
safe for pirated American software, pharmaceuticals, and other
high-value products.
Manufacturing: The story of my company's rapid export
growth is repeated thousands of times by other U.S. exporters.
In the mid-eighties, manufactured goods exports were 3.5
percent of the U.S. Gross Domestic Product. Today, they are 7
percent of America's GDP, double what they were 15 years ago.
That means U.S. manufactured goods exports have been growing
twice as fast as U.S. domestic production. That is quite an
achievement, and it would not have been possible without the
WTO's trade liberalizing actions. Thus it should be no surprise
that the WTO trade-related system, one that opens markets and
helps protect us against abusive trading practice, is more
important than ever to American manufacturers.
Retailing: In that area, tariffs are essentially import
taxes that, if re-introduced as a result of a U.S. pullout,
could add 30 percent or more to the price of consumer products.
As Federal Reserve Chairman Alan Greenspan has noted on several
occasions, imports have also served as a great inflation-tamer
in a period of rapid economic growth.
Services: The WTO rules safeguard American service
exports----
Mr. Houghton. Go right ahead. Or you are at the end of your
time, but----
Mr. Weiller. Yes, sir. I will be----
Mr. Houghton [continuing.] We will go right ahead here.
Mr. Weiller [continuing.] Well, basically, what I also
wanted to say that we support not only staying in the WTO, but
also the--China's accession to the WTO and the looming vote to
a PNTR. And my company and our association strongly urge to you
to vote for it. Thank you.
[The prepared statement follows:]
Statement of William Weiller, Chairman of the Board and Chief Executive
Officer, Purafil, Inc., Atlanta, Georgia, on behalf of U.S. Alliance
for Trade Expansion, and National Association & Manufacturers
Good morning, Mr. Chairman. My name is Bill Weiller, I am
the Chairman of the Board and CEO of Purafil, a leading
manufacturer of air purification systems based in Atlanta,
Georgia. I would like to thank you for the opportunity to
testify before the House Ways and Means Committee on U.S.
participation in the World Trade Organization (WTO). I am here
on behalf of The U.S. Alliance for Trade Expansion, and
obviously also for Purafil.
The U.S. Alliance for Trade Expansion, commonly referred to
as ``US Trade,'' encompasses an impressive broad-based group of
agriculture, consumer, manufacturing, retailing and services
organizations representing $2 trillion in annual trade and over
150 million Americans. The coalition seeks to promote the
benefits of economic growth, job expansion and higher living
standards in the United States as a result of free trade and
specifically U.S. participation in the WTO.
Many might be surprised that Purafil, a small American
business with about 70 employees, is even remotely interested
in the WTO and its objectives. In fact, we often encounter the
notion that global free trade is good for big companies and bad
for ``the little guy.'' Small and medium-sized businesses do
not attract the headlines the multinationals do, and often our
successes in the global economy go without notice. I am here to
let you know that open trade is not only good for Purafil, it
is the backbone of our business.
In fact, Purafil is representative of many small
businesses. I have attached a chart to my testimony, which you
may find interesting. In 1989, nearly half of the National
Association of Manufacturers' small and medium-sized member
companies said they did not export. Today, only one in five
fall into that category. In 1989, only 4 percent of those
members earned more than 25 percent of their revenue from
exporting and another 4 percent earned between 11 percent and
25 percent. Today, those percentages have more than doubled to
9 percent and 11 percent respectively. Let me just hammer that
point home. Today, in NAM's surveys we're finding that
exporting generates over 11 percent of the earnings for 1 out
of every 5 exporters and over 25 percent for 1 out of every 10
of these smaller manufacturers. This important sea-change that
has taken place over the past decade would not have been
possible were it not for the trade liberlaizationliberalization
brought about by the WTO.
I'd like to tell you a little bit about my company and how
the WTO has allowed us to expand our exports. Purafil
manufactures air quality systems that remove odorous, corrosive
and toxic gases. In short, we sell clean air. Our customers
include paper mills in Argentina, Oklahoma and North Carolina.
We protect valuable artifacts in the Netherlands, the Sistine
Chapel, and in Washington, DC. We service petrochemical
refineries in Texas, Brazil, and Saudi Arabia. Despite our
small size, Purafil is an industry leader in this niche market.
Sixty percent of our sales are made outside of the United
States. Exporting is vitally important to Purafil: it is the
cornerstone of our corporate strategy. We are not a company
that got into international sales by accident or solely as a
reaction to market demand. We have recognized that in order to
survive, to continue to provide jobs to our employees, and to
continue to fund the R & D efforts necessary to our success, we
have to export and become experts in doing international
business.
The problems that Purafil can solve are the same worldwide.
A refinery in Baton Rouge experiences the same hazardous
emissions from manufacturing processes as does a refinery in
Saudi Arabia. The Sistine Chapel protects its artwork from
environmental degradation, as does the U.S. National Archives
in Washington. Our intellectual property, considering our size,
is significant. We have worked hard to take a technology that
was developed in the U.S. about 30 years ago and have
constantly refined and improved it.
If Purafil were not present to solve these problems, the
increased demand for a solution would result in foreign
competitors gaining the business. Right now, Purafil is the
best in the world at solving air purification problems. We have
a technology that cannot be matched. Purafil has worked hard to
stay on top of our industry, and I fear that without exporting,
someone else will take the lead. We have few viable U.S.
competitors that serve all the applications and markets that we
do. That ``someone else'' could likely be a company from
outside the U.S.
But no matter how good our products, we would not be able
to export overseas if foreign country barriers were too high,
or if world trade were not based on rules. That is where the
WTO has come in. Over the years the WTO and its predecessor,
the GATT, have cut tariffs and trade barriers, have developed
more fair trading rules, and have done an enormous job in
leveling the playing field. Tariffs on U.S. manufactured goods
exports to most developed countries, for example, are about
three percent or less today; but not too many years ago they
were high enough to limit our sales prospects severely.
Similarly, rules affecting standards, customs valuation,
intellectual property rights, and other essentials of trade
have all improved dramatically as the WTO has worked to
liberalize trade.
As much as the WTO has done, there is still more to do. For
example, Mr. Chairman, the tariff for our equipment in South
Africa is 19%. In response to this, we signed a licensing
agreement with our local representative so they could build
portions of our equipment in country and remain competitive.
That representative utilized the Purafil name and proceeded to
dissolve the relationship and become a low cost, Purafil-
educated competitor, leaving us with little recourse. We are
facing similar high tariff situations in India, Brazil, China
and others. One solution is to form licensing agreements in
these countries, but in doing so, we dilute our profit margins
and make it easy for partners to eventually become competitors.
The real solution is for the WTO to move forward in continuing
to reduce tariffs and other barriers, particularly in the
developing countries, where the barriers are still high.
Purafil will continue to do everything in its power to
remain competitive. I am here today to ask you to do your part
-level the playing field so our people, our technology and our
products can compete in the global market. Don't force us to
compete with the trade barriers and tariffs currently in place.
I don't need statistics, studies or business experts to
tell me that exporting creates jobs and is good for the
economy. As a small business owner, I see it every day I go to
the plant. I'm constantly reminded when I look at the shipments
on our dock and see their final destinations.
That is why we support continued U.S. membership in the
WTO. For Purafil and other small-business exporters, we will
continue to be successful only if we maintain our international
customer base. In order to do that, we will depend on the
reduction of tariffs and other trade barriers. A multilateral,
rules-based approach to trade, negotiated through the WTO, is
strongly supported by Purafil.
I want to submit for the record a letter signed by over 130
XXX companies and associations. The message is very simple: No
more Smoot-Hawleys. We urge you to oppose H.J. Res. 90,
introduced by Congressman Ron Paul (R-TX), which calls on the
U.S. to withdraw from the WTO.
Removing ourselves from the rules-based trading system
would have disastrous consequences for the American economy,
jeopardizing both the longest economic expansion in U.S.
history and continued U.S. global economic leadership. The
consequences include:
Agriculture
The WTO Agreement on Agriculture required countries, for
the first time, to reduce or cap tariffs, export subsidies and
internal support mechanisms, and established new science-based
rules for measures restricting imports on the basis of human,
animal or plant health and safety. If the U.S. withdrew,
American farmers could be excluded from these benefits.
Moreover, American farmers would not benefit from further
negotiations already launched at the WTO to reduce trade-
distorting export subsidies overseas. One-third of American
farm production is sold overseas. These exports support
approximately 750,000 American jobs.
Intellectual Property Rights (IPR)
The enforcement mechanisms now available to the U.S. under
the WTO's Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs) are critical to American holders of
patents, trademarks and copyrights. Total foreign sales of the
core copyright industries amounted to an estimated $45.8
billion in 1993. TRIPs implementation has produced the most
significant progress to date for protecting pharmaceutical
patents in developing countries. We should not make the world
safe for pirated American software, pharmaceuticals, and other
high value-added products.
Manufacturing
The story of my company's rapid export growth is repeated
thousands of times by other U.S. exporters. In the mid-1980's
manufactured goods exports were 3.5 percent of U.S. GDP. Today,
they are nearly seven percent of America's GDP -double what
they were only 15 years ago. That means U.S. manufactured goods
exports have been growing twice as fast as U.S. domestic
production. That's quite an achievement, and it wouldn't have
been possible without the WTO's trade liberalizing actions -
including the ``zero-for-zero'' initiatives in the Uruguay
Round and the Information Technology Agreement that eliminated
duties on many high technology products -just to name a couple.
With $527 billion in exports in 1998, the United States is by
far the world's largest exporter of manufactured goods -almost
20 percent more than our nearest competitor. Manufactured
products now account for 62 percent of all U.S. exports. Thus
it should be no surprise that the WTO's rules-based
international trading system -one that opens markets and helps
protect us against abusive trading practices -is more important
than ever to American manufacturers.
Retailing
The U.S. retailing sector employs nearly one-fifth of the
American workforce, and contributes greatly to the high U.S.
standard of living by providing consumers with the wide variety
of products they demand at affordable prices. Tariffs are
essentially import taxes that, if re-introduced as a result of
a U.S. pullout, could add 30 percent or more to the price of
consumer products. As Federal Reserve Chairman Alan Greenspan
has noted on several occasions, imports have also served as a
great inflation-tamer in a period of rapid economic growth.
Services
The WTO General Agreement on Trade in Services (GATS)
establishes a rules-based trading system for services. The WTO
rules safeguard American service exports, which were $260
billion in 1998 and resulted in a surplus of $79.4 billion. The
Basic Telecommunications Agreement represents 91 percent of the
total domestic and international revenue of $600 billion
generated in this sector annually. The Financial Services
Agreement represents 95 percent of the international trade in
banking, insurance, securities and financial information.
Negotiations to further liberalize world-wide trade in
services--including the delivery of services via electronic
commerce--began in January 2000.
It's not just the economy that is at stake, but our
national security as well. The rules-based trading system that
has developed since the end of World War II stands in sharp
contrast to the mushrooming trade barriers that the world saw
in the 1930s. These policies sent trade flows into a long
downward spiral that culminated in the virtual collapse of
international commerce, depression and, finally, war. The
bitter lessons of the first half of the 20th century provide a
map of what roads not to go down in dealing with an integrated
world economy--economic nationalism, isolationism and
protectionism.
The WTO is by no means perfect. We, along with other
groups, have advocated a range of measures to improve the
functioning of the system. At the same time, it is indisputable
that the rules-based trading system has been a positive force
shaping the world since the end of World War II. It has played
an essential role in the transformation of the American economy
since the mid-1980s, driven in no small measure by the
competition faced both here and abroad. Concerning the
alleviation of poverty, trade is a key element in any economic
growth strategy worth mentioning in the developing world.
U.S. membership in the World Trade Organization deserves
the support of all Americans. We urge you to oppose H.J. Res.
90 which calls on the United States to withdraw from the World
Trade Organization.
Thank you.
[GRAPHIC] [TIFF OMITTED] T7261.001
Mr. Houghton. Thank you very much.
Now, Mr. Schroeder.
STATEMENT OF CHARLES P. SCHROEDER, CHIEF EXECUTIVE OFFICER,
NATIONAL CATTLEMEN'S BEEF ASSOCIATION, DENVER, COLORADO
Mr. Schroeder. Yes, sir. Thank you, Mr. Houghton, and to
Members of your Committee. I am Chuck Schroeder, CEO of the
National Cattlemen's Beef Association and we very much
appreciate the opportunity to participate in your consideration
of an extremely important issue for the beef industry, for
American agriculture, and for the country.
During 1999, we had some very encouraging news in the beef
industry as we saw an expansion in beef demand domestically for
the first time in 20 years. That was good news. However, as
Chairman Archer acknowledged earlier, we have only got 4
percent of the world's consumers here within our borders. And,
as we look down the road, we recognize that our only
opportunity to expand our markets and create economic growth in
our industry is to look at those markets beyond our borders.
We have worked very hard to promote beef exports. They,
last year, represented 12 percent of the value of all wholesale
beef sales in this country. We have worked hard over a number
of years. If you look at the last 20 years of international
marketing for the beef industry, we have gone from $500 million
in sales about 20 years ago to almost $3.2 billion last year,
about a 6-fold increase.
Now, while that is encouraging, really what it does is
highlight the growing importance for us of taking advantage of
every opportunity that we might have to move beef into
international markets.
My comments today, and as are reflected in my expanded
remarks that are submitted for the Committee, are based on the
beef industry's experience in winning a WTO case against the
EU, yet still not achieving access to their market. And, as you
know, the EU has essentially banned imports of U.S. beef since
1989. After we jumped every hurdle in the process with the WTO,
the EU was still unable to modify its regulations. And on July
29 of last year, the U.S. began implementing retaliatory
measures against exports in the EU valued at about $116.8
million.
While despite our disappointment at not achieving access, I
do want to say to you today that the National Cattlemen's Beef
Association does support continued United States participation
in the WTO. In fact, we believe it is essential. And I enjoyed
being on the program today with my friend and mentor and fellow
cornhusker, Clayton Yeutter, who makes that point with
significant articulation.
But based upon our experience, and this was mentioned in
Ambassador's Yeutter's remarks, among the strengths of the
current WTO system, is the very well-defined process for
initiating a case where there is a dispute and for determining
the final ruling or settlement.
The current system is certainly much improved over its GATT
predecessor in that respect. And we would highlight that the
strict science-based rules that are established for resolving
these issues are another major strength for the current
dispute-settlement process.
On the other hand, however, we would say that the existing
system can be further improved. The primary weakness of the
current system, in our view, is the absence of an enforcement
mechanism to assure that there is compliance once a ruling is
handed down. And that is what we are suffering under today as a
part of American agriculture.
The WTO case attempting to resolve the EU beef ban, took
nearly a third of a decade, as you know, as you watched that
process, from when the case was initiated until retaliation
began. That process included an initial ruling, an appeals
process, and then the arbitrator's 15-month reasonable period,
as he called it, for the EU to change its regulations.
Now, while that is a lengthy process, the total time
expended is probably pretty consistent with the duration of
most U.S. court cases and perhaps that would be acceptable if
the EU would have complied at the end of that reasonable
period.
I think we would all recognize, and Ambassador Yeutter
pointed it out, that the EU commitment to the WTO is
questionable based on their reaction and their responses to WTO
rulings that have gone against the EU's position. The failure
of the EU to comply with this particular ruling on beef in a
timely fashion, we believe, threatens--yes, sir.
Mr. Houghton. We have go to a vote. And I wonder if you
could summarize pretty quickly what you have to say so that we
could give, in the next 5 minutes, the two other gentleman an
opportunity to testify. And I am sorry we have to do this. The
problem is we have got three votes up now and we are going to
hold you for a long time. And maybe we could do that. Submit
your testimony and then we will be able to get back to you.
Could you do that?
Mr. Schroeder. Certainly.
Mr. Houghton. All right.
Mr. Schroeder. Mr. Houghton, I would offer three quick
points. Number one, indeed, we encourage continued
participation in the WTO. We think there are improvements that
can be made in the process and those are part of my testimony.
Second, relative to China, the point has been made today how
important China trade would be to the United States. It would
be particularly so for us in the beef industry and other
elements of agriculture. We encourage members to push for a
date certain on the vote and to try to rally support for
providing PNTR to China.
Finally, I would just say that we encourage members to
press the administration for implementation of rulings by the
WTO process. I think many people in agriculture feel that we
still play on a very uneven playing field in world trade and we
would like to see as aggressive action as we can to have this
important part of the American economy functioning effectively.
[The prepared statement follows:]
Statement of Charles P. Schroeder, Chief Executive Officer, National
Cattlemen's Beef Association, Denver, Colorado
Thank you Chairman Archer and Members of the Committee for
holding this hearing to discuss Future Prospects for U.S.
Participation in the WTO. NCBA commends your leadership and
continuing efforts to examine the ongoing changes and the
resulting issues and concerns of cattlemen and women as we work
to find ways to improve our ability to more effectively market
U.S. beef in international trade. I am Chuck Schroeder, CEO of
the National Cattlemen's Beef Association, headquartered in
Denver, Colorado.
NCBA encourages open and honest discussion of all issues
facing the cattle industry, such as is being provided by
today's hearing. Such debate is vital to the democratic policy
development process--both within NCBA and to the nation at
large. NCBA has long supported a ``free but equitable'' trade
philosophy and the opening of two-way international beef
markets. We thank you for the opportunity to submit our views.
Importance of Trade:
During 1999 there were encouraging signs that for the first
time in 20 years domestic U.S. beef demand has increased.
However, our ``home'' market contains only about 4 percent of
the world's population. Our greatest potential for expanding
markets is in international trade. As the beef industry
continues to improve its efficiency and productivity, as well
as the quality of its commodity, we are becoming increasingly
dependent on the rest of the world to buy our products to
provide economic growth. The U.S. beef industry has worked hard
to promote beef exports, which now account for more than 12
percent of the value of wholesale beef sales.
The industry's hard work has resulted in an expansion of
beef and beef variety meats exports from approximately $500
million dollars twenty years ago to approximately $3.2 billion
in 1999, and represents a more than a six-fold increase. In
simpler terms, 1999's 2.45 billion pounds of U.S. beef and beef
variety meats export sales represents 10 percent of the 33
million head of cattle processed into beef. While encouraging,
these numbers highlight the growing importance of taking
advantage of every opportunity to move U.S. beef into
international trade, such as would be afforded by
implementation of the agreement negotiated with China.
As this reliance on international markets has grown, so
have the effects of political and economic strife in our key
export markets, which in turn have contributed to the
volatility of U.S. cattle prices. The 1998 calendar year--a
year of recession in most Asian markets--was the first time
that more than one million metric tons of U.S. beef and beef
variety meats were exported. This record volume was exceeded in
1999. Compared to 1998, exports of beef and beef variety meats
during 1999 increased of 8.9 percent on a volume basis and
increased nearly 14.3 percent on a value basis.
Recovery in Asian economies, especially Korea, continued
economic prosperity in Mexico and increasing global consumer
confidence that U.S. beef is the safest and most wholesome in
the world has contributed to improved international demand for
American beef. Beef imports also increased 8.2 percent in
volume and nearly 16.5 percent in value during 1999, the result
of increasing U.S. beef prices and improving U.S. beef demand.
Devaluation of currencies in Australia, Brazil and other Latin
American countries and increased beef production in beef
exporting countries also contributed to increased U.S. beef
imports during 1999 versus 1998.
The U.S. must enter all beef trade negotiations with market
access being a top priority. NCBA realizes that for
international trade to expand and work to the advantage of U.S.
beef producers any agreements must also be equitable. NCBA is
sensitive to the fact that past agreements have not always
worked to the competitive advantage of America's beef cattle
producers. Past agreements could have been more favorable for
U.S. cattlemen, but it is easy to second-guess our predecessors
with the benefit of hindsight. While this is the hand that we
have been dealt under current agreements, NCBA will continue to
work to assure producers' interests are protected as we seek
improvements in existing agreements, as well as in any new
agreements.
The United States is currently the least restricted and
largest beef import market in the world purchasing 15 percent
more beef than the second largest importer, Japan. The United
States is also the second largest beef exporter. Beef markets
in other developed countries remain virtually closed to U.S.
beef, such as in the European Union (EU), or protected by
relatively high tariffs as is the case in Japan and Korea. A
strong, clear and irrevocable message must be sent by U.S.
negotiators to Cairns Group and Mercosur countries--major
exporters of beef to the United States--that no increased
access to the U.S. beef market will be forthcoming until
meaningful access and tariff reduction is achieved in other
major beef importing countries.
The EU Beef Case:
My comments today are based on the beef industry experience
of having taken a case through the entire WTO dispute
settlement process and won, but first, a bit of background on
the case. The EU has essentially banned imports of U.S. beef
since 1989. This thinly disguised trade barrier was implemented
in the name of consumer protection in spite of ample scientific
evidence that production technologies approved by FDA and
widely used in the U.S., but prohibited in the EU were safe.
The U.S. government complained in the GATT, but the EU, as was
permitted at that time blocked dispute resolution.
After the WTO replaced the GATT the U.S. filed its formal
complaint in January 1996, claiming the EU beef ban was a non-
tariff trade barrier. Australia, and New Zealand joined the
United States in the action. Canada filed a separate case, and
the final report addressed issues raised in both (U.S. and
Canadian) cases. These were, in effect, test cases for the
application of the Uruguay Round Agreement on the Application
of Sanitary/Phytosanitary Measures.
Following a series of legal actions and appeals a WTO
arbitrator upheld all previous rulings and gave the EU until
May 13, 1999 to bring regulations into compliance with WTO
guidelines. Under WTO procedures the EU was then obligated to
modify its regulations by May 13, 1999 to comply with the
ruling or the United States could retaliate. Unfortunately the
EU was unable to modify its regulations and on July 29, 1999
the U.S. began implementing retaliatory measures against
exports from the EU valued at $116.8 million.
The objective of the U.S. beef industry has always been to
re-gain access to the European beef market, not retaliation.
Retaliation or compensation will not benefit the beef industry
and these alternatives are viewed only as a means to an end--
access to the EU market--not the primary objective. Based on
the criteria of market access as the primary objective, one
could say that the WTO dispute settlement process has not
worked--we still do not have access to the EU beef market.
However, compensation and retaliation are also possible
outcomes for any WTO case and the U.S. has implemented tariffs
of 100 percent on $116.8 million of EU goods consistent with
alternatives provided in the WTO dispute settlement process.
They provide a ``burr under the saddle'' to push the EU to
compliance. From that perspective the WTO dispute settlement
process has worked, though the industry has not yet achieved
its objective.
Maintain Participation and Integrity of the WTO Dispute
Settlement Mechanism:
NCBA strongly supports continued United States
participation in the WTO. Based on our experience, among the
strengths of the current WTO system is the well-defined process
for initiating a dispute case and for determining the final
ruling/settlement. The current system is much improved over its
GATT predecessor in this respect. The strict science-based
rules established for resolving these issues is another major
strength of the current dispute settlement process.
On the other hand, the existing system can be further
improved. The primary weakness of the current system is the
absence of an enforcement mechanism to assure compliance once a
ruling is handed down. The WTO case attempting to resolve the
EU beef ban took nearly a third of a decade from when the case
was initiated until retaliation began. The process included an
initial ruling in the case, an appeals process and the
arbitrator's 15-month reasonable period for the EU to change
its regulations.
Although lengthy, the total time expended is probably
consistent with the duration of most U.S. court cases and
perhaps acceptable IF the EU would have complied at the end of
the ``reasonable period.'' The frustration is that the EU
waited until the reasonable period was nearly expired before
beginning to discuss possible resolutions, knowing full well
that any resolutions under consideration likely would take
another two or three years to implement. Compared to the old
GATT system, the problem now is much more one of compliance
with a ruling once a final ruling is issued.
The EU commitment to the WTO is questionable based on
reactions and responses to WTO rulings that have gone against
the EU position. In the beef case, the EU response was to
announce intentions to initiate yet additional risk
assessments, despite the fact that multiple risk assessments
have been conducted over two decades without showing credible
evidence of risk. This blatant stonewalling is unacceptable and
requires aggressive and decisive action to address cavalier
disregard of the WTO trade rulings and policy. Failure of the
EU to comply with this ruling in a timely fashion threatens the
integrity and credibility of the SPS Agreement and the WTO
dispute settlement mechanism.
Suggested Changes to the WTO Dispute Settlement Process:
To encourage early settlement and/or compliance, possible
improvements to the dispute settlement process would include:
Reimbursement for Prior Injury: An escrow account or
bonding requirement could be established where the defending
party would begin paying at the time of the initial ruling.
Under the current system, compensation or retaliation only
starts once the entire process is completed. The injured party
is not reimbursed for losses incurred during or prior to the
case. The bottom line: There is no incentive for early
settlement or compliance by the losing party because the
current system effectively rewards stall and delay tactics.
This problem is accentuated under the current dispute
settlement process because the losing party only has to pay for
future losses, which do not begin as long as the process has
not reached settlement. Another alternative would be to allow
the winning party to collect monetary reimbursement for injury
incurred during and prior to the case.
Streamline the Process: This issue has already has a
solution--a package of reforms that would tighten and shorten
the WTO dispute settlement resolution schedule has been
negotiated by WTO members, including the United States. NCBA
supports quick approval and rapid implementation of this
reform.
``Carousel'' Retaliation: Another enforcement tool
supported by the U.S. beef industry and others is for the
retaliation list to be revised periodically--often referred to
as ``carousel'' retaliation. Under the current system, the
countries and the commodities that are not targeted for
retaliation breathe a sigh of relief once the list is
published. Without periodic changes to the list, there is
little, if any, internal political pressure from these entities
to settle. If the list of affected commodities were subject to
change on a random basis, countries and/or commodities could
never be certain they had escaped targeting. This uncertainty
would help generate constant pressure on all offending parties
to come into compliance with the WTO ruling.
The U.S. beef industry can again speak from experience on
this issue. The 1989 retaliation against the EU in this case
was suspended when the WTO case was initiated in January 1996.
The 1989 retaliation was static and the burden fell mostly on
Italy. Although it imposed some economic and political pain on
Italy, it hardly affected the other 11 member states. Italy's
interests were quickly written-off by the other member states,
and there was no significant pressure to change the policy. For
that reason, the U.S. remains shut out of the market.
All EU member states carry responsibility for maintaining
this illegal policy--none should be immune from the effects of
retaliation. Since each EU member believes other member states
will bear the brunt of the U.S. retaliation, there is minimal
pressure within the EU to change or withdraw its ban on U.S.
beef. With the retaliation in the EU beef case set at only
$116.8 million, a static retaliation list has significant
impact on the exports of only two or three member states out of
the 14 (UK has been exempted from retaliation by the
Administration.
Once retaliation is taken, carousel retaliation seeks to
ensure that it is applied in a way to best ensure compliance.
With this tool, USTR could use its existing authority to
periodically re-shuffle the list of targeted products to
impact, over time, the interests of each member state. This
approach is uniquely applicable to--and was conceived primarily
for use against--the European Union because of the EU's one-of
a kind policy-making apparatus.
USTR could voluntarily rotate among products included on
the list published March 25, 1999, or involve additional
products, as appropriate. However, the Administration has been
unwilling to exercise this authority. NCBA and a broad
coalition of agricultural organizations strongly support the
``Carousel Retaliation Act,'' H.R. 2991 co-sponsored by
Congressman Combest, Chairman of the House Agriculture
Committee, Congressman Stenholm, Ranking Member of the House
Agriculture Committee and over 80 other co-sponsors. In the
Senate, S.1619 is sponsored by Senator DeWine, with a
bipartisan group of over 30 co-sponsors. Provisions of S. 1619
passed the Senate as part of the Africa Free Trade bill and is
now in conference.
In order to enhance the credibility of the WTO and to
increase U.S. leverage to deliver relief in cases, U.S.
agricultural interests are urging that the carousel language
that passed the Senate remain in the Africa bill and be quickly
enacted into law. Europe's outspoken opposition to the notion
of carousel rotations is promising evidence that this approach
may finally get Europe's attention and exert the pressure
needed to induce EU compliance with WTO rulings. NCBA urges
members of this Committee to strongly support including
carousel language in the final Africa Free Trade conference
report.
Target Larger Member States First: Although all 15 member
states are responsible for maintaining the illegal EU hormone
ban, some are more influential over EU policy than others. Each
of the five larger member states--France, Germany, Italy,
Spain, and the United Kingdom--has more votes and appoints more
Commissioners than the 10 smaller countries. NCBA recommended
that the initial product list be developed to affect the
interests of a subset of these five countries. If the initial
retaliation does not precipitate an appropriate change in the
EU beef import policy over a reasonable period of time, the
list should be adjusted and reissued to affect the products of
the remaining large countries. Subsequent adjustments in the
list should be targeted toward subsets of the smaller
countries.
Tariff Levels Should Be Flexible: All but a handful of the
products identified in the March 25, 1999 Federal Register
notice as candidates for the retaliatory 100-percent tariffs
are agricultural products. This is significant because the EU
Common Agricultural Policy represents a vast network of direct
and indirect subsidies--including export subsidies--designed to
artificially enhance the competitiveness of EU agricultural
exports in international markets. Unless tariffs are
established at truly trade-prohibiting levels, they are not
retaliation in the true sense of the word. If the objective in
assessing retaliatory duties is to eliminate trade i.e.,
retaliation, it should be recognized that EU subsidies are
variable and can be increased to offset the amount of the
tariff. This suggests that initial tariffs at levels higher
than 100 percent should be considered and/or that USTR should
reserve the right to increase the tariff if the EU increases
subsidies in an attempt to neutralize the effects of the
retaliatory tariff.
Other WTO Issues:
Do Not Open the SPS Agreement: NCBA supports strict
enforcement of the science-based trading rules established in
the Uruguay Round Agreement on the Application of Sanitary and
Phytosanitary Measures (the SPS Agreement). The red meat
industry is generally satisfied with the SPS Agreement and
opposes its opening for further negotiation.
Definition of Dumping: The beef industry is driven by
supply and demand and these forces determine the market price
for beef. Market-driven industries traditionally run in cycles,
and most beef producers periodically sell below the cost of
production (at a loss) during the high production/low price
periods of the cattle cycle. Indeed, it is these low prices and
industry losses that result in herd reduction and declining
supplies. These periods of cyclical low prices and producer
losses in the beef industry meet the definition of dumping
under current WTO rules--even in the absence of evidence of
predatory behavior, intention to monopolize, or other
intentional efforts to drive competitors out of business.
Following expenditure of scarce industry resources to
defend against dumping cases filed by Mexican producers against
U.S. cattle, beef and beef variety meats, NCBA appointed a
working group to draft new language defining ``dumping'' that
would better protect U.S. producers in future cases. The
objective is to make the definition of dumping more consistent
with the cyclical realities of producing agricultural
commodities.
The current definition of dumping under WTO rules does not
make sense for cyclical commodity markets like beef because one
of the key criteria defining ``dumping'' is that the commodity
must be sold below the cost of production in the importing
country. During future negotiations, NCBA supports changing WTO
rules so that our exporters are not found to be dumping because
they are selling below cost because of market prices they
cannot control.
Political Climate and Industry Concerns:
There is a perception among many in agriculture that past
GATT and WTO rounds often traded away U.S. agricultural
priorities. U.S. crop and livestock producers were left facing
high tariffs and a host of non-tariff trade barriers in foreign
markets while domestic agricultural markets were liberally
opened to imports. Continued failure of the EU to live up to
its obligations as a full WTO member and lift the ban on U.S.
beef is a constant irritant and often cited as an example of
how the WTO process fails to work.
One of the underlying premises of the 1996 ``Freedom to
Farm Bill'' was that aggressive pursuit of growing export
markets would be a critical strategy to replace the safety net
of traditional farm programs. NCBA firmly believes this to be
true. Eliminating trade barriers is essential to the success of
any international trade negotiations.
Despite the overwhelming evidence that the international
market must be the focal point for market growth and economic
vitality, there is a growing protectionist sentiment at the
grassroots level. This sentiment is the result of increased
questioning at state and local levels about the impacts of
trade on individual agricultural producers and increased
skepticism about the willingness of federal officials to
aggressively negotiate agreements favoring U.S. interests.
In addition, there is a growing lack of confidence even
among ``free'' traders that our trading partners will live up
to their obligations under negotiated agreements. Simply put,
U.S. producers are tired of facing their international
competition on a persistently tilted playing field. There also
is a perception that U.S. negotiators and regulatory agencies
are more focused on developing protocols and modifying
regulations to address concerns of countries seeking access to
U.S. markets rather than on identifying and addressing
regulations/barriers in importing countries that limit access
of U.S. products.
It is clear that Congress and the Administration have not
had a unified strategy to systematically attack the trade
problems of U.S. agriculture. The inability to secure approval
of ``fast track'' negotiating authority prior to the Seattle
Ministerial meeting is testimony to this void. Congressional
leaders and the Administration have often seemed more
interested in forcing the opposition into a difficult vote and
then playing the ``blame game'' for political gain than in
working together to pass meaningful trade legislation that will
benefit agriculture.
There is plenty of fault to go around. The breakdown of the
Seattle talks and attempts to patronize varied non-trade
related special interests has further contributed to concerns
about whether agriculture's interests will once again be traded
away for political expediency. And finally, reluctance of the
Administration to utilize the most hard-hitting retaliation
strategies, including the carousel approach, against the EU in
the beef and banana cases just compounds the concerns that U.S.
negotiators are more concerned about political and diplomatic
pressures than the interests of domestic pro-trade injured
parties.
Agricultural producers are justifiably concerned about
sending a team to the negotiating table that has a more
consistent track record of in-fighting among Congressional and
Administrative ranks than in engaging the opposition for
meaningful trade liberalization. Failure of the Seattle Round
means that the United States must achieve a meaningful ``win''
on the trade front soon or the anti-trade activists will take
us down the road to protectionism--if not isolationism--
resulting in trade wars and a return to costly government
supply management/price support farm programs.
The China Agreement: With a population of 1.2 billion and
nearly 200 million consumers with middle-class incomes, China
is a consumer market with enormous potential. Any market
potential and any trade agreement that involves one out of
every five inhabitants on planet Earth is impossible to ignore
just because of the sheer magnitude of the numbers. For
example, NAFTA impacted the total population of Canada, Mexico
and the United States--a combined population of approximately
400 million. China has three times the population of the
combined NAFTA countries.
The U.S. beef industry (and the rest of agriculture) has
the potential for huge gains in the broader trade package that
was finalized with China prior to the WTO meetings in Seattle.
The agricultural community is anxiously waiting to see if
Congress is going to fulfill it's promises of trade expansion
embodied in the 1996 Farm Bill or if election year partisan
politics will rule the day over agricultural interests.
A condition for any trade agreement with China to be
finalized is that the U.S. government must approve Permanent
Normal Trading Relations (PNTR, formerly MFN) for China. For
the agreement to be completed, Congress must separate the
importance of trade and access to emerging markets for U.S.
agricultural products from other political concerns and approve
PNTR for China. If China joins the WTO and PNTR is not
approved, the rest of the world will gain access to the Chinese
market under the same conditions that are available to U.S.
producers in this agreement--BUT U.S. producers will not be
able to participate. In effect sanctions will be placed on U.S.
agricultural products that could be sold into the Chinese
market while the rest of global agriculture once again gains
access at our expense.
Congress has approved annual renewal of NTR every year in
recent years with increasingly wider margins. Annual renewal of
NTR granted China continued access to the U.S. market and
resulted in record trade deficits. The recent agreement levels
the playing field. It gains access to the Chinese market for
U.S. goods, including agricultural products and is good for the
beef industry, for American agriculture and for business. A
vote against PNTR for China is a vote against U.S. agriculture.
It is critical for Congress to now do the right thing for
agriculture and the country and cast a favorable vote for PNTR.
A date for the vote must be set so that NCBA and other
agricultural interests can generate grassroots support. Given
protectionist sentiments in some quarters, both in here and
abroad, failure to cast a favorable vote for trade expansion
with China now could have implications comparable to the
protectionist provisions of Smoot-Hawley.
The U.S. must re-establish its commitment to opening
international markets soon or risk giving the agenda to more
protectionist elements by default. NCBA supports continued
membership in the WTO. We appreciate the initiatives that have
been undertaken to gain access to ``level playing field''
international markets and to resolve lingering issues that
restrict the ability of the U.S. beef industry to offer its
products to international consumers.
Mr. Chairman, NCBA thanks you and the committee for this
opportunity to participate in the process of resolving critical
trade issues within the beef industry. We look forward to
continuing U.S. membership in the WTO, a successful vote
granting PNTR for China and accession of China to the WTO. We
stand ready to provide additional input on this and other trade
issues, such as those involving the EU and approving
legislation to provide trade-negotiating authority. Thank you
for the opportunity to present this information.
Mr. Houghton. OK. Good. Well, thank you very much.
Mrs. Thurman. Mr. Chairman----
Mr. Houghton. And, again, I am sorry we had to----
Mrs. Thurman [continuing.] Mr. Chairman----
Mr. Houghton [continuing.] Truncate this thing. Mr. Grogan,
could you summarize in a couple of minutes what you had----
Mrs. Thurman. Mr. Chairman----
Mr. Houghton [continuing.] And, Mr. Lichtenbaum, maybe you
could do the same thing.
Mrs. Thurman. I just wanted to introduce Mr. Grogan because
he actually----
Mr. Houghton. Oh. I am sorry. Absolutely. I am sorry.
Mrs. Thurman [continuing.] Is a Florida company. More
importantly, when I was in the State Senate, he actually was in
my district. He now is in--or would have been in Cliff Stearns,
but we are just glad you are here. Thanks.
Mr. Houghton. Oh, thanks, Karen, very much. All right. Mr.
Grogan, go ahead.
STATEMENT OF DALE GROGAN, PRESIDENT, LEAPFROG SMART PRODUCTS,
INC., ORLANDO, FLORIDA, AND MEMBER, U.S. CHAMBER OF COMMERCE
Mr. Grogan. Thank you, Ms. Thurman. I sure appreciate that.
Mr. Houghton, I will truncate my comments. I am here as
President of Leapfrog Smart Products. We are a software
development firm based in Orlando now. And we are a member of
the U.S. Chamber of Commerce. And my comments are specifically
directed to how WTO affects our business as a small business.
Leapfrog is a four-year old company and what we do is write
software for smart cards. And smart cards are those little
credit card-sized pieces of plastic that have computer chips in
them and the computer chips do a whole host of different
things.
What we have seen is that the United States has lagged in
the world market as it relates to employing and deploying this
technology. The technology first came over from Europe about 25
years ago, but the hotbed of activity right now is Asia and, in
particular, China.
China is so important to our company that we have
established a number of joint ventures there in China with
partners. The difference in doing business in China versus,
perhaps, a decade ago, is absolutely startling. We have a joint
venture with a couple of different companies over there. And
historically, a joint venture in China was, the Chinese would
contribute land or land-use rights and 1,000 workers. No more.
Our joint venture partners have capital at risk. They have
profit motives and we have Chinese investment into the
corporation. In fact, we have specifically Chinese national
citizens as investors as in-ground, in-country partners. So the
way of doing business is dramatically different.
Furthermore, the size of the market in China, just in the
smart card industry, absolutely dwarfs what we are doing here
in the United States. There is one project, Mr. Houghton, right
now that is being bid at the U.S. level, which is $1\1/2\
billion coming through our Federal Government through the GSA.
It is called the common access project. One-and-a-half billion
dollars, two-and-a-half million smart card holders. In China,
there is a project sponsored by the government that represents
980 million smart cards.
For Leapfrog, a small company, and we have 50 employees, we
would be foolish to turn our backs on that. We simply could not
survive if we ignored the rest of the world, China, in
particular, because the market is so, so large.
So, for us, in a quick summation, WTO is very important for
us for three important reasons. One, the protection of our
intellectual property. We are a software company. That is our
asset. So having the WTO adds another layer of protection. The
Chinese recognize it. They want WTO inclusion obviously, and it
levels the playing field.
Mr. Houghton. Need to hurry up.
Mr. Grogan. I am finishing.
Mr. Houghton. OK.
Mr. Grogan. So I guess, in closing, the two other points
are, access to the markets for a small company is important.
And keeping the negotiated advantages that Ambassador
Barshefsky had is critically important. The punch line of all
this is that right now, I am responsible for 50 people's lives.
We have 50 employees. By having our trade in China and WTO, we
can protect those lives. I appreciate your time.
[The prepared statement follows:]
Statement of Dale Grogan President, Leapfrog Smart Products, Inc.,
Orlando, Florida, and Member, U.S. Chamber of Commerce
I am Dale Grogan, President of Leapfrog Smart Products,
from Orlando, Florida and a new member of the US Chamber of
Commerce. Thank you for the opportunity to express the
viewpoint of small business as it relates to U.S. membership in
the WTO and the implications of U.S. membership on trade with
China, particularly in light of the expected accession of China
and Taiwan into the WTO this year.
Leapfrog Smart Products is a software application
development firm that creates solutions for Smart cards. Smart
cards are mini-computers embedded in plastic the size and shape
of a credit card. Just like Microsoft creates software for
personal computers, Leapfrog creates software for computers
called Smart cards.
We are proud to testify on behalf of the U.S. Chamber of
Commerce and likewise believe the Chamber speaks on our behalf
on this and other issues. The U.S. Chamber is the world's
largest business federation, representing more than three
million businesses and professional organizations of every
size, sector and region in the country.
In keeping with the Committee's March 20 hearing advisory,
my comments today will focus on four topics: (1) the importance
of PNTR status and WTO membership for China as it benefits our
technology-based business, (2) the overall results of U.S.
membership in the WTO and the General Agreement on Tariffs and
Trade (GATT), (3) whether future participation of the United
States in the WTO and the multilateral trading system can be
expected to benefit Americans, and (4) prospects for increased
economic opportunities for U.S. businesses and workers
associated with Chinese membership in the WTO and the
normalization of trade relations between the United States and
China.
Point 1: ``PNTR status and WTO membership for China as it
benefits our business:''
From a technology perspective, China is no longer the
sleeping giant--she is awake. The time gap between the
Industrial Revolution and the Technology Revolution in the U.S.
was about 80 years; in China, it is about 8 years.
Infrastructure is being built faster than you can possibly
imagine and the marketplace is ready for Western goods and
services, in particular, technology--any kind of consumer-based
technology. Whatever the ``western consumer'' has, the Chinese
want and need
China's greatest resource today is its collective buying
power. China recognizes this and rightfully protects that
resource. To effectively do business in China, having a strong
in-country partner is absolutely elemental. Without a partner
who is motivated by profits, you're dead. Fortunately the
business climate in China has changed over the past decade. It
used to be that a Chinese joint venture meant that the Chinese
would ``contribute'' land (or a factory) and labor. That was
easy to do for the Chinese, because both were, and are,
abundant. The joint venture that Leapfrog just completed with
our Chinese partners is the new model (we think) for Sino-
American business. The objective of the joint venture is to
manufacture a Smart card reader for worldwide distribution,
including China. Also, we expect to sell our software solutions
into China--soon to be the world's largest purchaser of Smart
card technology.
Under the parameters of our joint venture, our Chinese
partners not only contribute the factory and skilled labor
force required to manufacture our new fingerprint reader, they
also are bona fide investors into the deal with capital of
their own at risk. Not only that, our partners will be
responsible for business development within China. An American
company without a Chinese partner is a rudderless boat. The
third leg of the stool is that we have a local Chinese
businessman as an investor. Because our joint venture is
privately owned, we all share the same capitalistic goal of
profits.
The key to making deals like we have with our Chinese
partners is having PNTR and WTO membership for China. The
Chinese business people want this. Normalization and WTO status
only re-affirms the rules of the game. For us, WTO status in
effect forces Chinese businesses to ``play by the rules.'' The
WTO protections, specifically of intellectual property, give
hi-tech companies such as Leapfrog the comfort and ability to
extend our business reach into the global market, a necessary
ingredient in the Internet-driven information age.
For a small company like Leapfrog (we have about 50
employees now), having the ability to sell our software into
China is critical to our success. The fact of the matter is
that the U.S. market lags Asia dramatically. For example, over
the next five years, U.S. market for Smart card software will
be about $200 million. China alone will be over $2.0 billion.
Companies in our industry simply cannot ignore the Chinese
market. The harsh reality of business is that isolationism
would simply kill our company.
Point 2: ``Overall Results of U.S. Membership in the WTO and
the GATT''
During the pre-World War II period, the United States and
other nations learned the hard way that protectionism and other
forms of isolationism were self-defeating. The collective
destinies of all of the countries are inseparable and
interlocked. As the notorious Smoot-Hawley tariffs in the U.S.
and other mirror measures around the world aggravated an
already severe depression, many nations eventually realized
that protectionism could not be the answer. Thus a global
trading system was conceived and eventually embodied in the
GATT. Founded in 1947, the GATT system, had as its underlying
premise that protectionist policies were inimical to nations'
economic well-being. GATT established international ground
rules for a process of economic integration that continues to
this day. In sharp contrast to earlier practices, nations
agreed to treat any one nation's commerce the same as that of
(almost) all other nations (``;most-favored-nation'' treatment
or, in U.S. law more recently, ``normal trade relations''), as
well as how they would treat their own commerce (national
treatment).
Since that time, the world economy has evolved into a very
different and much more complex state. As nations struggle to
cope with these new realities, official efforts at economic
integration are continuing around the world. The Uruguay Round
Agreements represent by far the most ambitious of these
efforts. Those agreements committed over 135 nations to
adherence to the following principles:
Trade without discrimination. This means WTO
members agree to give equal treatment to commerce from other
member countries (``;most-favored-nation'') as to domestic
commerce (``;national treatment'').
Predictable and growing access to markets. This is
of particular importance to our company and includes a
continuing commitment by WTO members to reduction of tariff and
nontariff barriers to trade, as well as transparency in
domestic laws, regulations, and practices.
Fair competition. Where conditions and
restrictions on free trade remain, applicable rules and
procedures enforced by WTO members must be fair and, again,
non-discriminatory.
Economic development and reform. Over three
quarters of the 135-plus members of the WTO are developing
countries, in the process of reform from non-market systems.
Accelerated trade concessions and extra flexibility in required
adherence to WTO rules are provided in a number of areas.
While the GATT Uruguay Round Agreements are historic for
the ground and the number of signatory nations they cover, they
also represent--through the WTO's dispute-settlement
processes--an unprecedented application of a rule-enforcement
mechanism to the conduct of trading nations. While the WTO is
not in a position to directly force individual nations to
change their trade laws, it can provide an international
``stamp of approval'' for other nations' responses to trade
barriers and distortions that they and the WTO have deemed
improper. As a result, under the WTO we have better enforcement
of U.S. rights and greater assurances that our trading partners
will abide by the rules and open their markets to American
exports.
More broadly, participating in the WTO also permits us to
advance our democratic values. Countries that subscribe to WTO
rules--rules we had a disproportionate role in shaping--are
obliged to adhere to these rules in commercial transactions. In
short, the WTO reinforces the rule of law. As I mentioned
earlier, this is critical for a software company where our
intellectual property can be reverse engineered or pirated. WTO
rules creates new barriers against piracy that benefit both
small and large businesses.
Point 3: ``Whether Future Participation of the US in The WTO
and the Multilateral Trading System can benefit Americans''
Trade's importance to the U.S. economy has grown enormously
over the past forty years. The share of U.S. exports 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 lives outside of
the United States. It should make common sense not only to
trade with them, but also to lead and work with other nations
to solve international crises and promote expanding trade and
sustained economic growth.
As the world changes, continuing U.S. engagement is
becoming more important to the national interest, not less. The
world is becoming more multipolar in political and economic
terms. New players are emerging on economic and political
fronts. Economic and trade ``blocs'' such as the North American
Free Trade Agreement (NAFTA), the European Union, the Asia-
Pacific Economic Cooperation area (APEC), and others continue
to gain prominence.
There is no question that, if the U.S. is to successfully
reassert its leadership in world economic affairs, it must not
only resume its place at the head of the trade negotiating
table, but also demonstrate its willingness to lead at that
table. Historically, such U.S. leadership has led to
strengthened trade rules that have allowed American businesses,
farmers and workers to find new opportunities, create new jobs,
and raise living standards. In other words, to enjoy the
benefits that increased trade has on our lives.
Notwithstanding the debacle of the WTO ministerial
conference in Seattle, global trade continues to expand with
attendant benefits for consumers, workers and business.
Continued progress toward trade liberalization requires that we
recognize the WTO's continuing value to U.S. interests. We must
therefore continue efforts to build upon and improve upon the
system as it now stands.
The structure of rules governing trade in goods and
services remains in place within the WTO. We should work
vigorously in the coming year to insure rapid and full
implementation of all existing commitments by WTO members.
The WTO's less advanced members, especially the lesser
developed countries, must obtain a deeper stake in the WTO
system through additional trade liberalization initiatives and
through understanding the benefits of global trade for their
economies.
The rapid pace of global economic integration will insure
that continuing delays in further trade liberalization pose
serious risks and burdens for global trade. Every attempt
should be made to move forward as much as feasible in the
already mandated negotiations on agriculture and services.
Opportunities for limited progress, such as sectoral
initiatives, should be pursued wherever feasible.
There are those who, during the struggle to implement the
North American Free Trade Agreement (NAFTA), argued that
NAFTA's implementation would be followed by the ``giant sucking
sound'' of U.S. jobs heading south to Mexico. But what has
really happened? Since NAFTA's implementation--and also since
the subsequent implementation of the Uruguay Round Agreements--
the U.S. economy has enjoyed record employment. It is clearly
in our national interest to replicate this success wherever and
whenever possible.
Point 4: ``Prospects for increased opportunities for the U.S.
associated with Chinese membership in the WTO and the PNTR
between the United States and China''
In its single most important vote this session, Congress
will soon decide whether to extend permanent normal trade
relations (PNTR) status to China as part of the recently-
negotiated China-U.S. agreement on China's pending WTO
accession. Once China concludes the requisite additional
agreements with the European Union and others, it will enter
the WTO--whether or not Congress grants PNTR. If Congress votes
not to grant PNTR, we will forfeit to our competitors in Asia,
Europe and elsewhere the benefits of improved access to China's
market that we negotiated for ourselves last year--with the big
losers being American farmers, American manufacturers, American
technology firms like Leapfrog, American service providers, and
American workers.
China has some of the most restrictive trade barriers in
the world. But in stark contrast to the Chinese market, the
U.S. market is wide open to imports. U.S. families already
benefit from increased choices and price competition brought
about by Chinese imports. By tearing down thousands of Chinese
trade barriers, the US-China WTO agreement will help level the
playing field between our two countries and give U.S. companies
an opportunity to increase their share of the Chinese market.
U.S. exporters will not be the sole beneficiaries of the
U.S.-China WTO agreement. More business for U.S. exporters
means more business for their vendors and suppliers. Thus, even
companies with no international sales will be able to attribute
some increase in business to the agreement by virtue of their
supplier relationship with companies that sell to China.
In short, the agreement is one-sided in our favor. In
exchange for Chinese concessions, the United States is not
required to open its markets wider to Chinese imports. These
concessions are the price of admission China must pay to become
a WTO member. With the exception of the annual ``normal trade
relations'' (NTR) renewal process, the United States in effect
already treats China as if it was a WTO member. We must end the
annual NTR renewal process and grant China permanent status in
order to insure that we receive the benefits of this landmark
agreement.
The U.S has an historic opportunity to secure broader and
more consistent access to China's markets. While China must
still complete its WTO negotiations with other nations, the
U.S. should not delay its final approval. The US-China WTO
agreement contains most of the major components that will be in
China's final access protocol. Any additional market-opening
measures negotiated by these other countries must be extended
to the United States as well. Thus, the final terms of China's
accession to the WTO can only be improved over the already
impressive US-China agreement.
In conclusion:
The China WTO Agreement will:
Eliminate import duties on high-technology goods
by 2005.
Permit foreign investment in the Chinese Internet,
and liberalize Internet services.
Permit provision of telecommunications services
via satellite.
Allow foreign investment in all types of telecom
services and phase out most geographic restrictions.
Protect intellectual property rights through
adherence to the WTO TRIPS Agreement.
We have just become a public company, and so we are
scrutinized by Wall Street every day. I can tell you that when
we announced our Chinese joint venture, our stock jumped 28%.
The market recognizes business opportunities and responds
accordingly. We believe that what we are doing is right and
benefits our shareholders, our employees, and their families.
The positive fall-out from doing business with China is simple:
jobs. High-tech engineering jobs, service jobs, support jobs,
production jobs, the list goes on. In the hi-tech business we
provide full solutions. This means that we buy component goods,
such as Smart cards, computers, and readers. Additionally,
there is a host of support services that are provided from
back-office processing to infrastructure support to
telecommunications efforts. The point is for every solution
sold in China, bunches of jobs are created here in the US. The
jobs fuel the economy.
On a personal level, in my many trips to China, I have
found the people interesting, humble, honest, and hard working.
The business issues they face on a daily basis are the same as
we have here in the U.S.: soaring costs, shrinking margins and
global competition. Like it or not, China is on the way to
becoming a capitalist juggernaut. We have a simple choice to
make in business. We can either embrace and profit from China
as a trading partner or stick our heads in the sand and hope
they go away. I am responsible for the livelihood of fifty
families now; the choice is simple for me. We need PNTR and WTO
for China. On behalf of the U.S. Chamber of Commerce and its
members, I urge you to follow our lead.
This concludes my testimony. I will be glad to answer any
questions.
Mr. Houghton. I thank you. Well, I appreciate your
understanding. Yes.
Mr. Lichtenbaum.
STATEMENT OF PETER LICHTENBAUM, PARTNER, STEPTOE AND JOHNSON,
LLP, & LIAISON TO THE WTO SECRETARIAT, ON BEHALF OF SECTION OF
INTERNATIONAL LAW AND PRACTICE, AMERICAN BAR ASSOCIATION
Mr. Lichtenbaum. Thank you, Mr. Houghton. My name is Peter
Lichtenbaum. I am a partner with Steptoe and Johnson, appearing
here on behalf of the American Bar Association's Section of
International Law and Practice. I very much appreciate the
opportunity to be here and have a longer statement for the
record.
To be, hopefully, as brief as possible, we support U.S.
membership in the WTO. We recommend that the Congress not
approve the legislation that has been introduced. The WTO is
very important with respect to two aspects on which we have
expertise, dispute settlement and institutional issues.
On the dispute settlement issues, a number of the reasons
why this is in the U.S. interest have been talked about today.
We have a guaranteed day in court. We have high-quality panel
decisions. We have strict time limits at each stage. In
general, notwithstanding the experience of the cattlemen, the
compliance has been very good and the system has yielded
commercial results for U.S. exporters.
Still, the ABA Section recognizes that changes may be
warranted. One of those areas, obviously, is the area of
compliance or implementation or enforcement.
Mr. Houghton. OK.
Mr. Lichtenbaum. It is worth thinking about what changes
are warranted given the beef hormones decision and the bananas
decision which the EU has not complied with. At the same time,
as Mr. Levin pointed out, the United States is not only a
plaintiff, but also a defendant in cases like the FSC. And so
we have to be wary about proposals that might put us in a
position that we don't want to be in when it is our turn. So we
need to strike a balance.
Second, greater transparency is obviously critical from a
political standpoint. In particular, all written submissions by
governments should be available on the Internet when they are
filed and there should be clear rules for submitting amicus
briefs to panels.
And, third, the budget and staffing for the system should
be increased. It is penny-wise and pound-foolish to stint on
the funding for dispute resolution. Right now, the system is
stretched to its capacity. The United States should take a
leadership role in providing the resources that are needed.
On my second topic, the WTO, as an institution, we all know
the WTO is----
Mr. Houghton. We have literally got to go here.
Mr. Lichtenbaum. I will finish. Thank you very much.
Mr. Houghton [continuing.] And could you wrap up? I am
terribly sorry here. But I mean, I think it is for our
convenience. We have got 2 minutes to go over and vote. And----
Mr. Lichtenbaum. I understand.
[The prepared statement follows:]
Statement of Peter Lichtenbaum, Partner, Steptoe & Johnson LLP, and
Liaison to the WTO Secretariat, on behalf of the Section of
International Law and Practice, American Bar Association
The views expressed herein are presented on behalf of the
Section of International Law and Practice (SILP) of the
American Bar Association (ABA). They have not been approved by
the House of Delegates of the American Bar Association and,
accordingly, should not be construed as representing the policy
of the American Bar Association.
Summary
The ABA/SILP urges the Congress to reject a Resolution
rescinding Congressional approval of the Uruguay Round
agreements, for the following reasons:
The application of the rule of law to
international economic relations strongly serves the U.S.
national interest. As an embodiment of the rule of law
approach, the WTO helps establish and oversee the
implementation and operation of rules that promote an open
trading regime for goods and services. The vigorous enforcement
of these rules under the Dispute Settlement Understanding
ensures that they bind states to commitments made during the
Uruguay Round. This development of the rule of law in
international trade provides the security and predictability in
commercial relations needed for U.S. consumers, producers, and
exporters to flourish.
The WTO provides the institutional forum for the
greater liberalization of rules restricting commerce among
nations. Many of those restrictions now cover areas (such as
services and other intangibles) in which the United States has
a comparative advantage and which form the foundation for the
modern U.S. economy. The United States has far fewer trade
barriers than many, if not all, of its trading partners. The
future economic growth and development of the U.S. economy
depends greatly on the access to foreign markets by U.S.
producers not only of goods, but also of services and
intellectual property. As the institution that already exists
to address such issues, the WTO promotes U.S. national
interests.
Despite some high profile disputes where the U.S.
position did not prevail, overall the WTO dispute settlement
system has served and can reasonably be expected to serve U.S.
interests. The WTO dispute settlement system has enabled the
United States to obtain significant market access for U.S.
exporters in a timely manner.
The general success of the WTO in serving U.S.
interests does not blind the ABA/SILP to the institution's
imperfections. The ABA/SILP urges the United States to lead
reform in the following principal areas: (1) strengthening the
implementation provisions of the Dispute Settlement
Understanding to promote greater compliance with WTO
obligations; (2) enhancing transparency in dispute settlement
and decision-making processes; and (3) ensuring that the entire
WTO membership is adequately reflected in WTO decision-making
processes.
On balance, despite the institution's
imperfections, U.S. membership in the WTO has advanced and
continues to advance U.S. interests far more than would
withdrawal from the organization. The reforms identified by the
ABA/SILP would strengthen the WTO and thereby serve to promote
U.S. interests more effectively.
I. International Trade and the Rule of Law
The establishment of the World Trade Organization at the end of the
Uruguay Round and the incorporation into the multilateral trading
regime of several new agreements and areas of liberalization has
highlighted the importance of a properly-functioning international
trading order. The liberal trading system begun by GATT and then
strengthened by the WTO has contributed to the current economic growth
experienced in the United States and to the growth and development of
nations around the world. Recently, a dialogue has ensued on how we can
seek to promote our trading interests while recalling that the U.S.
national interest includes far more than simply trade policy. The
following testimony discusses the role of the WTO's dispute settlement
mechanism and institutional machinery in promoting U.S. national
interests. It is the view of the ABA/SILP that Congress should maintain
its support for U.S. participation in the WTO.
Any assessment of the costs and benefits of WTO membership for the
national interest is, by its nature, complex and multi-faceted,
requiring an analysis not only of the economic issues involved, but
also those of the environment, labor, consumer, and other aspects of
civil society. In this testimony, the ABA/SILP does not address the
full range of factors that will necessarily be part of the final
evaluation of the U.S. interest in WTO participation. Rather, the ABA/
SILP today offers its views on areas where it has particular expertise,
continuing the work undertaken by the ABA and the ABA/SILP in recent
years regarding the promotion of the rule of law in international
commercial relations. Specifically, the ABA/SILP offers its views on
dispute settlement and institutional issues in the WTO.
A fundamental goal of the ABA is to promote the rule of law in
international affairs. The ABA has undertaken a wide range of
activities to support the rule of law, including through technical
legal assistance such as the Central and Eastern European Law
Initiative (CEELI), programs on topics such as anti-corruption efforts,
and public advocacy. In the international trade context, such work
includes a 1994 ABA resolution endorsing the WTO Dispute Settlement
Understanding and the Agreement Establishing the World Trade
Organization; a 1998 ABA resolution encouraging the right to counsel of
all WTO Members in dispute resolution proceedings; and the
representation of the ABA/SILP as a non-governmental organization at
the WTO's Seattle Ministerial meeting. The application of the rule of
law to international trade, first embodied multilaterally in the GATT
and now in the WTO, has been and continues to be highly successful in
promoting security and predictability in commerce between nations. Such
commercial security and predictability, benefiting U.S. producers and
consumers, clearly promotes U.S. national interests.
Dispute settlement is the cornerstone for an effective multilateral
trading regime; it is essential to promoting the rule of law in our
commercial relations. The dispute settlement mechanism in the WTO has
been proven effective in its first five years, resolving many trade
conflicts while establishing a solid foundation of jurisprudence that
promotes stability in our trading relations. The system has been
generally supportive of U.S. trading interests, as witnessed by
extensive U.S. participation in and reliance on the system for
upholding the legal commitments made by Member states in the Uruguay
Round. In our analysis of the WTO dispute settlement system, however,
we note that despite its successes, there remain, in particular, four
areas that warrant consideration of reform: (1) Adequate implementation
of panel decisions; (2) Access to the dispute settlement machinery for
developing countries; (3) Greater transparency in the dispute
resolution process; and (4) Procedural changes in the Panel system and
Appellate Body.
The WTO has provided the basic institutional structure to
facilitate the maintenance and the further development of an open
trading system. As a new institution, however, the WTO faces the
challenge in the future of continuing its success in liberalizing
global trade while moving toward greater inclusion and transparency. To
truly take root and have credibility, the WTO must ensure that its
operations are open to examination and understanding by the general
public. In addition, the entire WTO membership, in particular
developing countries, must be adequately reflected in the institution's
decision-making processes. These reforms will strengthen the WTO's
legitimacy and enable it to more effectively promote open trade. This
is very much in the U.S. national interest.
II. WTO Dispute Settlement
In establishing a multilateral trading order based on
clearly-identified rules agreed to beforehand by participating
states, the mechanism to resolve differences regarding those
rules is as crucial to the success of the trading system as the
substantive rules themselves. A strong dispute settlement
system enhances the legitimacy of the trading regime by
reaffirming the application of the rule of law to all member
states without requiring that each state rely solely on
bilateral diplomacy to seek withdrawal of noncompliant
measures. WTO dispute decisions not only address the measures
in question in the specific dispute, but also fill gaps and
thereby provide greater clarity for stable trading relations
among all WTO members. Thus, the WTO's Dispute Settlement
Understanding (DSU) system enhances the predictability of
access to other markets, access for which members negotiated
through a careful balancing of national interests. By
preserving this balance of interests, the DSU complements the
WTO's substantive provisions. Strong dispute settlement
procedures in the WTO are important in order to maintain open
markets for exporters as the U.S. economy becomes more highly
oriented toward exports as a contributor to economic growth.
Furthermore, as more substantive disciplines have been
negotiated under the auspices of the WTO, in areas such as
services and intellectual property, the WTO dispute settlement
system serves the broadening base of the U.S. economy.
A. The DSU: A Continuing Success
Prior to the Uruguay Round negotiations, the GATT and its
companion Codes provided a relatively narrow range of trade
disciplines, and many countries were not subject to these
disciplines. In addition, GATT's dispute settlement system was
sometimes ineffective. A single country, including the losing
party in a dispute, could block adoption of an adverse panel
decision, thereby preventing an effective resolution of a GATT
violation. Moreover, even where a report was adopted, there was
no effective process to achieve compliance.
Recognizing that the WTO would remain credible only if it
was supported by a strong, rule-based dispute settlement
system, the Uruguay Round negotiators established a prompt,
effective mechanism for resolving international trade disputes.
Although not perfect, the new system is widely and justly
considered as successful. The reverse-consensus procedure
established in response to previous GATT practice of losing
states' blocking adverse panel findings has resulted in
definitive pronouncements on the validity of challenged
measures under states' WTO obligations. Losing parties can no
longer frustrate the process at that stage.
The process proceeds with defined time limits at each
stage, a characteristic strongly promoted by the United States
during the Uruguay Round negotiations. Although many cases have
extended beyond the nine-month time limit provided in the DSU,
over two-thirds were completed within one year. The average
time of eleven months for the resolution of each WTO case
compares favorably to the previous GATT average of fourteen
months.
This improvement is particularly impressive when one
considers the dramatic increase in the number of disputes
brought to the WTO when compared with states' reliance on GATT
dispute settlement: since the entry into force of the WTO
Agreements, the WTO has successfully resolved thirty-seven
cases through its arbitral panels, and forty-one cases have
been successfully settled under the auspices of WTO
consultations. Therefore, the first five years of WTO practice
have witnessed the successful resolution of more disputes than
under the entire 47-year GATT regime.
Given the virtually-automatic adoption of panel reports,
because of the reverse-consensus rule, the Appellate Body has
proven particularly critical to the success of WTO dispute
settlement as the higher judicial body to which decisions of
WTO panels are appealed. In the twenty-six cases decided by the
Appellate Body since 1995, it has shown ample willingness to
correct the legal interpretations of panels.
Both WTO panels and the Appellate Body have faced a larger
caseload than expected. States have increasingly invoked the
WTO dispute settlement system since the institution's
establishment. Whereas there were only five active disputes in
1995, there are now 26 active disputes. As noted earlier, the
number of cases decided in the WTO already exceeds the number
of GATT cases decided from 1947 to 1994. Twenty-six of thirty-
two panel decisions have been appealed. In addition, pre-
Uruguay Round GATT disputes involved issues under only one
trade agreement. Today, in contrast, two-thirds of the disputes
involve more than one WTO agreement. Moreover, because of the
DSU's time limits, the increased number of more complex
disputes must be processed more quickly.
Despite the heavy, and increasing, number of disputes,
their increasing complexity and the shortened time limits, WTO
budget and personnel allocations relating to dispute settlement
have not increased commensurately. Notwithstanding the five-
fold increase in the number of active disputes since 1995, the
WTO's dispute settlement budget has increased only
incrementally and there is only one additional attorney (a
total of six) in the Legal Division.\1\ The WTO Secretariat,
USTR, other governments' trade officials, and neutral observers
are convinced that the system is stretched to capacity.\2\ For
the system to remain credible and effective, budget and
staffing allocated to it need to be increased. As the world's
largest commercial power (and the traditional leader of
worldwide support for improved and enforceable trade
disciplines), the United States should take a leadership role
in efforts to ensure that WTO Members agree to provide
sufficient budgetary and staffing allocations for all
activities related to the WTO dispute settlement process and
that all Members pay their assigned annual contributions fully
and promptly.
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\1\ At present, in disputes involving anti-dumping, safeguards and
subsidies lawyers from the WTO's Rules Division also participate, thus
mitigating slightly the resource burden.
\2\ See e.g., 1999 Trade Policy Agenda and 1988 Annual Report of
the President of the United States on the Trade Agreements Program, at
33-34.
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Even given this strain on the system's resources, both the
lower panels and the Appellate Body have received widespread
support from government officials and neutral commentators for
the high quality of WTO decisions. The broad recognition of the
quality of WTO decisions provides the organization with added
legitimacy, as even parties that do not succeed in their cases
can generally accept the reasoning of panels as fair and
unbiased.
Furthermore, this enhanced legitimacy, supported by the
high quality of WTO decisions, encourages compliance by the
losing party in a WTO dispute. When a dispute settlement panel
(or the Appellate Body in the case of an appeal) rules that a
Member's law, regulation or practice violates one or more of
the WTO's substantive provisions, the decision automatically is
adopted (absent a consensus to the contrary). If the losing
party does not alter its law, regulation or practice to conform
to the ruling within a designated period, retaliation in the
form of trade counter-measures will be authorized (unless the
parties agree upon appropriate compensation). If a panel's
decision is unbiased and well-reasoned, a losing party may be
more likely to bring its measures into conformity with its WTO
obligations. This willingness to comply with a panel's findings
is revealed in the record of compliance under the WTO thus far,
which shows that in only two cases--the Bananas and Hormones
disputes--has the losing party remained non-compliant and
failed to remedy its illegal measures.
Given the generally successful performance of the Dispute
Settlement Understanding so far, it is not surprising that the
United States has made effective use of WTO dispute settlement
to advance its national interests. Assessing the achievements
of the DSU specifically in terms of cases involving the United
States, however, requires an examination of two further
questions. First, have the cases successfully brought by the
United States under the DSU generated meaningful commercial
results? Second, in the cases brought against the United
States, have WTO panels, in their interpretation of WTO
commitments, expanded U.S. obligations beyond those accepted
during the Uruguay Round negotiations? \3\
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\3\ The ABA/SILP notes that the WTO also permits a state's
interests to be represented even when the state itself is not a party
to the specific dispute. The United States has made particular use of
this third-party mechanism to ensure that legal interpretations
important to the United States are adequately briefed.
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With regard to the twenty-two complaints brought by the
United States and acted upon at the WTO, twenty were resolved
favorably for the United States, either through a mutually
acceptable settlement or a decision by a Panel or the Appellate
Body. Many of these cases are reported to have resulted in
significant commercial gains. As a recent example, the U.S.
obtained a commitment from India to remove a wide range of
import bans and licensing requirements on a large number of
agricultural, textile and consumer products, following a WTO
ruling that India's balance of payments restrictions were
inconsistent with its obligations. In another recent case, the
U.S. obtained a ruling that an Australian automotive leather
exporter was required to repay an illegal export subsidy.\4\ At
the same time, commercial results have not been satisfactory in
certain cases, due to insufficient implementation of WTO
panels' findings in these cases. Specifically, this remains a
concern in the Bananas and Hormones cases against the EU,
discussed further below.
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\4\ Examples of other cases in which the U.S. has obtained
significant commercial results are available on the U.S. Trade
Representative's website, http://www.ustr.gov.
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For cases decided against the United States, there is a
very important concern that in construing the WTO obligations,
panels should not impose upon the United States international
commitments to which the U.S. Government never acceded during
the Uruguay Round. Some believe that certain of the cases
successfully brought against the United States indicate that
panels may define U.S. commitments more broadly than the U.S.
Government expected at the time of the Uruguay Round
agreements. The jury is still out on the extent to which this
concern will be a recurrent problem. On balance, the overall
dispute settlement results for the United States reveal a
dispute resolution system based on fair and generally well-
reasoned judicial opinions, performing at least as well as was
expected five years ago, if not better.
Finally, the interests of the United States and indeed the
entire trading system are served by the confidence of the
Members in the WTO dispute settlement system, reflected in the
volume of cases brought before WTO panels. As trade disputes
are increasingly aired and resolved in a manner not before
possible under the old GATT system, the rule of law becomes
more firmly entrenched in the liberal trading order, thereby
securing the open markets necessary for sustained U.S. and
world economic growth.
B. The DSU: Prospects for Improvement
The success of the Dispute Settlement Understanding does
not and should not belie the significant areas for reform that
warrant further consideration based on the first five years of
experience. Areas in which the ABA/SILP urges consideration of
reform fall into the following four categories: (1) Securing
adequate implementation of panel decisions; (2) Promoting
greater transparency in dispute resolution procedures; (3)
Altering the ad hoc system of Panels and the lack of remand
authority for the Appellate Body; and (4) Ensuring developing
countries effective access to the WTO dispute settlement
mechanism.
1. Implementation
As previously noted, states found to have measures in
violation of their WTO obligations have generally complied with
panel and Appellate Body decisions and brought their laws and
practices into conformity with their international legal
obligations. The two stark exceptions to this practice remain
the European Union's intransigence in the Bananas and Hormones
cases. Although these cases are only two of the thirty so far
decided under the WTO, they represent significant challenges to
the rule of law established under the DSU. The European Union,
a leading trading power, has not implemented the findings
issued by WTO panels and the Appellate Body. Rather than
negotiating a WTO-consistent resolution with the United States,
the European Union has opted, instead, to accept U.S.
suspension of concessions.\5\ Because the amount of
compensation or suspension of concessions is equivalent to the
level of harm suffered by the challenging party, the DSU
establishes no particular incentive to comply. In the absence
of any tangible incentives, a violating state may be ambivalent
among the options of compliance, providing compensation, and
accepting a suspension of concessions.
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\5\ The Bananas case reflects an additional concern regarding the
implementation of dispute settlement panels' decisions: What happens
when a measure, revised to accommodate a WTO panel decision, is claimed
to still be in violation of a state's WTO obligations? Must the
successful challenging state recommence dispute settlement proceedings
to challenge the modified law, or may the state suspend concessions
once the Panel finds the state is caused harm by that law? This query
remained at the heart of the controversy between the EU and the United
States in the implementation of the Bananas decision. The WTO panel
finally settled the issue in favor of the United States, finding that
another dispute settlement panel would not be required before the
United States was permitted to suspend concessions. Nevertheless,
further textual clarification on the interrelationship between Articles
21.5 and 22 is crucial to ensure the implementation of panel findings
in future controversies.
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However, consideration also must be given to the
consequences to the United States of adverse decisions. The
adverse ruling on the WTO-compatibility of the US tax law
allowing the creation and use of Foreign Sales Corporations
(FSCs) is an example. U.S. national interests may mean that the
United States needs to retain the sovereign right to decide
that it cannot or will not comply with a WTO panel decision.
One suggestion for addressing these incentive difficulties,
at least in the short-run, involves the adoption of an
interpretation or an amendment that would clarify and
strengthen the preference for implementation in DSU Article 22.
However, such proposals must be carefully assessed to ensure a
balance between strengthening compliance and preserving
necessary U.S. sovereignty.
2. Transparency
The United States has long encouraged greater transparency
in dispute settlement proceedings, a position the ABA/SILP
supports as one promoting higher quality decision-making,
increasing support and participation of a larger group of
stakeholders, and reflective of a process more consistent with
democratic principles. Furthermore, greater transparency,
particularly in dispute resolution, strengthens the credibility
of the system, thereby enhancing compliance and support for the
rule of law. In the context of dispute settlement, proposals
for enhanced transparency focus on increased opportunities for
NGO involvement, as observers and amici, and on greater
distribution of relevant dispute resolution materials,
including Members' submissions.
The United States has urged, and the ABA/SILP supports,
dispute settlement proceedings that are open to observers from
non-party Member countries as well as civil society. Opening
the doors of these meetings, particularly to representatives
outside the trade community, is essential to validate the
judicial decision-making process by which many states' laws and
practices are held to be consistent or inconsistent with the
WTO Agreements. Denying access to civil society only fosters
continued mistrust and skepticism among groups whose support is
essential to regain a trade consensus at the international
level. Furthermore, input from these groups may be important to
the dispute settlement process as the WTO inevitably addresses
conflicts arising from domestic regulation, such as areas of
environmental protection and health and safety. It is precisely
at these edges of its competence that the WTO, understandably,
is subject to most criticism. Therefore, by opening itself to a
broader spectrum of views, decisions in these cases would be
legitimated by larger segments of society. In this regard the
ABA/SILP encourages the U.S. invitation for panels and the
Appellate Body to actively seek and accept amicus submissions
from NGOs.
Developing countries have articulated concern regarding the
involvement of NGOs in the WTO dispute resolution process.
Based on a perception that NGOs in developed countries are far
more organized and active than those in developing countries,
concerns have been raised that developed-country NGOs will have
a disproportionate influence on Panels. This bias in favor of
developed-country NGOs, it is believed, would favor the
interests of the developed world in dispute settlement, at the
expense of decisions favorable to the developing world. This
argument presumes, however, that these highly organized NGOs
share the beliefs and interests of their home governments, and
that therefore, increased NGO involvement would raise the
volume of developed-world voices heard by panelists. The United
States, in pressing the case for greater NGO access, should
address this argument and note that this coinciding of
interests between developed-world NGOs and their home
governments is not necessarily the case. In fact, many NGOs in
the developed world are likely to have shared concerns with
NGOs and governments in the developing world.
In addition to pushing for civil society access into the
halls of WTO dispute resolution, the United States is also
seeking, rightly, to expand the flow of information from inside
the WTO to the rest of the world. In particular, there should
be immediate public release of all submissions to Panels, with
the exception of business confidential information.
Nonconfidential versions of business confidential information
should be required to be made public at the time the submission
is filed. An additional benefit of releasing submissions would
be shorter, more accessible Panel reports. Much of the bulk in
Panel reports now stems from the need to detail every argument
made by every interested party to a dispute. Public release of
government submissions mitigates the need for such detailed
descriptions of parties' arguments in the Panel decisions
themselves. Understandably, this requirement of immediate
release of submitted documents may pose administrative
difficulties, particularly in document-intensive cases, such as
Japan-Film. Such logistical difficulties, however, are not
insurmountable and are only minor inconveniences when compared
to the benefit of information and education provided by public
release of documents.
3. Panel and Appellate Body
There have been additional suggestions to strengthen the
quality of the current dispute resolution system. The ABA/SILP
believes they deserve serious consideration in future
discussions about the DSU.
For example, many observers have considered whether the
Appellate Body should have authority to remand proceedings to
the original panel. Currently the Appellate Body has authority
only to ``uphold, modify or reverse the legal findings and
conclusions of the panel.'' This issue has arisen because in
some cases the panel has not made a factual finding on an issue
that later, in the opinion of the Appellate Body, is necessary
to resolve the dispute. It is arguably improper for the
Appellate Body to make factual findings in such situations,
because DSU Article 17 limits appeals to issues of law and
legal interpretations developed by the panel. For instance, the
lack of necessary panel findings or any remand procedure meant
that the United States was unable to obtain a WTO ruling in the
case it brought against the EU over classification of certain
computer equipment. Remands would allow factual issues to be
resolved by the panel, which should have greater expertise in
the facts of the dispute. However, remands almost certainly
would lengthen disputes beyond the time deadline currently
provided for DSU proceedings.
Another proposal for reform, suggested by the EU, would
establish a standing body of 15 to 24 professional panelists,
with three panelists serving on each case, to replace the case-
by-case selection of panelists under the current system. This
proposal might address the difficulties in forming high-quality
panels and finding panelists to whom the parties do not object,
factors which to date have been a significant cause of delay in
the establishment of Panels. Further, the proposal might enable
panelists to devote greater time to individual cases and
increase their familiarity with WTO jurisprudence. A related
issue is consideration of the appropriate criteria to be
applied in selecting panelists (whether or not the EU proposal
is adopted), in particular whether judicial experience should
be a significant factor, given the increasing importance of
legal reasoning in WTO panel decisions compared to the earlier
GATT model of conciliation and mediation.
One concern regarding this proposal is whether establishing
a standing body of panelists would inappropriately limit the
ability to appoint panelists with particular expertise relevant
to a particular dispute. Environmental organizations, for
instance, may argue that this proposal could ``lock in'' what
in their view has been a pro-trade orientation of panelists
(relative to other values such as protecting the environment)
and preclude the WTO from drawing on panelists with different
perspectives. Another concern (and a significant one) is that a
Standing Body would increase the WTO's budget, and thus
Members' contributions, significantly.
The United States traditionally has been the leading voice
for a prompt, efficient WTO dispute settlement mechanism. Since
the United States is the world's major commercial power, a
credible WTO dispute settlement system--one that is rule-based,
objective and whose decisions are respected and implemented--is
very much in the U.S. national interest. As noted earlier, the
U.S. is the principal user of the dispute settlement process,
and it has achieved very favorable results through the DSU in
most of the cases it has filed. As U.S. businesses (and thus,
our economy more generally) continue to look to foreign markets
for opportunities to provide goods and services, there will be
an increased national benefit in ensuring that all countries
are abiding by their WTO commitments. An effectively
functioning DSU will be an important tool for the U.S.
government in securing economic prosperity for the country. The
first years of dispute settlement under the WTO show promise;
the United States should now exercise its leadership to pursue
those reforms that would strengthen the DSU and thereby promote
U.S. interests in a trading order governed by a fair and open
set of rules.
4. Access for Developing Countries
Promoting the effective participation of developing
countries in WTO dispute resolution would be consistent with
the U.S. government's traditional role in promoting the rule of
law in international trade. Furthermore, this issue is relevant
to Congress' assessment of the WTO because developing
countries' inability to make full use of the DSU undermines the
legitimacy of the DSU and the world trading system and may
frustrate efforts to amicably settle disputes. Therefore, the
ABA/SILP believes that it is important for WTO Members to
identify and implement a strategy to enable developing
countries to participate fully in the DSU. Effective
implementation of successful WTO cases may be meaningless for
developing countries if they are deterred from using the
dispute resolution system to their advantage. The current
statistics suggest, at the very least, a strong possibility of
relative underutilization of the WTO dispute settlement
mechanism by the developing world: less than one-third of all
complaints brought under WTO auspices are raised by developing
countries. The limited human and financial resources of
developing countries, combined with the limitations inherent in
existing WTO technical assistance to these countries, currently
prevent these countries from making full use of the DSU.
One proposal that the ABA recommended in 1998 was to assure
countries the right to counsel of their choice. The presence of
private attorneys in what has been viewed as government-to-
government proceedings has raised concerns about the ability of
the organization to preserve the confidential and diplomatic
nature of dispute resolution meetings. Such concerns, whatever
their validity, do not necessarily argue against the ability of
states to be represented by attorneys of their own choosing.
Rather, the appropriate response to such concerns is to develop
guidelines to address the practice of private lawyers in such
traditionally diplomatic settings as international trade
dispute resolution, as the ABA has suggested. The WTO, through
rulings of the Appellate Body and a dispute resolution panel,
has already accepted this right to counsel of one's choosing in
Bananas and Indonesia-Autos, respectively. Nevertheless, the
ABA/SILP encourages the clear articulation and development of
rules of conduct to govern these legal representatives in their
representation of governments in WTO dispute settlement.
While important, the right to private counsel may be beyond
the financial resources of some of the least developed Members
of the WTO, thereby requiring that alternative avenues be
examined to assist developing states in their legal
representation before the WTO.\6\ One means of guaranteeing
access to the dispute settlement system for developing
countries is the Advisory Centre on WTO Law, recently
established by a group of developed and developing countries.
The Centre, created independently from the WTO in order to
safeguard the neutrality of the WTO Secretariat, is envisioned
as providing legal advice on WTO law and support in legal
proceedings to developing country Members.
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\6\ The ABA/SILP recognizes greater attention must also be paid to
longer-term strategies, that is, to the development of indigenous
capacity in developing states to participate effectively in DSU
proceedings.
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A proposal has also been made, by the EU and Venezuela, to
establish a separate ``independent unit'' within the WTO
Secretariat to assist developing countries in the dispute
settlement process. Under the proposal, however, the unit would
not represent WTO Members in panel proceedings, but only in the
pre-panel stages. This limitation raises serious questions
about whether the proposal would adequately address the
constraints on developing country participation in the DSU,
since panel proceedings are the most resource-intensive phase
of the proceeding. Moreover, to the extent that the unit is
providing case-specific advice on the strengths and weaknesses
of particular arguments, the proposal appears to risk
jeopardizing the neutrality of the WTO Secretariat that is
guaranteed by DSU Article 27.2.
These initiatives reflect the underlying need for enhancing
the ability of developing countries to participate in the
dispute settlement mechanism. Because the support of developing
countries for WTO dispute settlement is a crucial element in
their support for the WTO as an institution, the ABA/SILP
believes that it is important for the United States to work
with other WTO Members to address seriously and promptly
additional ways to enhance the ability of developing countries
to participate in WTO dispute settlement.
III. The WTO as an Institution: Not Broken, But Needing Reform
The WTO is currently confronting problems that result from
its own success in attracting members and broadening its scope,
problems that are especially difficult to manage for a new
institution. The ABA/SILP believes that these problems require
the United States to take an active leadership role in working
toward a solution acceptable to all parties, as opposed to
withdrawing from the WTO.
A. Establishment of a Multilateral Trade Institution
At the outset, it is important to appreciate that the WTO
is a new institution. The GATT, which was developed as part of
the postwar international financial architecture with the World
Bank and the IMF, established the first set of multilateral
rules governing international trade relations. The GATT was
only to form part of the Havana Charter, which created what was
to become the International Trade Organization (ITO), which
would have addressed, among other topics, tariffs, private
restraints on trade, and monetary issues. The International
Trade Organization, however, failed to be established.
Over the years, the GATT, which was intended only as a
short-term provisional stop-gap until the ITO was implemented,
did develop institutional characteristics and became a de facto
institution, albeit without legal personality and the
supporting structures inherent in an international
organization. Nevertheless, states came to rely on the quasi-
institutional character of GATT despite the fact that it was
not a true international institution. The stresses placed upon
the system by states' reliance on this quasi-institution were
highlighted during the Uruguay Round. If new subject areas were
to be handled under the trade regime and if trade disputes were
to be resolved in a satisfactory manner, states recognized the
need for an institutional umbrella.
With this understanding, the Members established the WTO as
the first true institution to oversee the trading relations of
its Member states. Thus, although the WTO is often understood
as a successor to the GATT regime, it is, in fact, a new
organization developed for the cooperation of states in
reducing trade barriers and managing interstate trading
relations.
The success of the multilateral trading system that the WTO
now oversees, particularly from the perspective of the rule of
law, should not be overlooked. The GATT's original purpose of
restraining and eventually eliminating protectionism has been
significantly achieved through a consistent reduction in trade
barriers in the postwar era. The GATT trading system also
revealed a dynamic flexibility in its ability to address the
increasingly creative protectionism of states as they responded
to the fall in tariff barriers with an increase in non-tariff
barriers. This flexibility is a cornerstone of the WTO, as an
institution that continues to serve the liberalization of trade
in goods while moving to address the numerous trade barriers in
other sectors, such as services and intellectual property, that
are increasingly crucial to the U.S. economy. The United States
retains a significant interest in pursuing in the WTO forum the
progressive elimination of present obstacles to trade, whether
in goods, services, or intellectual property.
The ability of the WTO to adapt to the changing needs of
its Members counsels in favor of addressing the institution's
imperfections within the framework already established by the
Uruguay Round. As previously noted, the WTO is a nascent
institution. It is therefore not surprising that despite its
successes in maintaining the benefits of an open trading regime
while holding states to their commitments made in the WTO
Agreements, the WTO faces growing pains and institutional
difficulties.
B. Need for Institutional Reforms
Although it has only been five years since the inception of
the WTO, the institution has been, in effect, a victim of its
own success from its birth. Instead of merely assuming the GATT
(covering tariffs and non-tariff barriers) under its
institutional aegis, the WTO faced at its founding a dramatic
increase in the scope of its expected competences: the
organization included trade-related areas that had never been
subject to multilateral disciplines and whose very relationship
to trade had never been tested in an institutional setting.\7\
The Uruguay Round also saw a proliferation of new Member states
that had not before been members of GATT, such that the WTO was
founded with 128 Members, a long way from the founding 22
nations of GATT. The growth of the membership has continued,
now totaling 135 states, with 31 more states in line to become
Members after accession negotiations. The rapid expansion of
subjects within the WTO's purview and the universality of its
membership has greatly increased the importance of the
organization's work.
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\7\ These comments express no position on the desirability of
including within or excluding from the WTO any particular trade
discipline or subject matter area.
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With these changes, the WTO will need to create new and
refined procedures as the years bring experience to bear upon
the institution's organizational dynamics. The ABA/SILP
highlights the urgent need for enhanced transparency in WTO
operations and greater inclusion of developing countries in WTO
decision-making processes.
There is a need for increased transparency both externally
(vis-a-vis the general public) and internally (vis-a-vis the
WTO membership). The need for external transparency stems from
the obligations of the WTO to remain accountable to citizens.
This accountability is particularly necessary as the
organization extends beyond the reach of ``pure trade'' issues
to those national measures that, while they affect trade, may
fundamentally be non-trade-related in purpose. By addressing
such measures, the WTO has become important to many domestic
constituencies in the United States and elsewhere. Enabling
these groups to access information regarding WTO decision
making is necessary to build a consensus regarding the
relationship between trade interests and other regulatory
goals. Since the success of any multilateral trading regime
depends on the continued support of citizens in Member states,
the WTO must seek to provide greater information regarding its
decision-making processes.
Internal transparency, that is, the adoption of processes
that are open to all Members, focuses on the need to ensure
that all Member states are able to participate effectively in
the organization processes. Specifically, although decisions
are formally taken by consensus, many developing countries
argue that numerous ``backroom'' agreements are made in small,
informal closed-door meetings. Many developing countries are
unsatisfied with the current processes. The perceived exclusion
of developing countries and the potential estrangement of these
states from the WTO directly threatens U.S. interests in the
development of a liberal trading order. If developing countries
are isolated from WTO processes, and they continue to view
themselves effectively removed from procedures that decide
their own rights and obligations, their support for the
multilateral trading regime could decline. Similarly, the
established procedures for arriving at decisions also should be
reformed to ensure inclusion of all Members.
The dissatisfaction of developing states with the Seattle
Ministerial brought to the foreground the importance of the
negotiation process. The WTO Agreements do not specify the
means by which negotiating rounds are to be conducted,
resulting in an ad hoc system that creates a tendency for large
trading powers to agree on most basic elements of agreement
among themselves. The absence of developing countries from
initial discussions, however, prevents their participation
during much of the crucial agenda-setting stage, at which point
fundamental questions are, in effect, resolved without open
debate. Understandably, the WTO faces the difficult prospect of
attempting to secure universal agreement to a series of highly
complicated texts among 135 Members; the demands of efficiency
require that negotiations not include the full participation of
each Member at every step of the negotiations. Nevertheless,
there is a need to strike an appropriate balance between
efficiency and the effective participation of countries that
will be expected to assume commitments. Any agreement without
the full and informed participation of the WTO membership will
lack the legitimacy necessary to secure good faith
implementation of WTO obligations and will weaken the long-term
stability of the WTO as an institution. This is not in the U.S.
national interest.
As a new institution, the WTO was created to build on the
GATT trading regime and incorporate the new disciplines
negotiated during the Uruguay Round. Coinciding with these new
substantive disciplines was the dramatic increase in the number
of states whose interests would need to be reflected in the
organization's institutional structure. These two developments
posed particular challenges for a new institution. In the first
five years of its experience, the WTO has experienced the
consequences of its own success in increasing its scope and
thereby raising the importance of its work to segments of
society beyond the trade community. The organization is
simultaneously accommodating an ever-increasing membership with
many states anticipating future participation. Despite the
success of the WTO in fulfilling its objective of ensuring that
states adhere to their international legal obligations for the
benefits of global commercial relations, it faces challenges in
the areas of transparency and decision-making processes. The
ABA/SILP encourages the United States to take this opportunity
to lead the WTO membership to pursue reforms necessary to
strengthen the institution.
IV. Conclusion
The WTO continues after its first five years to serve U.S.
interests by promoting the rule of law in international trade
relations and providing the forum to facilitate ongoing trade
liberalization measures. As a result it continues the GATT
tradition of securing a stable, predictable environment for
open trade. However, the WTO goes beyond the mere establishment
of rules for an open multilateral trading system. In providing
for efficient, binding, high-quality dispute resolution, and in
functioning as the institutional backdrop for the series of
trade-opening measures including and beyond trade in goods, the
WTO promotes U.S. interests far more successfully than the
previous GATT regime. Unsurprisingly, the WTO is not perfect.
There are valid concerns about it as it begins its next five
years and attempts to commence the first round to be launched
under its auspices. These concerns are best addressed, however,
within the framework of the system established five years ago.
The United States can best promote its interests by reaffirming
its commitment to the WTO while assuming a leadership role in
the resolution of those concerns.
Mr. Houghton [continuing.] And we just don't want to hold
you. So thank you very much for your understanding. I would
love to--I have got your testimony. We will read it. We will
distribute it. And if there are any other issues that you would
like to share with us, please let us know. All right? Thanks
again, very much.
Mr. Lichtenbaum. Thank you.
Mr. Houghton. Meeting adjourned.
[Whereupon, at 1:30 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Forest & Paper Association
The U.S. forest products industry strongly supports China's
accession to the World Trade Organization (WTO), and urges
timely Congressional approval of Permanent Normal Trade
Relations (PNTR) for China.
China holds great promise as a major export market for U.S.
wood and paper products. However, Chinese tariffs in our sector
are among the highest in the world. Those high tariffs--coupled
with a broad range of nontariff barriers--currently inhibit our
industry's ability to take advantage of the potential that is
inherent in China's huge population, relatively low per capita
consumption of wood and paper products, shortage of quality
housing, economic growth and burgeoning middle class.
Bringing China into the WTO rules-based trading system,
under the market access conditions that were agreed bilaterally
in November 1999, should significantly enhance export prospects
for U.S. producers of wood and paper products. At the same
time, China's integration into the global trading system will
strengthen the economic and political forces which are changing
Chinese society, and thereby advance important American
security, social and human rights interests.
U.S.-China Bilateral Market Access Agreement
The bilateral WTO accession agreement concluded
last November between the U.S. and China will reduce most
Chinese paper and wood tariffs to the 5-7.5% level, with some
tariffs as low as 1-2%. Most of these rates will be achieved by
2003. This is well below current levels of 12-18% on wood and
15-25% on paper products.
China agreed that if an Accelerated Tariff
Liberalization (ATL) agreement is reached in the WTO, China
will join the forest products initiative upon accession. While
an ATL agreement was not reached in Seattle, this suggests that
China is not opposed to elimination of wood and paper tariffs
not later than 2005. It is therefore critical that this
opportunity for tariff elimination in a huge market not be
lost.
U.S. companies' ability to do business in China is
currently limited by restrictions on trading rights (importing
and exporting) and distribution of imported products. Within
three years, any entity will be able to import forest products
into any part of China and engage in the full range of
distribution services.
The agreement requires that China extend to U.S.
forest products suppliers any preferential treatment it
provides to other countries.
Permanent Normal Trade Relations for China
The U.S. forest products industry has long
supported the normalization of U.S. commercial relations with
China. As China prepares to join the WTO, it is essential that
Congress grant permanent, unconditional trade status to ensure
that U.S. exporters and investors get the full benefits of the
very favorable bilateral market access agreement and the other
commitments China makes as a condition of its accession.
The Importance of China's Paper and Wood Market to U.S.
Suppliers
China's membership in the WTO, with its system of
rules and obligations, will give U.S. exporters a means for
addressing inconsistent, discriminatory and trade-distorting
practices that have made doing business in China very
difficult.
China already has access to our market, since U.S.
tariffs on forest product imports are at zero or very low. WTO
accession on the terms of the U.S.-China bilateral market
access agreement will ensure a more level playing field on
tariffs.
The removal of tariff and nontariff barriers to
China's market is expected to provide significant export
opportunities for U.S. producers of paper and wood products.
Because China is deficient in forest resources, with limited
potential for extending its own fiber supply, its need to
import paper and wood products is expected to increase
substantially as it pursues economic and industrial expansion.
Pulp and Paper Products: U.S. pulp, paper,
paperboard and converted products exported to China totaled
more than 800,000 metric tons in 1998, with a value of $430
million (there is also significant trans-shipment through Hong
Kong). In 1998, China was the only Far East market which saw an
increase in U.S. exports despite the effects of the Asian
financial crisis (U.S. exports to all other markets in the
region dropped sharply).
Over the past decade, China has experienced the
world's fastest paper and paperboard consumption growth.
However, production capacity has not kept up with this growth.
Projections by the Food and Agricultural Organization (FAO)
show that China's paper and paperboard consumption will
continue to grow strongly over the next decade and that the gap
between supply and demand will continue to widen and be filled
by imports.
Wood Products: Exports of solid wood to China will
approach $60 million in 1999, up from $41 million in 1998. Most
products are imported in the form of logs or lumber and re-
manufactured in China for use in interior applications such as
furniture, flooring, doors and windows. These markets should
continue to grow as more Chinese can afford to upgrade their
current dwellings or purchase new housing.
Almost no U.S. wood is used in housing
construction, but this could change as the Chinese government
has launched an ambitious, market-oriented housing reform plan
to privatize and increase the quality of Chinese housing. AF&PA
is participating in the revision of the Chinese design standard
for timber frame construction with the Chinese Ministry of
Construction, and using our membership in the U.S.-China
Residential Building Council to increase pressure on China to
allow greater use and importation of U.S. wood building
products.
In order for U.S. products to compete in both
interior and housing construction areas, high Chinese tariffs
must be eliminated. U.S. value-added interior products such as
flooring, veneer, molding and millwork, windows and doors
cannot compete in local markets when facing an 18% tariff on
top of the Chinese VAT tax.
Price competitiveness in building materials is
foremost in Chinese purchasing decisions, and U.S. wood
products are competing against locally produced materials such
as steel and concrete. Without tariff elimination and major
building code changes, it will remain difficult for U.S.
manufacturers to compete effectively in this growing and
increasingly prosperous market.
American Iron and Steel Institute
Washington, DC 20036
April 13, 2000
A.L. Singleton
Chief of Staff
Committee of Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Mr. Singleton:
The American Iron and Steel Institute (AISI), on behalf of its U.S.
member companies, is pleased to provide comments to the Committee on
Ways and Means on the future of the World Trade Organization (WTO).
On February 22, 2000, AISI provided detailed comments on ``The
Outcome of the WTO Ministerial in Seattle'' to the Trade Subcommittee
of the Committee on Ways and Means (attached). We refer the Committee
to this statement, because it addresses many of the issues that
Congress will now need to consider carefully in its review of the WTO.
With respect to this current Committee inquiry, AISI supports in
general the separate written ``Statement of U.S. Integrated Carbon
Steel Producers on the Future of the World Trade Organization,'' which
has been submitted for the record of this hearing. In addition, we
offer the following as a summary of the consensus views of AISI and its
U.S. member companies on the issue of congressional review of the WTO:
AISI Position on WTO Review
AISI supported the GATT Uruguay (UR) results, including the
creation of the WTO. We did so then because the UR implementing bill
preserved effective U.S. laws against unfair trade, notwithstanding the
fact that the UR itself resulted in a substantial net weakening of U.S.
laws against unfair trade. Back in 1994-95, AISI also rejected the
argument of WTO opponents that the WTO would harm U.S. sovereignty.
After all, so the argument went, the U.S. could always ignore an
adverse WTO panel decision, not change its law or policy and just
accept foreign retaliation.
Recently, however, AISI has become concerned that the WTO--if
certain foreign governments get their way--will impair U.S.
sovereignty. This is because a large number of WTO appeal cases are now
being filed and threatened by foreign governments in an effort to
misuse WTO dispute settlement in order to weaken U.S. trade laws. If
these efforts succeed, it would only further undercut public support
for the WTO. Congress needs to be aware of this growing abuse and take
actions now to ensure that U.S. trade laws are not further undermined,
whether through international negotiations, trade law weakening
amendments--or WTO dispute settlement.
This year, Congress will review whether the United States should
continue to participate in the WTO. In light of the devastation
suffered by the U.S. steel industry in 1998-99 due to record levels of
unfair trade--and given the ongoing foreign government attacks against
U.S. trade laws and WTO rules--AISI is looking at this issue based upon
our key trade objectives and requirements. In any debate over the value
of the WTO, Congress should consider the need to ensure that:
1. the global trading system remains rules-based;
2. the WTO is truly effective;
3. the WTO must achieve real structural reform (e.g., dispute
settlement reform, more participation by the private sector and greater
transparency), which is especially necessary after Seattle;
4. U.S. trade laws are strengthened to the full extent allowed by
WTO rules;
5. there is absolutely no weakening of the WTO's existing fair
trade rules or of current U.S. trade laws; and
6. there is a review process for WTO panel decisions established
under U.S. law, similar to the one sponsored in the last Congress by
Representatives Benjamin Cardin (D-MD), Ralph Regula (R-OH) and others
in the House and Senate. This will help ensure that, in future WTO
appeals, WTO panels do not exceed or abuse their authority.
Whether the issue is trade law enforcement or the Foreign Sales
Corporation, the Administration should make it clear to foreign
governments that there is a price to be paid for abuse of the WTO
process. We suggest that Congress begin by convening a special inquiry
into Japan's role in the international trading system--including its
continued closure to imports of manufactured products and its continued
improper regulation of trade.
AISI appreciates the opportunity to provide written comments on the
future of the WTO. This is a critical issue, because the ability--or
inability--to maintain an effective, rules-based trading system will
affect significantly future U.S. economic performance.
Sincerely,
Barry Solarz
Vice President, Tax and Trade
Attachment
Statement of American Iron and Steel Institute
The following statement on the outcome of the Seattle World
Trade Organization (WTO) Ministerial Conference is submitted on
behalf of U.S. member companies of the American Iron and Steel
Institute (AISI), who together account for approximately two-
thirds of the raw steel produced annually in the United States.
Rules-Based Trade:
AISI and U.S. Government Position in Seattle
In going to Seattle, AISI representatives stressed that:
trade liberalization without effective fair trade
rules cannot work in the interests of America;
there can be no further trade liberalization
unless trade will be fair; and
the best way to do this is through strong trade
laws, strictly enforced.
The AISI message going to Seattle can be summed up in three
words: RULES-BASED TRADE. After Seattle, this message has
become even more important.
AISI went to Seattle to support the long-held, bipartisan
position of the U.S. government in favor of continued
multilateral trade liberalization, based on no further
weakening of the WTO's antidumping and anti-subsidy rules. The
U.S. government and AISI took this position because, had these
agreements been opened up, it would have led to certain
weakening of the WTO's fair trade rules.
In the months leading up to the WTO Ministerial, the
Administration stated repeatedly that, in the national interest
of the United States--and in the ultimate interest of trade
liberalization and the global trading system--it would not
allow the WTO's antidumping and anti-subsidy rules to be the
subject of negotiations. The Administration deserves credit for
holding firm in Seattle against strong foreign government
pressures to reopen the WTO's dumping and subsidy agreements.
The Congress also deserves credit for making its views
known. There is overwhelming bipartisan support for preserving
effective international disciplines against unfair trade. In
the months leading up to the Ministerial and then again in
Seattle, Steel Caucus Members and other Members of Congress
communicated an unswerving message of support on this issue.
Last year, more than half of the U.S. House of Representatives
called on the President not to enter into any international
negotiation that includes U.S. trade laws. In 1997, in its
markup of ``fast track'' legislation, the Ways and Means
Committee approved without dissent a provision instructing U.S.
negotiators to reject any agreement that would weaken existing
disciplines against dumping and subsidies. Today, the
bipartisan consensus in Congress on this point is even
stronger. It is that fast-track procedures should never again
be used to amend U.S. trade laws.
AISI's position is that there is a role in the U.S. market
for fairly traded imports, but there is no role for unfair
trade. In President Clinton's August 1999 Steel Action Plan,
the Administration said it agreed with us. It announced that it
is committed to a policy of ``zero tolerance of unfair trade.''
The devastation suffered by the U.S. steel industry and its
workers over the past 18 months due to record levels of unfair
trade has served as a warning. It has reinforced the need of
competitive U.S. industries for strong, effective, vigorously
enforced trade laws. The events in Seattle in the first week of
December 1999 have also served as a warning. They have
reinforced the point that effective disciplines against unfair
trade are critical if we are to maintain an open market policy
in the U.S., enable further trade liberalization and promote
market opening and much needed adjustment abroad.
Seattle in Perspective:
Reasons for Outcome
There are many reasons why the Seattle Ministerial may not
have succeeded in launching a new round of international trade
negotiations. The simplest explanation is that there were many
complex, divisive issues; there was too little time; there were
135 members (60 more than at the time of the Uruguay Round);
and there was a lack of consensus and political will among the
key players for going forward.
Key points on which there was no consensus included (1)
agriculture, (2) the basic relationship of developing countries
to the WTO and (3) the new issues, such as the nexus between
trade and labor and trade and the environment. Perhaps most
important, both the European Union (EU) and Japan, unwilling to
take the needed steps on agriculture, pushed a very broad
negotiating agenda in large part as a diversionary tactic.
While posing as a friend of the developing world, the EU
subordinated everything else to the core goal of defending its
closed and heavily subsidized agricultural regime, which is so
injurious to developing countries. In the process--and urged on
by Japan--the EU indicated an openness to undermining the WTO's
antidumping rules. In much the same way, Japan--the number one
dumper in the U.S. market--pursued a reopening of the WTO's
antidumping rules on behalf of its own manufacturers, all the
while claiming it was taking this position on behalf of the
developing world.
The antidumping issue was one of several divisive issues,
because other countries thought the U.S. would change its
position, and we did not. However, the Seattle Ministerial did
not fail because of the U.S. position on antidumping. The U.S.
position on trade laws was sound and no surprise. It was a
long-held bipartisan position, articulated clearly, often and
early in the process.
As to where we go from here: AISI remains committed in
support of trade liberalization--provided there is no further
weakening of existing fair trade rules.
Ongoing Foreign Government Goal:
Erode and Weaken U.S. Trade Laws
What modest decline occurred last year in overall U.S. steel
imports took place because of the successful use of trade laws by
America's steel companies and unions. As the steel crisis has shown,
the antidumping and countervailing duty laws are America's last line of
defense against surging unfair trade. Foreign unfair traders view the
trade laws as the only remaining major obstacle to their unfettered
abuse of the open U.S. market. To attack this obstacle head on, foreign
governments and producers are employing three main ways to achieve
their goals.
International Negotiations. In Seattle, foreign
governments sought to weaken U.S. trade laws through multilateral
negotiations. Thanks to the steadfast position maintained by the
Administration and the Congress, the forces of trade law weakening did
not achieve their goal. However, these forces will not stand still.
They will continue their efforts to try to weaken U.S. trade laws
through multilateral negotiations, whether in the WTO, the FTAA
negotiations or the APEC process. Therefore, Congress needs to remain
vigilant.
WTO Dispute Settlement. Having failed to achieve trade law
weakening at Seattle, Japan, Korea and other countries whose producers
have engaged in unfair trading are now trying to achieve through the
WTO dispute settlement system what they could not achieve through
multilateral negotiations. Thus, Japan--the same Japan that still
refuses to import steel, and continues to underperform dramatically as
an importer of manufactured goods in general--has recently filed a
complaint with the WTO regarding U.S. antidumping measures on hot
rolled steel, and both Japan and Korea have threatened to file other
WTO appeals relating to steel trade cases decided under WTO-consistent
U.S. laws. The U.S. government needs to defend aggressively the trade
laws enacted by Congress from this effort by unfair traders to use the
WTO dispute settlement process to undermine America's fair trade rules.
Trade Law Changes. In addition to using multilateral
negotiations and WTO appeals of U.S. trade laws and trade law
application, counsel for foreign governments and producers are now
drafting trade law weakening legislative proposals. On this, both the
Congress and the Administration need to send a very clear signal.
Instead of trade law weakening, Congress should ensure that U.S. trade
laws are as strong as what the WTO allows. In this regard, AISI urges
prompt enactment of the Fair Trade Law Enhancement Act (H.R. 1505/S.
1741), the Continued Dumping and Subsidy Offset Act (H.R. 842/S. 61)
and other proposals to strengthen U.S. trade laws consistent with WTO
rules. This should include amendments targeting the problem of
diversion of steel and other manufactured goods to the U.S. market as a
result of foreign anticompetitive practices.
Steel's Example:
Need for Strong Remedies Against Unfair Trade
Over the past 30 years, the U.S. steel industry has faced a
world of pervasive trade and market-distorting practices,
including:
widespread foreign government ``targeting'' and
subsidizing of steel;
foreign government barriers to imports of steel
and steel-containing products; and
foreign government toleration of private cartels
and corruption in the steel sector.
These trade-distorting conditions have enabled less
efficient foreign steel companies to produce at levels not
supported by market forces, to maintain artificially high steel
prices in their home markets and to dump large quantities of
steel in the United States.
The revitalized U.S. steel industry is very familiar with
the challenge of having to compete against pervasive unfair
trade practices. However, what occurred in 1998 was like
nothing seen before. With Asia and Latin America in recession
and with Russia in collapse, the United States experienced the
single largest surge of dumped and subsidized steel imports in
its history. This was a transplanted crisis caused by major
structural economic failures elsewhere. The result was an
unprecedented surge of imports, which turned the U.S. into the
World's Steel Dumping Ground.
The past 18 months should have been the best of times for
an American steel industry restored to world class status,
which in recent years has added over 20 million tons of new,
state-of-the-art steelmaking capacity. Instead, the U.S. saw
record steel imports in 1998, the second highest import total
in history last year and continued unfair trade by less
efficient foreign steel producers throughout this period.
Against the background of record U.S. steel demand--and due to
one reason alone--unfair imports:
five U.S. steel companies are now in Chapter 11
bankruptcy;
virtually all U.S. steel companies have seen
profits plunge or losses mount; and
thousands of U.S. steelworkers have experienced
layoffs, shorter work weeks or reduced benefits.
This is not the way that market-based trade is supposed to
work. Between 1980 and the onset of the steel crisis, the U.S.
steel industry succeeded in reinventing itself. By 1998, we had
become a new industry producing new steels, using new equipment
and employing new processes. Thanks to nearly $60 billion in
modernization investments since 1980 and a costly and painful
restructuring of all aspects of steel operations, a new U.S.
steel industry had by 1998 emerged as a highly competitive,
technologically advanced, low cost, environmentally responsible
and customer-focused industry.
In contrast, the steel industries of other countries,
including Asia, the former Soviet Union and South America, did
not make the adjustments that the U.S. industry made in the
1980s and 1990s. They maintained substantial excess capacity,
and this excess found a destination in 1998-99 in the large and
open U.S. steel market. As a result, over the past 18 months,
the United States has experienced an unprecedented level of
unfair steel imports sold at cut-throat prices in violation of
U.S. laws and WTO rules.
Internationally competitive U.S. steel companies and their
highly productive employees have learned important lessons from
the 1998-99 steel crisis. They are that:
a surge of unfair and disruptive imports causes
lasting damage;
the damage can extend to all segments of the U.S.
steel community, and affects even the most competitive
producers;
the current trade laws are inadequate and are not
designed to address the kind of major shifts in trade flows
that result from structural economic failures abroad; and
yet, these laws at the present time are the only
effective WTO-consistent defense that exists to counter surging
unfair and disruptive imports.
Therefore, steel producers in the United States, now more
than ever, support:
prompt and strict enforcement of U.S. trade laws;
modernization of these laws in a WTO-consistent
manner; and
preservation of effective international
disciplines against unfair trade.
Today, significant unfair trade and serious import injury
are continuing in the U.S. steel market. The import injury is
confirmed by the International Trade Commission's recent
affirmative findings with respect to hot rolled steel, cut-to-
length plate, wire rod and welded line pipe. The unfair trade
is confirmed by the very high margins of dumping or
subsidization found recently by the Commerce Department on hot
rolled, cold rolled, plate and other products. An important
point, often overlooked, is that this injury is long term
damage for which the competitive U.S. steel industry will never
be compensated.
The injury caused to U.S. steel companies and employees by
unfair trade should also be a cause of long term concern to
steel's U.S. customers. It is vital that U.S. steel companies
continue to generate internally the capital needed for
modernization so that they can continue to reduce costs,
improve quality, compete against other materials and serve
customers. It is not in the long term interest of customers to
see competitive U.S. suppliers undermined by unfair trade from
less efficient foreign competitors.
Global Trading System:
Effective Fair Trade Rules are Essential
In a July 1998 submission to the WTO Working Group on the
Interaction between Trade and Competition Policy, the U.S.
government said that antidumping law remains:
``necessary to the maintenance of the multilateral trading
system. Without this and other remedial safeguards, there could
have been no agreement on broader GATT and later WTO packages
of market-opening agreements, especially given the
imperfections which remain in the multilateral trading system.
. . . [T]he antidumping rules represent an effort to maintain a
``level playing field'' between producers in different
countries . . . [and] are a critical factor in obtaining and
sustaining necessary public support for the shared multilateral
goal of trade liberalization.''
It is no surprise that the countries that repeatedly engage
in unfair and disruptive trade are the most vocal critics of
U.S. trade laws. Japan and other governments, whose domestic
markets remain largely closed, went to Seattle to open up--in
order to weaken--the WTO's fair trade rules. Other governments
would like to take away the only effective tools the United
States has to counter unfair trade. It is no accident that
countries with closed markets and cartels want to weaken the
WTO's antidumping rules and that countries that subsidize their
inefficient industries want to weaken the WTO's anti-subsidy
rules.
However, this effort to weaken disciplines against unfair
trade is a direct threat not just to steel and other
competitive U.S. industries. It is also a direct threat to
further progress on global trade liberalization. Effective
rules against dumping and trade-distorting subsidies are an
essential element of the multilateral trading system. These
rules are what enables the public here and elsewhere to support
open trade.
It is the failure to counter injurious dumping and other
unfair trade practices that undermines public confidence in
free trade and public support for further multilateral trade
liberalization. For more than 50 years, multilateral trade
rules have allowed the U.S. and other countries to counter
injurious dumping. The reason: a clear recognition that, over
time, there can be no free trade unless it is rule-based and
fair.
When the public believes that existing trade rules are
ineffective or are not being enforced, support for open trade
begins to erode--and support for more restrictive, sometimes
less transparent, solutions starts to grow. This is what has
occurred in the United States in recent years, and the only way
to reverse this trend is to improve and enforce U.S. laws
against unfair trade.
Only a few years ago, the Uruguay Round of trade
negotiations led to weaker international disciplines--and
national laws--against dumped and subsidized imports. The U.S.
Administration, to its credit, went to Seattle determined to
maintain the effectiveness of current international disciplines
against unfair trade. Japan and other governments went to
Seattle determined to discipline not the underlying trade-
distorting practices, but the WTO-consistent laws used in
response to those practices.
America's support for the WTO is not unconditional. It will
not withstand another assault on the system's basic fair trade
rules. The real problem in international trade is not the
antidumping remedy. It is dumping, closed markets and other
trade-distorting practices. If the public is again to support
further trade liberalization, we need to build a new trade
consensus in the United States around effective trade rules,
effectively enforced. By contrast, if Japan and other
governments get their way and U.S. trade laws are further
weakened, public support for open trade will continue to
decline.
It took nearly eight years in the Uruguay Round to re-
negotiate the current international regime of antidumping and
anti-subsidy rules. These rules have yet to be tested and have
not proven defective. What the global trading system needs is
proper compliance with current rules--not new negotiations,
with new and confusing rule changes that could threaten all WTO
members' exports.
Seattle's Message:
Importance of U.S. Trade Policy Objectives and Requirements
This spring, Congress will review whether the United States
should continue to participate in the WTO. In light of the
devastation suffered by the U.S. steel industry in 1998-99 due
to record levels of unfair trade--and given the ongoing foreign
government attacks against U.S. trade laws and WTO rules--AISI
is looking at this issue through the prism of key trade
objectives and requirements. In any debate over the value of
the WTO, Congress should consider the need to ensure that:
1. the global trading system remains rules-based;
2. the WTO is truly effective;
3. the WTO achieves real structural reform (e.g., dispute
settlement reform, more participation by the private sector and
greater transparency), which is especially necessary after
Seattle;
4. U.S. trade laws are strengthened to the full extent
allowed by WTO rules;
5. there is absolutely no weakening of the WTO's existing
fair trade rules or of current U.S. trade laws; and
6. there is a review process for WTO panel decisions
established under U.S. law, similar to the one sponsored in the
last Congress by Representatives Benjamin Cardin (D-MD), Ralph
Regula (R-OH) and others in the House and Senate. This will
help ensure that, in future WTO appeals, WTO panels do not
exceed or abuse their authority.
In addition, Congress should consider convening a special
inquiry into Japan's role in the international trading system--
including its continued closure to imports of manufactured
products and its continued regulation of trade.
Conclusions
Laws against unfair trade, especially the antidumping and
countervailing duty laws, are necessary to offset foreign
unfair trade and market-distorting behavior, level the playing
field and restore public confidence in free trade. Such laws
help ensure that more efficient domestic producers are not
weakened or destroyed by less efficient foreign firms. Because
these laws serve the interest of customers, consumers and the
entire economy, successive U.S. Administrations and Congresses
have taken the position that it is essential to preserve
effective U.S. laws against unfair trade and effective
international fair trade rules. This was the position that the
U.S. government and AISI both took to Seattle.
With respect to the Seattle WTO Ministerial, both the
Administration and the Congress deserve significant credit for
taking a strong stand against foreign government pressures to
reopen the WTO's antidumping and anti-subsidy rules.
The events that occurred in the streets of Seattle indicate
what could occur in the global trading system without fair
trade rules. Indeed, the global trading system as we now know
it would not exist, and could not survive, without such rules.
The key message coming out of Seattle is that it is essential
to build a new trade consensus in the United States around the
concept of RULES-BASED TRADE. The best way to begin doing this
is for Congress and the Administration to:
work together to strengthen U.S. trade laws in a
WTO-consistent manner; and
continue to resist foreign government efforts to
weaken further the existing U.S. and WTO fair trade rules--
whether through international negotiations, WTO dispute
settlement or trade law changes.
Statement of American Textile Manufacturers Institute
This statement is submitted on behalf of the American
Textile Manufacturers Institute (ATMI). ATMI is the national
trade association for the domestic textile industry. Our member
companies operate in more than 30 states, and our industry
employs nearly 600,000 workers in the United States.
Before discussing our specific concerns regarding the World
Trade Organization (WTO), we would like to reiterate that the
American textile industry believes in and supports the concept
of open markets based on fair and equitable conditions of
trade. We strongly supported the NAFTA agreement and we are
currently supporting versions of the CBI and Sub-Saharan Africa
trade legislation that create a fair playing field for both
U.S. workers and the people of the Caribbean and Africa.
By way of background, the U.S. textile industry is a major
exporting sector, ranking sixth in the world in 1998 according
to WTO figures. Last year, we exported almost $14 billion worth
of goods (17 percent of our output), with 24 of our export
markets exceeding more than $100 million in sales. However, in
order to grow and prosper, our industry must have access to
many of the markets that are closed or highly restricted to
imported textile products.
The passage of the Uruguay Round Agreements Act five and
one-half years ago held both promise and threat for this
industry. In terms of threat, it mandated the removal of all
textile and apparel quotas over a ten year time period for WTO
members. In terms of promise, it held open the prospect of
access to many of the markets that had long been closed to our
products. President Clinton spelled out that promise in very
clear terms when he said that the WTO would ``require all
nations to finally do what we've already done--to cut tariffs
and other barriers and open up trade to our products and
services. It will level the export playing field for American
companies and American workers all around the world.'' \1\
---------------------------------------------------------------------------
\1\ President Clinton, November 19, 1994, Radio address.
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In regard to textiles, the Clinton administration went
still further and stated that tariffs on overseas textile
products must be reduced to specific levels, and that non-
tariff barriers to U.S. textile exports must be removed within
three years after the WTO agreements went into effect. The
administration explicitly warned that countries that blocked
U.S. textile access could see their quota growth cut back and
their zero duty status under the GSP program revoked \2\, among
other actions.
---------------------------------------------------------------------------
\2\ Administrative Action Statement, p. 774, Uruguay Round
Agreements Act (P.L. 103-465).
---------------------------------------------------------------------------
However, five years into the WTO, the promise of new and
open markets remains as distant as ever. As the attached report
which ATMI has submitted for the record demonstrates, the U.S.
textile industry has received no significant new market access
for its textile and apparel exports since the WTO came into
being. None. Every major market that was closed to our exports
prior to the WTO being formed remains closed today.
In contrast, since 1995, textile and apparel imports into
the U.S. have grown by 65 percent as our government conforms to
its WTO commitments and dismantles the quota system and lowers
tariffs. This flood of imports into the U.S. market has
occurred with devastating results. By complying with its WTO
commitments while other countries were ignoring theirs, the
United States saw its textile and apparel trade deficit
increase 50 percent in five years, to more than $50 billion.
Not surprisingly, the job losses in our industry have been
heavy. Since the WTO agreements were signed, 121,000 textile
workers have lost their jobs--nearly ten times the number of
job losses reported by the domestic steel industry that
prompted so much reaction by Congress last year.
We draw your attention to the chart attached to this
testimony that illustrates in vivid detail the inequitable
state of textile market access in this post-GATT era. As you
can see, the list of markets that remain closed to our products
is a long one. India remains closed, Pakistan remains closed,
Thailand remains closed, South Africa remains closed--all in
all, two-thirds of the world's consumers, whose markets account
for $8 trillion dollars in GDP, remain essentially off limits
today to U.S. textile exports.
A portion of the blame for this must go to the WTO itself.
As the attached report demonstrates, the WTO structure is rife
with loopholes and exceptions that allow countries with major
textile and apparel sectors to keep their markets closed while
they pour ever increasing amounts of goods into the United
States. In the report, we have documented 36 new trade barriers
that have been imposed against U.S. textile and apparel exports
during the last five years.\3\ Increased valuations at customs
which have raised duties, impossibly costly marking rules, high
tariff walls, widespread industry subsidization--all of these
are ways in which the WTO itself continues to allow for a mind-
boggling array of trade-blocking behaviors, particularly by
major textile and apparel producers.
---------------------------------------------------------------------------
\3\ Only two of these were violations of WTO rules.
---------------------------------------------------------------------------
Even when a barrier does fall, we have found that another
quickly springs up to take its place. For example, since Brazil
lowered its textile tariffs in 1994, it has undertaken eight
different trade blocking measures, such as eliminating letters
of credit, revaluing imports, and beginning a ``zero
tolerance'' scheme whose purpose is to reject imports for the
most minor of administrative errors. The result? By 1999, our
textile exports to Brazil, which soared during the brief time
that Brazil decided to meet its WTO obligations, had actually
dropped by more than 50 percent as Brazil returned to its
closed market status.
Just recently, India played the Brazil game--on the same
day that the U.S. declared victory in its five-year effort to
force India to drop its 50-year old ban on imports of textiles
and other consumer products, India announced that it would
``compensate'' by increasing tariffs on all affected goods.
A portion of the blame must also go to the U.S. government.
As part of the Uruguay Round legislation, the administration
promised it would take action within three years if markets
remained closed. It specifically warned that the U.S. could
revoke GSP duty-free status and withhold increases in U.S.
textile and apparel quotas from countries that failed to
provide market access. In India's case, these benefits amount
to billions of dollars a year--this would represent strong
leverage if the administration has the will to proceed.
As the attached report demonstrates, India is but one of
many WTO countries that have failed to open their markets. We
would like to take this opportunity now to urge that GSP and
WTO quota growth benefits be withdrawn from the following
countries that have maintained trade barriers to U.S. textile
exports in violation of their WTO commitments:
Argentina, Brazil, Bangladesh, Egypt, India, Indonesia,
Mauritius, Morocco, Pakistan, Romania, South Africa, South
Korea, Thailand.
On the WTO's side, it is clear that this organization's
process for implementation and enforcement is in strong need of
reform. Member countries ignore commitments and most countries
face no disciplinary action even in the face of clear and
obvious violations. Absent equitable conditions of market
access, fair trade will not occur in five years, or for that
matter in fifty years. In fact, if the past five years have
taught us anything, it is that trade-blocking behavior will not
go away on its own accord and that closed markets will not open
until countries are forced to open them. ATMI has reviewed the
loopholes and other problems in the WTO and we have included a
list of badly needed reforms in the attached report.
In accordance with the final point of this hearing's focus,
we would like to comment on the potential impact that China's
admission into the WTO would have. As ATMI has already pointed
out in our statement submitted to the committee at your hearing
last month,\4\ the impact of the U.S. government's agreement to
phase out China's textile and apparel quotas at a rate twice as
fast as that granted to any other WTO country will be severe. A
study by the U.S. International Trade Commission predicts that,
as a result, Chinese imports will triple their share of the
U.S. apparel import market. A similar study by Nathan
Associates confirmed this result and concluded that 154,000
workers in the U.S. textile and apparel sector would lose their
jobs under an accelerated phase-out schedule.
---------------------------------------------------------------------------
\4\ Statement of the American Textile Manufacturers Institute,
February 16, 2000
---------------------------------------------------------------------------
There will be other impacts as well. China is not known for
keeping the agreements that it signs--in fact, China has signed
one market access, six textile and four intellectual property
agreements over the past 15 years, and has broken them all.
Given this poor track record, China's accession to the WTO is
sure to strain an already controversial and overburdened WTO
dispute settlement system.
Even more importantly, the major textile exporting nations
have already signaled that they consider even the weak rules of
the current WTO structure too difficult to stomach. They now
say they want subsidy, customs, intellectual property and
dumping rules weakened still further. China is sure to throw
its support behind these initiatives. Though not even yet a
member, China has already complained that developing nations
are getting short shrift in the WTO. All in all, the prospect
for creating actual rules of fair trade within the WTO will be
considerably dimmed the day that China joins that body.
We would also like to make one final point on China now
that the U.S./China agreement on accession has been disclosed.
The agreement has a major flaw that has gone largely unnoticed.
It concerns the absence of any commitment by China to eliminate
export subsidies on industrial products. One may ask why is
this so important -don't U.S. countervailing duty laws apply to
illegal subsidies? The answer is yes, but these laws do not
apply to non-market economies. The Department of Commerce made
this ruling over ten years ago and, unless it changes its
ruling, anyone injured by subsidized industrial exports from
China will be unable to petition for relief under U.S.
countervailing duty laws.
The reasoning for such a decision by the Commerce
Department was hard to fathom then, and remains so today. But
it needs to be reversed and we urge this committee to seek such
a change now. Many industries, not just textiles, will be at
the mercy of China's state-directed economy with all the
subsidies that such a system employs unless the Commerce
decision is reversed.
In closing, we hope the committee will review the attached
report and take into account its findings. The U.S. textile
industry and its workers are not afraid to compete on a level
playing field with any textile producers. We have one of the
highest capital reinvestment rates of any manufacturing sector
and are consistently ranked as one of the most productive
textile sectors in the world. But we cannot compete against
governments that use sky-high tariffs and a whole host of WTO-
sanctioned non-tariff barriers to keep their markets closed.
It is time for the U.S. government to stand strong on
behalf of its workers and manufacturers to make sure that
equitable conditions of market access for U.S. products prevail
in the major markets of the world. The WTO should do more to
make this happen, but only the United States government CAN do
more and make it happen.
[GRAPHIC] [TIFF OMITTED] T7261.002
Statement of Daniel T. Griswold, Associate Director, Center for Trade
Policy Studies, Cato Institute
Street protestors in Seattle during the World Trade
Organization meeting last November delivered a long indictment
against the organization and its guiding principle of trade
liberalization. Union leaders, environmental activists, and
protectionists such as Pat Buchanan charged that international
agreements to expand trade have systematically undermined
employment, wages, environmental standards, democracy, and
national sovereignty. It seemed that whatever discontent anyone
may have had with the state of the world today, trade was the
culprit.
Meanwhile, defenders of trade liberalization were either
silent, on the defensive, or overshadowed by the televised
spectacle of chanting crowds, tear gas, and shattered store
windows. Lost somewhere in the noise and the fog was the
reality of what trade expansion and the WTO have accomplished
for the United States and the global economy.
One fact that friends and foes of trade can agree on is
that America is becoming more open to the global economy. Since
passage of the Reciprocal Trade Agreements Act in 1934 and the
founding of the General Agreement on Tariffs and Trade in 1948,
American tariff barriers have been on a downward trend, from an
average of more than 40 percent in the 1930s to 2.8 percent
today.\1\ In addition to entering into multilateral trade
commitments, the United States joined with Mexico and Canada in
1994 to form a free-trade area through the North American Free
Trade Agreement. The result of those policy initiatives has
been a steady expansion of America's integration into the
global economy. The two-way flow of trade has now reached more
than 25 percent of gross domestic product, a record high for
this century and up sharply from the 1960s. The United States
today is both the world's largest importer and its largest
exporter.\2\
---------------------------------------------------------------------------
\1\ Council of Economic Advisers, ``America's Interest in the World
Trade Organization: An Economic Assessment,'' November 16, 1999, http:/
/www.whitehouse.gov/WH/EOP/CEA/html/wto/, p. 1.
\2\ Ibid.
---------------------------------------------------------------------------
The WTO has also played an important role in facilitating
trade liberalization in the rest of the world. Since the late
1940s, barriers against the free flow of goods and capital have
been falling, with average global tariffs on manufactured goods
down among industrialized countries from an average of more
than 40 percent to under 4 percent today.\3\ Meanwhile,
developing countries have been unilaterally lowering their own
barriers to trade and investment and now are 80 percent of the
WTO's membership of 135. The result of that sea change in
policy has been a geometric leap in global trade flows. The
volume of world merchandise trade today is 16 times the volume
in 1950, a rate of growth three times faster than the growth of
global output.\4\ The global flow of foreign direct investment
(FDI) has more than quadrupled in the past decade, from $206
billion in 1990 to $827 billion in 1999.\5\
---------------------------------------------------------------------------
\3\ Organization for Economic Cooperation and Development, Open
Markets Matter: The Benefits of Trade and Investment Liberalization
(Paris: OECD, 1998), p. 31.
\4\ Ibid., p. 25.
\5\ United Nations Conference on Trade and Development, ``World FDI
Grows 25 Percent in 1999, Surpassing U.S.$800 Billion,'' Press release,
February 8, 2000, http://www.unctad.org/en/press/pr--2837.en.htm.
---------------------------------------------------------------------------
To the opponents of trade, of course, that is all bad news.
They trace the beginning of America's alleged economic decline
to the early 1970s, when the pace of our integration into the
global economy quickened.\6\ From their perspective, the
creation of NAFTA and the WTO have only compounded our
troubles. Their case against the WTO, free trade, and
globalization rests largely on convincing us that we are worse
off today than we would be if we had more vigorously resisted
closer economic ties with the rest of the world.
---------------------------------------------------------------------------
\6\ Pat Buchanan, in his anti-trade manifesto, The Great Betrayal
(New York: Little, Brown, 1998), p. 53, marks the beginning of the
``free-trade era'' as the conclusion of the Kennedy Round of GATT
negotiations in 1967. His allies on the left, Lori Wallach and Michelle
Sforza, Whose Trade Organization? (Washington: Public Citizen, 1999),
p. 156, date ``the onset of globalization in its current form'' to
1973.
---------------------------------------------------------------------------
The Link between Trade and Prosperity
Trade promotes efficiency, the spread of new ideas and
technology, the more efficient allocation of capital, and a
greater international division of labor. Trade allows Americans
to increase their overall productivity by shifting capital and
resources to sectors of the economy where we are more
productive relative to other industries. By specializing in
what we do best--for example, growing wheat, designing computer
chips, and building aircraft--we can trade our surplus
production for the goods and services that people in other
nations are best at producing. The result of international
specialization is that countries that trade enjoy higher
productivity and higher living standards than they would if
they did not trade.
Along with specialization, trade brings the dynamic
blessing of competition. Competition spurs innovation, controls
costs, and keeps downward pressure on prices. For consumers,
enhanced competition means lower prices, better quality, and
wider variety, raising the real value of their wages. For
example, the quotas and tariffs the U.S. government maintains
against imported textiles and clothing impose an estimated net
cost on the U.S. economy of $10.4 billion a year.\7\ The burden
of this protectionism falls disproportionately on lower-income
families, who spend a higher proportion of their incomes on
essentials such as food and clothing. Fortunately, those quotas
are scheduled to be phased out by 2005 under a WTO agreement.
---------------------------------------------------------------------------
\7\ U.S. International Trade Commission, The Economic Effects of
Significant U.S. Import Restraints: Second Update 1999, USITC
investigation n. 332-325, publication 3201, May 1999.
---------------------------------------------------------------------------
For domestic producers, trade allows access to lower-cost
inputs and more sophisticated machinery. For example, the U.S.
textile industry--even as it stifles foreign competition for
its customers--has raised its productivity by importing state-
of-the-art capital equipment from overseas suppliers. One
reason U.S. computer makers are so competitive on world markets
is that they can import a range of intermediate inputs, such as
disk drives, monitors, semiconductors, and motherboards, from
suppliers in Asia.
For exporters, trade expands markets abroad, making
possible larger production runs and cost savings through
economies of scale. Two sectors with the most to gain from
liberalization are agriculture and services. In 1998 American
farmers exported $54 billion in products, accounting for about
a quarter of their cash receipts, despite relatively high trade
barriers against farm imports worldwide. U.S. service providers
accounted for 29 percent of total U.S. exports in 1998, up from
17 percent in 1950, again despite relatively high trade
barriers.\8\ WTO negotiations in agriculture and services set
to begin this year are aimed at reducing the persistently high
barriers to U.S. exports in those sectors.
---------------------------------------------------------------------------
\8\ Council of Economic Advisers, ``America's Interest in the World
Trade Organization,'' p. 9. The leading U.S. service exports are travel
and transportation services; royalties and licensing agreements;
business, professional, and technical services; and financial services.
---------------------------------------------------------------------------
The WTO has worked to open markets for U.S. exporters and
to keep them open. During the financial turmoil abroad in 1997
and 1998, WTO commitments helped discourage countries in
distress from reverting to protectionism under domestic
political pressure. This helped to avoid a destructive cycle of
trade retaliation such as the one that plagued the global
economy in the 1930s. In addition, the United States has been
the most frequent user of the WTO's dispute settlement
mechanism, prevailing in 23 of 25 cases it has brought against
other members. These cases have prompted the removal of
discriminatory barriers against U.S agricultural, services, and
manufacturing exports. Also, if China is allowed into the WTO,
its potentially huge market will be much more open to U.S.
exporters. And since 1997 WTO members have negotiated three
sectoral agreements that lower barriers to U.S. exports of
information technology, financial services, and basic
telecommunications services.
An open economy also provides additional capital from
abroad, lowering domestic interest rates, expanding the
nation's stock of capital, and raising the productivity of
American workers. Japanese investment in U.S. auto plants, for
example, has raised the productivity of American autoworkers by
providing new plants and equipment and introducing new
production techniques. An open economy has allowed American
investors, including workers vested in pensions, individual
retirement accounts, and 401(k) retirement plans, to earn
higher returns abroad and to spread, and thus reduce, the risk
in their portfolios.
All these advantages of openness predicted by economic
theory have been realized in the countries that practice open
trade. The world's most prosperous countries are those that are
relatively open to trade with other nations, while the poorest
nations are those that remain relatively closed. If the
protectionists were right, just the opposite would be true. In
fact, according to a study by the Organization for Economic
Cooperation and Development, nations relatively open to trade
grow about twice as fast as those that are relatively closed--
for all the sound economic reasons listed above.\9\
---------------------------------------------------------------------------
\9\ Organization for Economic Cooperation and Development
---------------------------------------------------------------------------
When the WTO agreements from the Uruguay Round of trade
talks are fully implemented in 2005, their potential benefit
could be an increase to global income of between $171 billion
and $214 billion annually. The gains for the United States
alone could amount to from $27 billion to $37 billion a year
(in 1992 dollars) \10\--an impressive return compared to the
$19 million Congress appropriates annually for our membership
in the WTO.\11\
---------------------------------------------------------------------------
\10\ Council of Economic Advisers, ``America's Interest in the
World Trade Organization,''
\11\ U.S. Trade Representative, ``1999 Annual Report of the
President of the United States on the Trade Agreements Program,'' March
2000, Annex II,
---------------------------------------------------------------------------
By encouraging trade liberalization, the WTO helps to raise
living standards in the United States and the rest of the
world. It encourages more vigorous global competition among
producers, leading to lower consumer prices, rising worker
productivity, and higher living standards.
Trade, Jobs, and Wages
One of the oldest charges against free trade is that it
destroys jobs. The charge contains a grain of truth. Like
technology, expanding the freedom of Americans to trade can
accelerate the shift of employment from one industry to
another. While trade is responsible for destroying some jobs,
it also creates new jobs. The result is not more or fewer jobs
in the U.S. economy but a better mix of jobs.
The notion that expanded international trade causes general
unemployment in an economy is obviously false. In the past
decade, as U.S. trade barriers have fallen and two-way trade
has expanded, total civilian employment in the United States
surged by 16 million, from 117 million jobs in 1989 to 133
million in 1999.\12\ That explosion of job creation helped to
push the unemployment rate down to just above 4 percent by the
end of 1999, the lowest level in 30 years.\13\
---------------------------------------------------------------------------
\12\ Council of Economic Advisers, Economic Report of the President
2000 (Washington: Government Printing Office, 2000), p. 348.
\13\ Ibid., p. 354.
---------------------------------------------------------------------------
Critics of trade mistakenly assume that imports raise the
unemployment rate by displacing Americans who would otherwise
make the same products domestically. In reality, import growth
and the unemployment rate are negatively correlated. The more
we import, the more jobs there are for Americans; or, to phrase
it more precisely, the more Americans who hold jobs, the more
we can afford to import.
Since 1973 the unemployment rate has tended to fall more
rapidly in years with strong import growth and to rise in years
when import growth was weak or negative (Figure 1). In fact,
every percentage point increase in the rate of import growth
during that period is associated with a 0.1 point drop in the
unemployment rate. A 15 percent increase in real imports will
typically be associated with a 0.9 point drop in the
unemployment rate during the year (December to December), while
a smaller 10 percent increase in real imports is associated
with a 0.4 point drop in unemployment. A 5 percent fall in real
imports is typically matched by a 1.1 point increase in
unemployment.
The connection between the unemployment rate and imports
offers no comfort to protectionists who promise to drive down
the unemployment rate by restricting imports. Since 1973 there
has not been a single year in which falling imports have been
associated with a falling unemployment rate. The empty lower-
left quadrant in Figure 1 shows the hollowness of the
protectionists' argument. The debate over trade should not be
about the number of jobs in our economy; it should be about the
kind and quality of jobs. \14\
---------------------------------------------------------------------------
\14\ Total employment in an economy is determined by labor market
flexibility and by broader, macroeconomic factors such as monetary
policy. This means, of course, that proponents of trade expansion who
argue that it will ``create jobs'' are propagating the same fallacy as
opponents who argue that it will ``destroy jobs.''
---------------------------------------------------------------------------
The Real Story of Real Wages
Even though trade does not reduce the total number of jobs
in our economy, what about the quality of the jobs and the wage
gap between high-and low-skilled workers? Critics of trade
expansion contend that we are trading away good-paying jobs in
manufacturing for lower-paying jobs in the service sector. As
evidence, they point to widely quoted figures that are
purported to show that the average real wage in the United
States has fallen since 1973, and that trade with low-wage
countries is primarily to blame.
The argument that trade liberalization through the GATT/WTO
has made Americans poorer contradicts the most obvious facts
about the U.S. economy in the year 2000. Americans today are
much better off than they were in the early 1970s by virtually
every economic measure available. Americans are living longer,
enjoying better health, and consuming more goods and services
per capita than ever before.
The claim of declining real wages is misleading for two
reasons: it overstates inflation, and it does not acknowledge
the growth of nonwage benefits. In the past few years
economists have reached a consensus that the official consumer
price index systematically overstates inflation; the 1996
Boskin Commission estimated the overstatement to be about 1.1
percentage points a year.\15\ Compounded over 25 years, an
annual 1 percentage point overstatement of inflation would
cause a 26 percentage point understatement of the growth in
real wages--which would turn the alleged 4 percent drop in real
wages into a 22 percent gain in purchasing power.\16\
---------------------------------------------------------------------------
\15\ The main reason why the CPI systematically overstates
inflation is that it fails to capture the beneficial impact of new
products on the purchasing power of our paychecks. Americans today can
buy a minivan full of products--such as personal computers, VCRs,
microwave ovens, cellular telephones, and digital cameras--that simply
were not for sale in 1970, at least not a price any of us could afford.
And when those new products are finally added to the CPI shopping
basket, the most dramatic price reductions have already been realized.
\16\ Author's calculation, based on an average annual CPI increase
of 5.4 percent from 1973 to 1998.
---------------------------------------------------------------------------
The commonly cited real wage numbers also fail to include
such nonwage benefits as health insurance premiums, retirement
account payments, eye and dental care, stock options, and paid
maternity leave. Nonmonetary benefits as a share of wages have
risen by one-third since 1973: from 32.7 percent in 1973 to 42
percent in 1995.\17\ Failure to account for nonwage benefits
makes the real wage numbers grossly misleading.
---------------------------------------------------------------------------
\17\ W. Michael Cox and Richard Alm, Myths of Rich and Poor: Why
We're Better Off Than We Think (New York: Basic Books, 1999), p. 18.
---------------------------------------------------------------------------
Even those flawed numbers indicate that the angst over real
wages is misplaced. In the past three years real wages have
begun to rise strongly again in step with rising productivity.
According to the Bureau of Labor Statistics, real wages rose by
an annual average of 2 percent in 1997, 1998, and 1999, during
a period in which imports and foreign investment in the United
States were rising to record levels.\18\ Real per capita
disposable income is up 17 percent in the past decade.\19\
---------------------------------------------------------------------------
\18\ Council of Economic Advisers, Economic Report of the President
2000, p. 360.
\19\ Ibid., p. 341.
---------------------------------------------------------------------------
This rising tide of real compensation has lifted all boats,
including those of less-skilled workers, as the expanding U.S.
economy has raised demand for all types of labor. According to
the Council of Economic Advisers, ``Between 1993 and 1998, real
average household incomes have grown between 9.9 and 11.7
percent for every quintile of the income distribution, and the
median African American household has seen a 15 percent
increase in real income. Between 1993 and 1998, family incomes
in the lowest quintile rose at a 2.7 percent annual rate,
slightly faster than the 2.4 percent rate recorded by the top
quintile.'' \20\
---------------------------------------------------------------------------
\20\ Ibid., p. 27.
---------------------------------------------------------------------------
If the critics of trade were right--that more open trade
drives down real wages, especially for low-skilled workers--
then none of those developments should be happening.
Who's Flipping Hamburgers?
Predictions that trade would turn us into a nation of
hamburger flippers have proven to be ludicrous. That myth is
built on the misconception that service jobs are somehow
inherently inferior to those in manufacturing, which gives rise
to the erroneous assumption that the ongoing growth of the
service sector has caused a decline in real living standards.
Since the passage of NAFTA and the Uruguay Round Agreement,
the service sector in the United States has expanded so much
that, today, service-producing industries account for more than
80 percent of all jobs in the United States. It is true that a
significant number of service jobs are relatively low paying,
in particular those in the retail trade, but the fastest-
growing sectors of service employment are on the high end.
According to a study by the U.S. Department of Labor, 81
percent of the new jobs created since 1993 have been in
industry/occupation categories paying above-median wages, and
65 percent are in the highest-paying third of categories.\21\
---------------------------------------------------------------------------
\21\ Council of Economic Advisers and U.S. Department of Labor,
Office of the Chief Economist, ``20 Million Jobs: January 1993-November
1999,'' December 3, 1999, p. 5.
---------------------------------------------------------------------------
Those new jobs are in communications, computer programming,
finance, teaching, management, and other white-collar
professions. Overall, the typical manufacturing job pays only
about 1 percent more than the typical service job, and that gap
is about to vanish. For nonretail service jobs, the average pay
is now about 5 percent higher than for manufacturing jobs.\22\
---------------------------------------------------------------------------
\22\ Cox and Alm, p. 146.
---------------------------------------------------------------------------
It would be wrong to describe the lower-paying service jobs
as dead-end work. Many workers prefer those kinds of jobs for
the flexible hours and work experience they offer. The fast-
food industry, to cite the most obvious example, has become a
virtual training program for the American workforce, with
millions of workers gaining their first on-the-job experience
in the industry. Today nearly 70 percent of workers flipping
burgers and performing other tasks in the fast-food industry
are under the age of 20.\23\ For most of those workers, low-end
service jobs are a valuable but temporary step on the ladder to
greater economic success.
---------------------------------------------------------------------------
\23\ Ibid., p. 147.
---------------------------------------------------------------------------
Critics of trade tend to romanticize the appeal of
manufacturing jobs. This sector of the economy also has its
share of low-end jobs that pay below-average wages, in
particular in the textile and apparel sectors. Working
conditions can also be less pleasant, safe, and secure than in
the large majority of service jobs. The shift from
manufacturing to service jobs partly explains the dramatic
decline in the death rate from on-the-job accidents in recent
decades.
It is simply a myth that an economy cannot prosper if the
share of jobs in manufacturing is falling. The current U.S.
economy is proof.
The Gap between Rich and Poor
Another charge against open trade is that it has widened
the gap between rich and poor in America. The claim rests on
the theory that trade with low-wage countries has driven down
the wages of low-skilled domestic
labor. According to the theory, competition with poor
countries causes U.S. industries to shift production away from
labor-intensive goods, thus reducing the demand in this country
for low-skilled workers. The result is what economists call
``factor price equalization''--U.S. wages for low-skilled labor
are dragged down toward the level in less-developed countries.
The theory sounds plausible on its face, but it fails to
explain what has actually been occurring in the U.S. economy.
It is true that, until the mid-1990s, the wage gap had been
growing between workers with a college degree and those with
only a high school education. But the evidence points to
technological change, not international trade, as the primary
reason for the widening gap between wages of skilled and
unskilled workers.
If trade were the dominant factor, then most industries
should be increasing their percentage of low-skilled workers to
take advantage of lower wages. But, in fact, U.S. industries
across the board have been shifting their workforces toward
higher-skilled positions. This demonstrates that the rising
wage premium for college degrees has been due, not to external
competitive pressures, but to broader internal changes in the
American economy. Specifically, a more information-based,
technologically driven economy needs relatively more brains and
less brawn than did the more manufacturing-based economy of the
past.
It is true that, although technology has provided the much
bigger shove, technology and trade have been pushing in the
same direction-toward greater reliance on high-skilled workers.
Anti-trade critics try to twist this into a black mark for
globalization, but would they really prefer the opposite? Would
anybody really want to see an American economy that relied
increasingly on low-skilled workers? The increasing premium on
education, skills, and training is surely good news for
America's future. If some Americans lack the skills to take
full advantage of the promise of that future, the proper
response is to improve our public policies on education and
training--not to dumb down the American economy by blocking
technological progress or erecting trade barriers.
America's Thriving Manufacturing Base
Despite predictions of its imminent doom, manufacturing in
America today is thriving. American factories are producing
more goods than ever before. Healthy gains in efficiency have
kept American manufacturers competitive in international
markets, maintaining America's position as the world's no. 1
exporter of manufactured goods. The resurgence of U.S.
manufacturing comes against a backdrop of record imports.
Far from deindustrializing, America in the past decade has
experienced a robust expansion of industrial output. Since
1992, during a period in which the WTO and NAFTA have both been
in operation, industrial production--which includes the output
of U.S. mines, utilities, and factories--has increased 37
percent. Manufacturing output by itself has risen even faster,
by 42 percent (Table 1).
Consider the example of the U.S. auto industry. Domestic
output of motor vehicles and parts has shot up 51 percent since
1992. Total domestic output of cars and light trucks reached
12.6 million in 1999, a record high and up more than 3 million
since 1992. Strong domestic demand for new cars, light trucks,
and sport utility vehicles has helped to boost profits and
employment in the industry. In 1998 domestic automobile
employment approached 1 million, an increase of 177,000 since
1992. Industry profits were healthy in 1999. Those are not the
signs of an industry that has been destroyed.
Contrary to what the critics of trade predicted, American
industry has not been losing ground, either in absolute terms
or relative to the rest of the world. America remains the
world's top exporter of manufactured goods, with exports in
1998 worth $528 billion.\24\ America's share of global
manufacturing exports held steady in the 1990s at about 13
percent.\25\ Among America's leading exports in 1998 were
aircraft, computer equipment, telecommunications equipment,
valves and transistors, passenger cars, and motor vehicle
parts. Compared with the other major industrial powers,
including the once feared Japanese juggernaut, the United
States has been widening its lead in industrial output in the
past decade (Figure 2).
---------------------------------------------------------------------------
\24\ United Nations, Monthly Statistical Bulletin, March 2000, p.
275.
\25\ U.S. Bureau of the Census, Statistical Abstract of the United
States: 1999 (Washington: Government Printing Office, 1999), Table
1243, p. 755.
---------------------------------------------------------------------------
Open U.S. markets have been essential to the competitive
strength of America's most dynamic high-tech manufacturing
industries. For example, U.S. personal computer manufacturers
are among our leading exporters. But open up one of those PCs
and you'll find a microcosm of the global economy: operating
system and microprocessor from the United States, memory chips
from Japan and Korea, a disk drive made by a U.S. company in
Singapore, a motherboard and peripherals from Taiwan. Any
attempt to close off the American economy with tariff walls
would be a disaster for the U.S. computer industry.
Free trade has been a tonic for American industry.
International competition has spurred innovation, efficiency,
and customer satisfaction. The biggest winners have been
American families, who benefit from the lower prices, greater
variety, and higher quality of products that international
competition makes available. Not all industries benefit from
open competition, of course. Output and employment in the
domestic apparel sector continue to fall as production shifts
to lower-cost producers abroad. But, for the health and
vitality of the American manufacturing sector as a whole, not
to mention the overall economy, international trade has been a
blessing.\26\
---------------------------------------------------------------------------
\26\ For a more detailed analysis of the impact of international
trade on domestic manufacturing and employment, see Daniel T. Griswold,
``Trade, Jobs, and Manufacturing: Why (Almost All) U.S. Workers Should
Welcome Imports,'' Cato Institute Trade Briefing Paper no. 6, September
30, 1999.
---------------------------------------------------------------------------
Warnings about deindustrialization tend to focus, not on
output, but on jobs. But even here, the worries are based on an
irrelevant half-truth: manufacturing employment has not been
growing. The number of Americans employed in manufacturing at
the end of 1999 was about 18.4 million, up slightly from 1992
but down from the all-time peak of 21 million in 1979. Before
the downturn in exports hit in 1998, in the wake of the East
Asian economic crunch, the number of manufacturing jobs in the
United States had actually increased by 700,000 from the first
quarter of 1993 through the fourth quarter of 1997.
In the end, the debate over jobs is irrelevant because the
real measure of a nation's industrial might is not the number
of people employed in this or that sector but the value of what
they produce. The fact that American manufacturers can produce
42 percent more than they could in 1992 with about the same
number of workers is a testament to rising efficiency--
``competitiveness,'' if you will--not industrial decline.
The shift to service-sector jobs is a natural consequence
of a more advanced and prosperous economy. As incomes rise,
families tend to spend a smaller share of their income on goods
and a correspondingly larger share on services. We spend
relatively more than we used to on such services as travel,
eating out, recreation, lawn care, entertainment, and financial
advice. It only makes sense that, as our relative consumption
of manufactured goods falls, so too will our relative
production--even as our absolute production continues to climb.
Virtually all the other advanced economies in the world have
undergone the same transition. The relative decline of
manufacturing is a sign not of national decline but of a nation
reaching a higher stage of economic development.
No Giant Sucking Sound
More than half a decade after congressional approval of
NAFTA and the WTO, domestic investment in the United States is
booming. The same open economy that has benefited American
consumers and workers has created a profitable climate for new
business investment. As a result, more than a trillion dollars
was spent in the United States last year on fixed
nonresidential private investment.
The record expansion now heading into its 10th year has
been marked by a healthy growth in investment. Since 1992 real
nonresidential private investment in the United States has
almost doubled, from $630 billion to more than $1.2 trillion
(in 1996 dollars). Real investment in information-processing
equipment and software has more than tripled.\27\ The surge in
investment and new technology has led directly to the rise in
worker productivity that in turn has fueled economic expansion
and rising living standards.
---------------------------------------------------------------------------
\27\ Council of Economic Advisers, ``America's Interest in the
World Trade Organization,'' Table B-17, p. 327.
---------------------------------------------------------------------------
The predicted flight of capital to countries with lower
costs and standards never materialized. In fact, during the
past decade the United States has been the world's largest
recipient of foreign investment. Year after year the United
States has run a net surplus in its capital account, with
foreign savers investing more in the United States than
American savers sent abroad. This inflow of foreign capital has
kept interest rates down, built new factories, and brought new
technology and production methods to our economy. If there has
been any giant sucking sound since 1993, it has been the rush
of global capital to the safe and profitable haven of the
United States.
American manufacturers continue to be net investors in
Mexico and China, but the relative magnitude of the investments
remain small. From 1994 through 1998 the annual net outflow of
FDI in manufacturing to Mexico averaged $1.7 billion; the net
annual outflow of manufacturing investment to China has been
even smaller, averaging $661 million (Table 2). Those sums are
inconsequential in a U.S. economy that averaged almost $8
trillion in annual GDP during the same period. In contrast to
the relative trickle of outward investment to Mexico and China,
domestic investment in U.S. manufacturing in 1997 totaled
$192.3 billion.\28\ In fact, from 1994 to 1998, the United
States received an average annual net inflow of manufacturing
FDI of $12 billion.\29\
---------------------------------------------------------------------------
\28\ Joint Economic Committee of Congress, p. 10.
\29\ U.S. Department of Commerce.
---------------------------------------------------------------------------
While anti-trade polemicists focus all their attention on
jobs shipped overseas, they ignore the jobs shipped here. Today
some 12.3 percent, or almost one in eight, of manufacturing
workers in America are employed by a U.S. affiliate of a
foreign-owned company.\30\ Honda, Toyota, DaimlerChrysler AG,
BMW, Fuji, and other foreign-owned companies in the United
States have become major employers.
---------------------------------------------------------------------------
\30\ William J. Zeile, ``Foreign Direct Investment in the United
States: Preliminary Results from the 1997 Benchmark Survey,'' Survey of
Current Business 79, no. 8 (August 1999): 32.
---------------------------------------------------------------------------
As is the case with trade, most of America's foreign
investment dealings are with other advanced economies.
According to a study by the Deloitte & Touche consulting firm,
80 percent of FDI by U.S. manufacturing firms in 1998 was in
other high-wage countries.\31\ The top five destinations for
U.S. manufacturing FDI in 1998 were the United Kingdom, Canada,
the Netherlands, Germany, and Singapore--all high-wage
economies with labor, health, and environmental regulations
comparable to or more restrictive than those of the United
States.\32\
---------------------------------------------------------------------------
\31\ Deloitte Consulting, ``Foreign Direct Investment Trends of
U.S. Manufacturers: 1999 Annual Report,'' Deloitte & Touche, New York,
2000, p. 1.
\32\ Ibid., p. 12.
---------------------------------------------------------------------------
Outward U.S. foreign investment is not drawn primarily by
low wages and lax regulations in poor countries. ``Contrary to
common belief, cheap labor does not drive U.S. manufacturing
FDI,'' the Deloitte & Touche study concluded. ``Indeed, global
expansion strategies are driven in large part by relative
economic stability, well-developed infrastructures, lucrative
market potential, and talented and skilled workers. Access to
lower cost labor and raw materials are important, but not the
primary driver.'' \33\
---------------------------------------------------------------------------
\33\ Ibid., p. 1.
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By focusing on low wages in less-developed countries, the
opponents of openness miss the crucial fact that workers in
poor countries are much less productive than workers in the
United States. Their wages are lower, not because they are
inherently lazy or incapable, but because they lack the human
and physical capital and the pro-market institutions that
foster higher productivity. Their countries have historically
followed unsound economic policies: punishing tax rates, heavy
market regulation, neglect of education, traditional hostility
to foreign investment, high import barriers, and inflationary
monetary policy. The policy mistakes that have kept wages low
in poor countries also discourage foreign investment.
The United States has nothing to fear from openness to
trade and investment with less-developed countries. Global
trade liberalization encouraged by the WTO promotes investment,
growth, and development in the United States as well as our
trading partners.
America's Benign Trade Deficit
With the U.S. economy performing so well during a period of
record trade expansion, complaining about the trade deficit has
become the last refuge of the enemies of openness, who
routinely point to the record deficit as prima facie evidence
that global trade is undermining the U.S. economy. They argue
that future trade agreements threaten to ``worsen'' the deficit
and therefore should be opposed.
America's trade deficit is not the result of unfair trade
barriers abroad; it is the result of our continuing surplus of
foreign investment. The net inflow of capital allows Americans
to import goods and services in excess of what we export--hence
the trade deficit. As long as our level of domestic investment
exceeds our level of domestic savings, the United States will
be a net recipient of foreign capital and will run a trade
deficit. In contrast, nations such as Japan will routinely run
trade surpluses because their level of domestic savings exceeds
domestic investment.
Unless a policy addresses the balance of savings and
investment, it will have no ultimate effect on the trade
deficit. Protectionism aimed at reducing the trade deficit
would only deprive foreign producers of the dollars they would
otherwise earn by exporting to the United States. The resulting
reduction of dollars in the international currency markets
would then drive up the dollar's value, making U.S. exports
less attractive abroad and imports more attractive at home--
offsetting the effects on the U.S. trade deficit of a
protectionist tariff.
Under current conditions, the U.S. trade deficit is
actually a sign of America's relative economic health compared
with that of our major trading partners. The deficit reflects
the attractiveness of U.S. investments and the spending power
of U.S. consumers, whose rising employment and real wages have
spurred demand for imports. This is why, as a general rule, the
U.S. trade deficit grows during periods of economic expansion
and shrinks during periods of sluggish growth or recession.\34\
---------------------------------------------------------------------------
\34\ For a more detailed discussion of the causes and consequences
of the U.S. trade deficit, see Daniel T. Griswold, ``America's Maligned
and Misunderstood Trade Deficit,'' Cato Institute Trade Policy Analysis
no. 2, April 24, 1998.
---------------------------------------------------------------------------
Trade liberalization through the WTO will not have a
significant effect on the U.S. trade deficit in either
direction. It will make the countries that participate in the
liberalization more prosperous by allowing their citizens to
reap the productivity gains from the spread of technology, more
efficient production, and a more economical division of labor.
Conclusion
America's membership in the WTO has been a double blessing
for the United States. The liberalization of markets abroad has
created export opportunities for U.S. companies, raising
profits, employment, and wages in industries that serve
expanding global markets. Meanwhile, WTO membership exerts
pressure on the U.S. government to keep our own market open to
the global economy, which gives American families access to a
wider range of affordable goods and services, thus raising the
real value of our paychecks. The competition from abroad spurs
domestic producers to keep prices down, develop new and better
products, and adopt more efficient production methods. The
ability to import raw materials, capital equipment, and
intermediate inputs, such as competitively priced steel and
semiconductors, lowers the cost of production for U.S.
producers and keeps them competitive in global markets.
All the economic arguments against the WTO agenda of trade
expansion have proven to be hollow in practice as well as in
theory. The U.S. economy is thriving at a time of record trade
and international investment. America's unprecedented
integration into the global economy has been accompanied by
record low unemployment, booming investment and industrial
production, and rising real wages up and down the income scale.
Granted, open trade is not the only, and may not even be
the chief, cause of the long boom we are experiencing, and a
policy of open trade does not guarantee unbroken prosperity.
Ultimately, the argument for free trade does not depend on
current economic conditions. If the United States were mired in
recession, free trade would still be the best policy both in
theory and in practice. But at the very least, today's
juxtaposition of trade and economic expansion disproves the
protectionist argument that open trade is a recipe for
unemployment and falling living standards.
In testimony before the Senate in February, Federal Reserve
Board chairman Alan Greenspan reminded senators that America's
openness to imports and immigration has fueled the U.S.
economy, prolonging our record expansion. ``As we are creating
an ever more complex, sophisticated, accelerating economy, the
necessity to have the ability to bring in resources and people
from abroad to keep it functioning in the most effective manner
increasingly strikes me as relevant,'' he testified. The Fed
chairman then went on to warn that, unless fears about trade
and openness are addressed, ``I do think the forces against
globalization can significantly undercut this remarkable surge
in prosperity that we are observing.'' \35\
---------------------------------------------------------------------------
\35\ Alan Greenspan, ``The Federal Reserve's First Monetary Policy
Report to Congress for 2000,'' Testimony before the Senate Banking
Committee, February 23, 2000. The quote was in response to questions
from Sen. Robert Bennett (R-Utah).
---------------------------------------------------------------------------
By encouraging governments around the world to liberalize
trade, the WTO enhances the individual freedom as well as the
material well-being of Americans. Through a rules-based
approach to trade policy, the WTO discourages governments from
exercising self-defeating power over the economic lives of
citizens. Because of the WTO, Americans are not only better off
materially; they are also a bit freer from the power of
government to decide what they produce and consume.
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Statement of the Luggage and Leather Goods Manufacturers of America,
Inc., New York, NY
The Luggage and Leather Goods Manufacturers of America
(LLGMA) is submitting this statement in response to the Ways
and Means Committee's request for public comment on continued
participation of the United States in the World Trade
Organization (WTO). LLGMA represents U.S. manufacturers,
distributors, and retailers of luggage, handbags, business and
computer cases, small leather goods, and other travel
accessories.
LLGMA is opposed to H.J. Res. 90, which proposes the
withdrawal of the United States from the World Trade
Organization (WTO). Withdrawal of the United States from the
WTO is unthinkable. It would constitute an abandonment of this
country's role as the world's economic leader and its ability
to positively shape and influence rules and regulations
governing world trade.
The WTO provides a structure for conducting world trade and
resolving disputes between nations. And as imperfect as the WTO
Dispute Settlement process is, at its best, it provides a forum
for settling disputes before they escalate into major trade
wars, where retaliatory trade sanctions are common. U.S. travel
goods companies, distributors, and retailers have more than
once faced the threat of draconian tariff sanctions and such
threats are highly disruptive to our businesses.
WTO disciplines on illegal export subsidies, intellectual
property rights (patents and trademarks), transparent customs
procedures and proper customs valuation, and use of illegal
import restraints are important outgrowths of this nation's
active participation and leadership in the WTO. These
disciplines help our industry compete both in the United States
and in markets abroad.
As a result of negotiations conducted under the auspices of
the WTO, countries have been lowering their tariffs or agreed
to legally bind them at certain levels. These tariff reductions
along with the assurance that tariffs will not be raised have
helped our members find new markets that were formerly closed
to them.
For all these reasons, it would be a critical mistake for
the United States to withdraw from the WTO. World trade must be
rules-based, and the rules must take U.S. strengths and
interests into account. The U.S. cannot influence this process
outside the organization that creates and implements these
rules. H.J. Res. 90 is a bad idea and LLGMA hopes that the Ways
and Means Committee and Congress will oppose it.
Statement of Darol Lindloff, President, Panda Energy International,
Inc., Dallas TX
Thank you, Mr. Chairman, for the opportunity to submit this
written statement to the Committee on the opportunities that
may flow from improving trade relations with China. I am Darol
Lindloff, President of Panda Energy International, Inc., an
independent power company headquartered in Dallas, Texas. We
are in the business of developing power plants and supplying
electricity both in the United States and international
markets. Panda has interests in two operating power plants in
Maryland and North Carolina, three merchant power projects
under construction in Texas, a hydroelectric project in Nepal,
and the project I am about to describe in China. We also have a
number of other projects actively under development elsewhere
in the US.
I am not here to urge you either to grant or deny permanent
normal trade relations, or PNTR, status to China. China is an
important member of the international community; we all benefit
if it is allowed to participate in world trade on the same
terms as other countries and it subscribes to the same basic
rules.
Rather, my purpose today is to call your attention to the
story of how one US company has fared when trying to do
business in China. As you and your colleagues decide whether to
grant PNTR status to China in the coming week, I believe you
will find valuable the story I am about to share and the issues
it raises.
Panda spent the last six years developing a private power
project in Hebei province in northern China. Construction is
now complete, and the project is ready to start commercial
operation.
Power contract
Panda signed two contracts--an ``Electric Energy Purchase
and Sales Agreement'' and a ``General Interconnection
Agreement''--with the North China Power Group Company in
September 1995 under which the North China Power Group Company
agreed to buy the electricity produced by the project at a
price to be determined by a formula.
The North China Power Group is one of five regional power
agencies that fall under what used to be known as the Ministry
of Power and Industry but that, after recent reforms, is now
called the State Power Corporation of China. The North China
Power Group covers the region that includes Hebei province.
The contracts commit the North China Power Group Company to
``dispatch,'' or call on, the plant for 100% of its capacity
during peak hours and 60% to 65% during off-peak hours and
trough periods.
The tariff, or price at which electricity from private
power projects in this part of Hebei province can be sold, is
set by the Tangshan Municipal Pricing Bureau. The pricing
bureau sent Panda a notice in October 1995 that the company
could assume a price of 0.5997 renminbi per kWh for purposes of
its financial planning, but said the company would have to
apply for the actual tariff 30 days before the project was
ready to start commercial operation. The bureau attached the
formula that would be used to set the tariff. This was the same
formula used to arrive at the planned tariff. The only
difference was that the actual tariff would be calculated by
replacing the cost variables in the formula with actual costs
closer to the time the project was ready to start supplying
power.
US bond offering
By the spring 1997, Panda was ready to start construction.
It borrowed $155.2 million in April that year by issuing public
debt in the US capital markets. Of this amount, a sizable share
was set aside in reserves to cover interest payments on the
debt during construction and other working capital
requirements.
A total of $110 million has been injected to date into the
Chinese joint ventures that own the project. (The project
assets have been divided among four Chinese joint ventures.
Panda owns approximately 83% of each joint venture. Other
investors own approximately 5%, and the remaining 12% is owned
by the Luannan government, the county within Hebei province
where the project is located.)
The project consists of two 50-megawatt coal-fired
generation units (e.g., boilers and steam turbines).
Construction of both units was completed last fall, and both
had been ``synchronized'' with the regional power grid by
December 1999 and were in a position to start generating
electricity.
Tariff application
In May last year, Panda applied to the Tangshan Municipal
Pricing Bureau for its tariff. It plugged the actual numbers
into the pricing formula and came up with a figure of 0.704
renminbi per kWh.
The pricing bureau audited the cost figures, made site
visits, and came back with comments on the Panda application in
July. Panda used the pricing bureau's figures in place of its
own in the formula and arrived at a figure of .58685 renminbi
for the tariff. However, on July 22, the pricing bureau showed
Panda a draft order that said the tariff would be only 0.37
renminbi and suggested the North China Power Group Company
would not buy the power at this price but rather the project
would be allowed to charge the price if Panda could find
customers itself to which to make direct retail sales of
electricity.
The project does not have authority under Chinese law to
make direct retail sales. Demand for power in the region has
fallen since the project started construction. The Chinese
appear to have assigned the swing industrial load (i.e., the
portion of demand that is more susceptible to economic cycles)
to foreign-owned independent power projects, and reserved the
safer base load to the public sector for Chinese-owned
facilities.
A tariff of 0.37 renminbi would bankrupt the project, even
if it could find retail customers for the entire output.
Efforts to seek help
Panda met with the vice mayor of the Tangshan municipal
government, Zhang Yu, on August 3 in an effort to explain its
situation. The vice mayor asked what was the lowest possible
tariff the project would require to avoid defaulting on its
debts. Panda sent a letter three days later that said the
project would need a tariff of at least 0.53 renminbi per kWh
to service the debt (or 0.453 renminbi per kWh if one ignored
the share of the tariff that went back to the government in the
form of value added taxes).
Over the next month, Panda tried to see other officials at
both municipal and provincial levels. It had only limited
success. For example, we showed up for a scheduled meeting with
the deputy general secretary of the Tangshan municipal
government only to be told that the gentleman was in Russia.
In early September, Panda learned that an executive vice
governor of Hebei province, Mr. Cong Fukai, had given the
problem to a deputy director of the Hebei Provincial Planning
Commission, Mr. Cao Mangui, and told him to solve it. Around
this time, Alan Turley, the commercial minister-counselor in
the US embassy in Beijing, sent a letter to the executive vice
governor urging him to help.
In late October, Mr. Cao summoned all the interested
parties to the provincial capital. Panda was invited but not
allowed in the room. Mr. Cao ``split the baby.'' He took the
0.37 renminbi that had been proposed by the Tangshan pricing
bureau and the 0.53 tariff that Panda said the project needed
to avoid defaulting on its debt and settled on the midpoint of
0.45 renminbi.
Mr. Cao called in the Panda representatives the next
morning, briefed them on the outcome, and asked whether they
could accept the 0.45 figure. We responded on November 2 that
the proposed tariff of 0.45 renminbi would leave the project
unable to service its debts, but said we would see how much
room we had with the US bondholders to restructure the debt.
Panda had initiated discussions with the bondholders
starting in August at the first sign there might be trouble.
The talks had progressed by this time to a point where the
bondholders were demanding that Panda give up a majority of its
ownership interest in the project and also pay them a
considerable amount to reduce the debt to a level that the
project might be able to service at the reduced tariff.
I flew to China and delivered a letter in person on
November 5 accepting the 0.45 tariff on two conditions--first,
the tariff would be implemented quickly so that the project
could start operation on schedule and, second, the tariff would
come with an assurance that the government would buy the output
at this figure as required under the power sales contract.
The following Monday, November 8, we were briefed on a
report that Mr. Cao had written for the governor to send the
Tangshan authorities directing them to accept the tariff of
0.45 renminbi, but not taking a position on the two conditions.
The report justified the 0.45 tariff on grounds that the figure
had been widely adopted for other foreign power plants in the
province.
The report never made it to the governor. It became tied up
in a maze of the governor's aides and was eventually blocked by
the head secretary who was concerned about the harshness of the
report on the Tangshan municipal government and who wanted to
hear from the local government before allowing the report to
reach the governor.
I tried to get Mr. Cao to come with me in person to the
governor's office. Mr. Cao seemed to be trying to distance
himself from our case and, the next day, we learned that he had
been reassigned to another job. Mr. Turley at the US embassy
sent another letter to the executive vice governor, Mr. Cong
Fukai, on November 10 and this was followed up by a brief faxed
memo from Bruce Quinn at the US embassy urging Mr. Cong to
implement the compromise that I had travelled to China to say
we would accept. The Hebei government responded around November
18 that a satisfactory solution had been reached.
The following day, we were given a brief order from the
Tangshan pricing bureau that said in its entirety:
``In accordance with the opinion given by the leaders of the
provincial pricing commission in the tariff coordination
meeting on October 28, 1999, the tariff of the electric energy
sold in Luannan County for Tangshan Panda Heat & Power Co.,
Ltd. will be 0.45 yuan/Kwh. The execution period of the tariff
for the time being is one year. The above commercial tariff
will become effective at COD [the commercial operation date].''
The problem with the order is Luannan County has only a 10
megawatt demand for electricity. Thus, the project is assured
of earning the tariff on only about a tenth of its output.
Panda sent a letter to the executive vice governor of Hebei
province on November 25 expressing its disappointment. The
letter said, in part,
``Mr. Cong, you are a very important, powerful and busy person.
I honestly do not know if you truly have been made aware of
what has transpired over these last weeks, and this recent
Tangshan Government action which has now put our project in a
desperate situation. In the interest of fair business and
future foreign investment, please get personally involved in
this issue now and take some positive action to save us. Right
now we have no future.''
The letter was signed by John Zamlen, general manager of
the Tangshan Panda Heat and Power Co., Ltd. in China.
Conclusion
As I said at the start of my statement, I am not here to ask you
and your colleagues to grant or deny China PNTR status. I am here to
relate a story of how one US company fared when it tried to supply
electricity to the Chinese. Unfortunately, we have come to find that
our experience is not all that uncommon. However, in our case, the
consequences are potentially disastrous because Panda had to guarantee
the US bondholders that they would be repaid. We feel like the jilted
bride who entered into a marriage five years ago with the Chinese only
to find them trying to walk away from the marriage now that the child
has been born. This isn't fair.
At this time, we still do not have an assigned tariff necessary for
the commercial operation of our facility. There is a growing lack of
concern on the part of local and provincial officials for even granting
a tariff. If this is not achieved soon, the consequence will be the
failure and bankruptcy of a U.S. capital-markets funded international
project in China.
Thank you.
Statement of Pharmaceutical Research and Manufacturers of America
(PhRMA)
Summary
The Pharmaceutical Research and Manufacturers of America
(PhRMA) believes that the World Trade Organization (WTO) and
the global trading system that it represents provide enormous
benefits for all Americans. Contrary to claims made during and
since the WTO Ministerial Conference in Seattle, international
trade creates economic growth and opportunity -and this is the
best hope for improving economic situations and living
conditions for all of the world's citizens. Thus, not only is
it in the interests of Americans that the U.S. participate
actively as a member of the WTO, but we should encourage all of
our trading partners to join the WTO as well.
PhRMA urges the United States Government to pursue every
opportunity for improving the ability of the innovative
pharmaceutical industry to compete in foreign markets. The
United States has a substantial interest in ensuring that our
trading partners do not erect barriers to our ability to
compete in their markets, through non-market-based government
interventions such as price and profit controls, inadequate
intellectual property protection standards, unfair or coercive
government procurement practices, high tariffs and other
measures. We urge the U.S. Government to take advantage of our
membership in the World Trade Organization to seek to remove
these impediments to trade. We stand ready to work with the
Office of the U.S. Trade Representative (USTR), other key
actors in the United States Government, and the Congress, to
pursue an effective course of action in a new round of trade
negotiations and through other opportunities.
PhRMA also believes that the bilateral agreement on market
access signed by the U.S. and China will bring significant
gains for both of our countries, and we support the approval of
Permanent Normal Trade Relations status for China.
Statement
The Pharmaceutical Research and Manufacturers of America is
a trade organization representing the country's leading
research-based pharmaceutical and biotechnology companies,
which are devoted to inventing medicines that allow patients to
lead longer, happier, healthier and more productive lives. This
year, PhRMA members expect to invest over $26 billion in
research and development efforts to identify and bring to
market new drugs. Our members employ almost a quarter of a
million Americans in a variety of high-skill, high-wage jobs.
The industry's annual worldwide sales in 2000 are expected to
exceed $149 billion, an increase of more than 11 percent over
1999 figures. One third of this revenue comes from sales of our
products in foreign markets. Our ability to compete
successfully in those markets is dependent on effective, non-
discriminatory trade rules that protect our technology and
reduce trade barriers faced by our products.
Benefits of the WTO
PhRMA believes that the WTO has led to clear benefits for
the global trading system as well as all of its participants.
These benefits include:
Rule of law and discipline: The WTO has
transformed the 50-year old trading system from a complex set
of rules applied to few members into a process where the rules
are transparent and apply to all members, allowing all to enjoy
the benefits of an open trading system.
Dispute settlement: WTO members can rely on a
process for the prompt settlement of disputes; while
improvements could be made, the WTO has generated greater
predictability in the application of rules.
Market access: Tariffs are falling in many
sectors, export opportunities are growing for all producers,
and new entrants into the global marketplace, especially small
and medium-sized enterprises, are benefiting from new market
openings and innovations.
Intellectual property protection: WTO members have
accepted a landmark set of rules providing a minimum
international standard for protection of patents, copyrights,
trademarks and other forms of intellectual property. Strong IP
protection is essential for the research and innovation of
America's most competitive industries, and creates incentives
for further investment and technological progress worldwide.
Global membership: The WTO now includes 136
members, with 30 additional countries seeking to join. Since
membership requires acceptance of WTO rules that help to open
markets, having emerging economies of Eastern Europe, Asia, the
Middle East, and Africa join helps to transform those
economies.
Dynamic forum for trade liberalization: The
dynamism of the WTO has allowed the trading system to keep up
with changes in technological development, providing concrete
benefits to business and consumers alike, whether through
accommodating new means of trade (such as e-commerce) or by
lowering consumer prices through greater competition.
Economic stability: The WTO has improved our
ability to address economic crises. During recent financial
upheavals, we were able to avoid the protectionism and
retaliation that marked the Depression era, in large part due
to the commitments to open markets engendered by the WTO.
While the benefits from the WTO and a global trading system
characterized by rules and fairness accrue to both businesses
and consumers generally, there are important gains which can be
highlighted for the pharmaceutical industry and the patients
that rely on it to develop new medicines.
Importance of trade: The U.S. research-based
pharmaceutical industry earns one-third of its revenues from
sales in foreign markets, and therefore has a substantial
interest in ensuring that our trading partners allow us to
compete fairly in their markets.
Free trade is good commercial policy and good
public health policy: The pharmaceutical industry is pro-trade
in part because is good commercial policy for us. The WTO helps
to remove trade barriers and open markets, which are good for
our companies' bottom lines. But more importantly, free trade
is good public health policy for the world. To help people live
longer and to improve the quality of their lives, our industry
needs access to market around the world, and to have our
intellectual property rights protected.
Patients rely on a fair global trading system: Our
industry's ability to deliver medicines to patients depends on
having consistent , fair and dependable trade rules that are
agreed upon and implemented on a global basis.
The best hope for improving economic situations and living
conditions for the world's citizens is through continued
economic growth. Such growth will result from increased trade
and globalization, the availability of new technologies, and
greater choice and opportunities for consumers around the
world. The WTO, and its Members, can help to achieve these
goals.
Priority Issues
PhRMA has five priority areas for the World Trade
Organization and new trade round negotiations.
Intellectual property. Preclude any attempt to
reduce, dilute or delay implementation of existing TRIPS
obligations, ensure the possibility of initiating work to
enhance the Agreement at a suitable time during the next round,
and seek to enhance existing standards through other bilateral
and multilateral fora.
Market liberalization. Encourage WTO Members to
take note of the negative impact that non-market based
government interventions have on international trade and
investment, examine the use of such measures, and assess their
impact on the benefits of trade and investment in innovative
products and technology.
Government procurement. Pursue expansion of the
plurilateral Agreement on Government Procurement to ensure the
coverage of governmental and quasi-governmental entities
responsible for direct and indirect procurement of and/or
payment for pharmaceutical products.
Customs and tariff issues. Expand the
pharmaceutical tariff agreement to cover both additional
products and countries, complete the World Customs
Organization's harmonization work program under the Agreement
on Rules of Origin, and implement the Customs Valuation
Agreement by developing Countries.
Sanitary and phytosanitary measures. Emphasize the
importance of transparent and non-discriminatory rules, and
oppose any attempts to undermine the risk assessment and sound
science standards of the Sanitary and Phytosanitary Measures
Agreement.
The Uruguay Round of multilateral trade negotiations
produced significant gains in the area of patent protection,
particularly in the creation of the Agreement on Trade-Related
Aspects of Intellectual Property Rights (``TRIPS Agreement'').
USTR and other trade agencies have already stated their
commitment to enforcement of existing trade agreements. PhRMA
considers such efforts to be of critical importance,
particularly with regard to Uruguay Round commitments on the
protection of intellectual property rights, sanitary and
phytosanitary measures, and customs valuation. Such efforts
will not be sufficient, however, to address the problems that
the industry faces abroad.
Accordingly, PhRMA urges the members of the Ways and Means
Committee to ensure that the U.S. Government retains its
ability to pursue a forward-looking set of objectives in future
trade negotiations. In these negotiations, the U.S. Government
should advocate the creation of new trade rules to address,
inter alia, the two most critical issues facing our innovative
industry: insufficient intellectual property rights protection
and non-market-based government interventions, which act as
barriers to full market access for our medicines.
Intellectual Property
Issue: Implementation of the existing obligations of the
Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) cannot be delayed. The inclusion of intellectual
property (IP) obligations in the Uruguay Round Agreement was a
significant accomplishment for the U.S. Government. Developing
countries were given an extended transition period to implement
their obligations. For many of these countries, including key
developing country markets like India and Argentina, this
transition period expired on January 1, 2000. While many
developing countries have used this transition period to
implement the changes necessary to create functional
intellectual property systems based on TRIPS standards, a
significant number of countries have not made either the
legislative reforms or the systemic changes essential to
creating functioning IP systems.
PhRMA Position
PhRMA urges the U.S. Government to hold developing
countries to the commitments they undertook on intellectual
property as part of the Uruguay Round Agreement.
--It is critical that the United States use the WTO dispute
settlement proceedings to ensure compliance with the
obligations of the TRIPS Agreement. In this regard, PhRMA urges
the U.S. Trade Representative to place those countries that
continue to have the most deficient IP standards at the top of
the list for dispute settlement purposes, notably Argentina,
Brazil, India and Egypt.
Issue: Future work relating to the TRIPS Agreement should
not permit any weakening of existing obligations. Over the past
year, the WTO TRIPS Council has discussed two issues of
particular significance for PhRMA. First, the TRIPS Council has
addressed obligations in the TRIPS Agreement to protect certain
biotechnology inventions involving plants and animals. Second,
there have been extensive discussions on the expiration of the
moratorium on dispute settlement actions based on so-called
``non-violation'' deficiencies. Such disputes involve measures
implemented by a WTO Member that indirectly deprive U.S. right
holders of their protection, rather than being directly
contradictory measures. In addition, a number of developing
country WTO Members have made proposals to begin work that
would lead to a weakening of the current obligations of the
Agreement.
PhRMA Position
PhRMA believes it will be necessary at an
appropriate point in time to improve the standards in the TRIPS
Agreement to reflect those found in fully industrialized
countries, such as in the United States. However, PhRMA is also
well aware of the desires of certain developing country WTO
Members to avoid meeting the obligations they undertook in the
Uruguay Round. PhRMA is fundamentally opposed to any re-opening
and diminishment of the existing obligations of the TRIPS
Agreement.
PhRMA also urges the U.S. Government to:
--pursue a favorable outcome to the review of the protection of
certain biotechnology inventions required by the Agreement to
ensure that all such inventions can be protected
--foreclose any possibility of re-opening commitments
undertaken in the Uruguay Round on specific provisions of the
Agreement or that would extend the transition periods provided
to developing countries.
Market Liberalization
Issue: Non-market-based government interventions have the potential
to distort free trade and open competition. In a growing number of
foreign markets, PhRMA member companies face non-market-based
government interventions designed to stifle price-based competition and
limit consumption of pharmaceutical products, by denying patients
access to American innovative medicines. While the industry recognizes
and supports the need for governments and consumers to contain costs,
the approaches used by governments can often distort free trade in
these products and open competition. These measures may deny to WTO
members the benefits of trade and investment in innovative products and
technology, including the ability of patients to access pharmaceutical
products. In some cases, government interventions are intended to
protect domestic pharmaceutical industries from imports; in these
instances, there is clear discrimination against foreign products,
violating WTO requirements for the national treatment of all products.
PhRMA Position
The U.S. Government should encourage the WTO to take note
of the negative impact that non-market-based government interventions
may have on international trade and investment, examine the use of such
measures, and assess their impact on the benefits of trade and
investment in innovative products and technology. This is an important
priority because these measures can lead to international market
distortions that profoundly undermine the goals of free trade.
The U.S. Government should address the use of such non-
market-based government interventions within the pharmaceutical markets
of its trading partners through a variety of approaches, including, but
not limited to, the TRIPS Agreement, the General Agreement on Trade in
Services, and the Agreement on Trade-Related Investment Measures.
Issue: Government procurement of pharmaceuticals often ignores fair
trade practices and open competition. Many of the public sector
entities responsible for the direct and indirect procurement of and/or
payment for pharmaceutical products are not covered by the Government
Procurement Agreement, or do not adhere to the rules set forth in the
Agreement. As a result, purchases of pharmaceutical products by
government (or quasi-governmental) entities often ignore the principles
of fair competition and transparency.
PhRMA Position
PhRMA urges the U.S. Government to pursue the expansion of
the scope of the plurilateral Government Procurement Agreement to
ensure the coverage of governmental and quasi-governmental entities
responsible for the direct and indirect procurement of and/or payment
for pharmaceutical products. WTO Members who are not currently parties
to the Government Procurement Agreement should be encouraged to ratify
it and bring their procurement policies into accordance with the
Agreement.
Issue: Corruption remains a problem in many countries and has a
negative impact on both business and the general public. Corrupt
business practices raise the cost of doing business, and discourage
investment. The World Bank estimates that billions in procurement-
related bribes are paid annually, while other experts estimate that
corruption results in price differences of 20-30%, reflecting a waste
of scarce public and private resources.
PhRMA Position
PhRMA requests that the U.S. Government broaden the WTO's
inquiry into transparency in government procurement practices to
encompass the impact of government corruption on trade. As an interim
position, PhRMA urges the U.S. Government to ask WTO members to join
them in declaring the public health sector to be a corruption-free
zone.
Customs and Tariff Issues
Issue: The pharmaceutical tariff elimination agreement, while
beneficial for consumers and the industry alike, is limited in the
scope of its coverage of products and countries. The number of
countries participating in the ``zero-for-zero'' tariff elimination
agreement on pharmaceuticals remains limited, allowing for many ``free
riders'' whose products are not assessed duties upon importation into
the U.S., but who do not reciprocate with respect to U.S. exports to
those countries. In addition, the coverage of products is not
comprehensive. Although there is a schedule for periodic updates, such
negotiations cannot keep pace with rapid developments in the industry,
creating unproductive administrative costs.
Our industry works diligently to make our products available
worldwide, yet we are often frustrated to find that countries with the
largest population of medically underserved people often have high
tariffs on medicines. We firmly believe that tariffs on pharmaceuticals
represent nothing more than a tax on the sick, and should be opposed
outright by all trading nations.
PhRMA Position
PhRMA requests that the U.S. Government call upon all WTO
members to immediately reduce tariffs on medicines to zero. Should that
not be possible in the short run, PhRMA supports improvements to the
pharmaceutical tariff elimination agreement by revising the tariff
nomenclature to permit coverage of new products without the cumbersome
process of negotiating update agreements every three years. PhRMA also
seeks to include the ``free-rider'' countries, either through direct
inclusion in the agreement, or through full participation in the
Accelerated Tariff Liberalization initiative. All additional countries
acceding to the WTO should be required to become signatories to the
pharmaceutical tariff elimination agreement.
Issue: Rules of origin and customs valuations are inconsistently
implemented on a global basis, leading to an often arbitrary commercial
environment. The Harmonization Work Program under the Agreement on
Rules of Origin has not been completed, resulting in uncertainty for
the industry and inconsistencies in the international marketplace.
There are conflicting local regulations, rulings, and questions about
the applicability of foreign customs rules to drug registration agency
rules. Customs valuations of traded finished drug products, bulk active
ingredients, and intermediates are subject to arbitrary valuation
schemes, because of the lack of full implementation of the Customs
Valuation Agreement by developing countries.
PhRMA Position
Prompt completion of the World Customs Organization's (WCO)
Harmonization Work Program under the Agreement on Rules of Origin will
permit the industry to apply consistent, predictable country of origin
rules for labeling and other purposes. The U.S. position is that
chemical reactions, normal dosage formulation, and activities resulting
in a change in tariff heading confer the origin status of the country
in which the prescribed activity took place. PhRMA agrees with this
position, and urges its adoption by the WCO. The U.S. should urge all
WTO members to adhere to the implementation schedule of the WTO Customs
Valuation Agreement, and deny requests for further delays.
Food and Plant Safety
Issue: Efforts to re-open the Agreement on the Application of
Sanitary and Phytosanitary Measures (SPS Agreement) would cause
commercial damage to the industry without any clear safety benefit to
consumers. Some are calling for changes to the SPS Agreement that would
base health and safety regulations on political goals or vaguely
phrased ``consumer concerns'' that are not grounded in fact, rather
than on sound science and on a risk assessment.
PhRMA Position
PhRMA believes that the U.S. Government should emphasize
the importance of the implementation of transparent and non-
discriminatory rules consistent with the intent of the SPS Agreement,
and should oppose any attempts to undermine its risk assessment and
sound science standards, particularly with respect to the
``precautionary principle.'' The U.S. Government should object
vigorously to any effort to dilute the disciplines already found in the
SPS Agreement or to limit the scope of their application.
China and Permanent Normal Trade Relations Status
Today there are 17 major American research-based pharmaceutical
companies in China which enjoy a 12 percent share of the Chinese
pharmaceutical market of US$6 billion, or around $720 million in annual
sales. PhRMA member companies employ almost 20,000 workers directly in
their operations in China. PhRMA member companies have invested some US
$1 billion in China over the past decade. The American industry
operates throughout China, and its presence and investment there have
provided China's citizens with access to modern life-saving medicines,
allowing them to lead longer and healthier lives.
The bilateral agreement on market access signed by China and the
U.S. in November 1999 will bring significant gains for America's
pharmaceutical sector, including:
Reduction in the average tariff rate on pharmaceuticals by
about 60%, from the current level of 9.6% to 4.2%.
Ability of any entity to import most products, including
pharmaceuticals, into any part of China. Currently, U.S. companies'
ability to do business in China is strictly limited because the right
to engage in trade (importing and exporting) is restricted to a small
number of companies receiving specific authorization, or who import
goods to be used in production. Because this practice has limited U.S.
exports, its elimination will benefit U.S. companies and their workers.
Permission for foreign enterprises to engage in the full
range of distribution services. China has generally prohibited
companies from distributing imported products or providing related
distribution services. The removal of this prohibition will enable U.S.
companies to increase their activity in China. More importantly, this
will mean significant benefits to Chinese consumers in terms of the
quality of the products and services they receive.
Implementation of the Agreement on Trade-Related Aspects
of Intellectual Property Rights (TRIPS). PhRMA considers this to be a
very important part of the commitment of the Chinese Government,
especially in terms of enforcement of established laws and granting of
exclusive marketing rights through use of a patent. The protection of
intellectual property will enable research-based pharmaceutical
companies to continue to discover and develop new medicine.
China's WTO accession should lead to greater industry
confidence in the Chinese market, and should gradually lead to
increased investment by the industry in China. This will also generate
jobs and greater resources for the industry to invest in research and
development for new medicines in the United States. Although U.S. labor
has expressed concern that jobs will leave the U.S. for China, the
opposite is in fact true: the development of an enhanced market in
China will lead directly to greater employment in the U.S.
Conclusion
PhRMA appreciates the opportunity to present these comments on the
future of the World Trade Organization. PhRMA looks to USTR and other
U.S. trade agencies to seek significant improvements to existing
international trade rules in a new trade round, with the objective of
eliminating all constraints to the operations of free markets on a
global basis. At the same time, the U.S. Government must continue to
seek compliance with existing WTO rules through vigorous enforcement
efforts. Gains already achieved through previous negotiating rounds
should not be held hostage to the initiation of the next round.
Statement of George Scalise, President, Semiconductor Industry
Association
The Semiconductor Industry Association (SIA) appreciates
this opportunity to testify regarding the benefits of continued
participation by the United States in the World Trade
Organization (WTO) and the proposed accession of China to the
WTO.
SIA is the leading trade association representing the U.S.
computer chip industry. SIA member companies comprise 90
percent of U.S.-based semiconductor production. SIA serves as a
forum for chip manufacturers to work collectively to advance
the competitiveness of the U.S. industry and to promote trade,
technology, environmental protection, and worker safety and
health.
I. The U.S. Semiconductor Industry.
According to Department of Commerce data, the semiconductor
industry is the leading manufacturing industry in the United
States in terms of value-added to the U.S. economy,
contributing 20 percent more to U.S. GDP than the next leading
industry.
U.S. semiconductor makers employ about 276,000 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 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.
The industry is both capital intensive and R&D intensive:
indeed, SIA members must spend a third of their revenues on
research and capital equipment, among the highest percentage of
any industry in the world.
The R&D and capital equipment investments of the
semiconductor industry have been a powerful force of efficiency
in the economy. We are proud to be in an industry where the
cost of our products declines while the functionality increases
rapidly. The increase in computing power and the decrease in
prices have allowed the spread of PCs to homes, schools and
small businesses, and have been a driving force behind the
explosion of the Internet and ecommerce in the United States.
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 croughly half of the U.S. industry's
revenues are derived from overseas sales--SIA has been
dedicated since its inception to promoting market opening
around the world. That is why U.S. participation in the WTO,
and China's accession to the world trade body, are key issues
for the semiconductor industry.
II. The Benefits of Participation in the WTO to Date.
SIA has been a strong supporter of the Uruguay Round
agreements and the WTO. The Uruguay Round brought forth
important changes to the world trading system, including the
progression from the General Agreement on Tariffs and Trade
(GATT) to the more comprehensive WTO. Importantly, the Uruguay
Round agreements contained continued commitments to market
opening measures and the rules against unfair trade--the
essential underpinnings of the world trading system.
Additionally, the Uruguay Round expanded the areas covered by
the international trading system, including intellectual
property rights, investment, and services.
The experience of the semiconductor industry provides a
good illustration of the concrete benefits that have been
possible because of the WTO. Three examples are highlighted
below: the reduction in semiconductor tariffs in the EU after
its 1995 expansion; the elimination of tariffs on a broad range
of information technology goods under the WTO's Information
Technology Agreement; and the moratorium on e-commerce duties.
Each of these profited the U.S. semiconductor industry and each
is directly attributable to the operation of the WTO and its
rules-based system.
Tariff Cuts in the EU After Expansion.
Prior to the Uruguay Round, tariffs on semiconductors in
the EU stood at 14%. These high tariffs constituted a
significant barrier to exports of U.S. semiconductors to the
EU. In the Uruguay Round, the United States succeeded in
partially reducing these tariffs, but they remained an
impediment to our exports.
The WTO rules provided the means to reduce EU tariffs
further. In 1995, after the completion of the Uruguay Round,
the EU was expanded to include Austria, Sweden and Finland, and
these countries increased their tariffs on semiconductors to
the higher rates imposed then by the EU. As a direct result of
GATT Articles XXIV(5) and XXIV(6), the United States had the
right to negotiate compensation from the EU for the tariff
increases resulting from this expansion. As part of that
compensation, the United States secured a reduction in EU
semiconductor duties to either 7% or zero. These substantial
tariff cuts, which expanded opportunities for U.S. chipmakers
in the EU and lead to increased exports there, were the direct
result of U.S. rights that existed under the WTO agreements.
The Information Technology Agreement.
As noted above, the presence of high tariffs on
semiconductors has been a key barrier to the export
opportunities and competitiveness of U.S. computer chips. The
WTO has been instrumental in helping to reduce tariff barriers.
In 1997, the Information Technology Agreement (ITA) was
concluded under the auspices of the WTO. Under this agreement,
52 economies to date, representing over 90 percent of trade in
information technology products, have agreed to totally
eliminate their tariffs on semiconductors and a variety of
other information technology products. As a leader in high-tech
products, the United States will gain much from zero duties on
these products.
It is worth noting that the Information Technology
Agreement is unique in that countries agreed to eliminate their
information technology tariffs without tying these concessions
to benefits in other areas or sectors. This is due to the
recognition of the benefits achieved by tariff elimination,
such as lower costs for businesses and consumers and
improvements in a country's information technology
infrastructure.
As will be discussed below, the ITA should be deepened and
widened. SIA believes that the United States should push to
widen the ITA to include all WTO Members. Further, the ITA
should be deepened through the so-called ``ITA II'' process to
include other high-tech products. It is important to remember,
though, that without the WTO, it is doubtful that the ITA would
exist at all.
The Moratorium on E-Commerce Duties.
Another tariff-related issue of importance to SIA is the
tariff treatment of electronic commerce. As e-commerce expands,
so does the demand for semiconductors. One of the surest ways
to slow the growth of e-commerce, however, is to subject it to
tariffs. Under the auspices of the WTO, in 1998 WTO Members
agreed to a temporary moratorium on e-commerce duties, which
the United States is now pressing to make permanent. Here
again, the United States, as the clear world leader in e-
commerce, has received substantial and real benefits from its
participation in the WTO.
These are just a few of the areas in which the United
States has obtained concrete benefits which were made possible
by U.S. participation in the WTO. The bottom line is that
reducing trade barriers and opening foreign markets provides
substantial benefits to U.S. firms and their workers. And the
WTO is instrumental to U.S. market-opening efforts.
III. The Benefits of Continued Participation and the Dangers of
Withdrawal.
Participation in the WTO promises even more benefits to the
United States in the future. As will be discussed below, the
United States stands to gain markedly from the WTO expansion to
include China. Further, as the Uruguay Round commitments come
into full effect, and as the WTO takes further steps towards
improving market access, the benefits of being in the WTO will
continue to grow.
The progress in the WTO will not come automatically,
however. The United States must continue to play a leading role
in defining the agenda of the WTO. We must do our best to
ensure that issues important to the United States are addressed
in ways beneficial to us. Thus, continued U.S. membership and
leadership within the WTO are essential to promoting U.S.
economic interests. Discussed below are key issues important to
SIA.
The Antidumping Rules.
SIA is a strong supporter of the antidumping law. That the
benefits of open markets may be eroded by unfair trade
practices has been recognized since the inception of the
international trading system--the GATT specifically sanctions
measures to remedy the distortions caused by dumping. The
semiconductor industry in the United States knows first hand
the importance of these rules to ensure that producers, often
in protected home markets, do not abuse the system. Injurious
dumping in the semiconductor sector threatened the very
existence of the U.S. industry as recently as the mid-1980s.
The rules on antidumping were negotiated in great depth in
the Uruguay Round. In many ways, these rules are still
untested: The regulations to implement them were only fully
adopted in the United States in 1998 and a number of countries
are now challenging U.S. antidumping actions at the WTO under
the new rules. Yet a number of WTO Members are pressing for a
renegotiation of these rules in any new WTO round of
negotiations.
It would be inappropriate and premature to alter the
Uruguay Round antidumping rules so soon after they were
overhauled. Additionally, it is clear from the statements of
various trading partners that they would like to do more than
alter the antidumping rules--they would like to eliminate them.
The United States must resist these efforts. The maintenance of
a strong and effective antidumping remedy is a critical
component of the international trading system. SIA applauds the
USTR for its steadfast position against including the
Antidumping Agreement on the agenda for the new round of WTO
negotiations. The United States should stand firm within the
WTO against future efforts to weaken the antidumping rules. To
do so requires continued active U.S. participation in the WTO.
WTO Dispute Settlement.
As noted above, a number of WTO Members have begun to abuse
the WTO dispute settlement system. Several countries have
challenged the use of WTO-approved trade remedies by the United
States, including the antidumping and countervailing duty laws,
as well as the Section 337 law on enforcing intellectual
property rights against infringing imports. Further, the EU has
abused the dispute settlement system by using it to seek to
overturn a deal the EU struck with the United States in the
early 1980s regarding the Foreign Sales Corporation tax regime.
These developments are of significant concern to SIA. We
are still hopeful that these cases can be resolved in a way
that maintains the continued vitality of U.S. rights to act
against unfair trade practices and that ensures that U.S.
businesses will have a level playing field in international
trade with respect to varying tax regimes. SIA believes that
these cases demonstrate the need for a continued active U.S.
government role within the WTO to reform the dispute settlement
system and to prevent its abuse in the future.
Expanding the Information Technology Agreement.
As noted above, the Information Technology Agreement has
produced concrete benefits for the U.S. high-tech industry.
While 52 economies have signed onto the ITA, it is now time to
finish the job and request that the remaining WTO Members
eliminate their IT tariffs so their economies can benefit from
increased application of information technologies. Further, the
ITA does not cover all information technology products. The
United States will benefit by expanding the ITA to include more
countries and more goods.
The United States, therefore, 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. While the United States has been
successful in encouraging many countries to join the ITA and
eliminate their tariffs, increased participation in the ITA
should remain a top priority. ITA participation remains very
limited in certain regions of the world. In Latin America, for
example, only a few countries are currently signatories to the
ITA. Persuading additional WTO Members to join the Agreement
should continue to be a U.S. trade policy priority.
The United States stands to benefit, also, from 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.
Expeditious elimination of tariffs on semiconductors and
other information technology products will spur development of
a competitive electronics industry in foreign markets by
allowing U.S. producers to sell advanced semiconductors to
their foreign customers at the lowest possible price, and
thereby will also increase U.S. exports and jobs.
Maintaining the Moratorium on E-Commerce Duties.
While SIA supports the position of the U.S. government that
the temporary moratorium on e-commerce duties remains in effect
after the suspension of the Seattle WTO Ministerial meeting,
some other countries claim that it has expired. SIA believes
that this moratorium is very important for the continued growth
and expansion of the Internet generally and e-commerce
specifically, and must therefore be made permanent. The United
States must lead in this effort. Moreover, given the increasing
importance of electronic commerce over the Internet and the
leading role of the United States in this industry, SIA
believes that the United States should, in addition to
encouraging permanent implementation of duty-free treatment,
also urge WTO Members to commit to tax-free treatment of
electronic transmissions.
Full Implementation of TRIPs Obligations.
The WTO brought intellectual property rights for the first
time under the umbrella of the international trading system.
The WTO's Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs) served as a landmark in the protection
of intellectual property worldwide. U.S. industries in a broad
variety of sectors have benefited greatly from the new rules
for intellectual property protection contained in the WTO and
the contribution the WTO has made for greater appreciation of
these rules throughout the world. The U.S. high-tech industry
will continue to benefit so long as the TRIPs obligations are
fully implemented by WTO Members.
As the representative of an R&D intensive industry,
however, SIA is very concerned about the full and effective
protection of intellectual property rights. Recently, many
countries have balked at complying with their TRIPs obligations
in the timeframe to which they agreed in the Uruguay Round.
Failure to meet these deadlines means that the expected
commercial gains from the TRIPs Agreement will not be realized.
The United States should continue to push for full
implementation of TRIPs obligations, particularly by less
developed countries, within the original timeframe.
These and other issues, such as rules on investment, access
to state-invested enterprises, and certain rules of origin
issues, remain important to SIA. In the coming months and years
we hope to be able to work with Congress and the Administration
to ensure that the needs of the U.S. semiconductor industry and
the hundreds of thousands of workers it employs are addressed
at the WTO. If the United States were to opt out of the WTO,
however, that move would significantly hinder the ability of
the United States to promote U.S. economic interests and to
achieve further market-opening measures in the future.
IV. China's Accession Presents Enormous Benefits with No U.S.
Concessions
SIA has strongly supported China's bid to join the WTO, on
the condition that the accession was accomplished on a
commercially viable basis. The agreement with China secured by
the United States last November meets this objective and
promises to provide important opportunities for U.S. high-tech
industries. In order to reap the benefits of China's accession
to the WTO, however, Congress must grant permanent normal trade
relations (PNTR) status to China. SIA cannot state strongly
enough the importance of this vote and our support for granting
China PNTR status this year.
Substantial Opportunities.
China's accession to the WTO promises to open this
significant and growing market to U.S. products and businesses,
generating exports and jobs for the United States. China is the
world's most populous country and for the past decade has been
the fastest growing major economy in the world. In the next
decade, China is expected to become one of the largest markets
in the world. Based on U.S. Commerce Department data, China
represented the 12th largest high-tech export market in 1998,
with electronics exports exceeding $3.0 billion. Electronics
comprised 21 percent of total U.S. exports to China in 1998.
Electronics means semiconductors. The current semiconductor
market in China is estimated to be up to $8 billion per year.
Some analysts expect it to become the third largest
semiconductor market by 2001 (behind only Japan and the United
States) and the second largest by 2010. The current
semiconductor equipment and materials market in China is
estimated to be over $1 billion per year and is projected to
reach almost $4 billion in 2003.
China's other markets are similarly immense. The market for
computers in China is growing at 37 percent per year.
International Data Corporation predicts that by 2003, China
will be the third largest PC market. China's software market is
growing at 28 percent per year. By the end of this year,
China's cellular telecommunications market is projected to be
second only to the United States. More than 9 million people
are using the Internet in China already, with that number set
to more than double by the end of the year.
China's WTO Commitments.
Prior to the U.S. agreement with China, SIA set forth
specific concerns about trade and investment in China which we
believed an agreement with China should address. The agreement
ultimately reached addresses each of these concerns, as
discussed below.
Tariff Elimination and the Information Technology
Agreement. China currently imposes tariffs of 6-10% on
semiconductors and average tariffs of 13% on information
technology products. These tariffs pose a significant obstacle
to U.S. exports to China. Upon accession to the WTO, China will
join the ITA, and will thereby eliminate its tariffs on
semiconductors and many other high-tech products.
Purchasing by State-Invested Enterprises. State-invested
enterprises control a significant share of the trade in
electronic goods into and out of China. This presents the risk
that these enterprises will be encouraged to purchase from
domestic suppliers, discriminating against U.S. goods. As part
of its accession agreement, China has agreed to ensure that
state-owned and state-invested enterprises will make purchases
and sales based solely on commercial considerations. Given the
significant role of state-invested firms in the electronics
industry in China, as well as expressions by the Ministry of
Information Industry (MII) of an interest in promoting
purchases of domestically-produced goods in the
telecommunications sector, this is an issue that bears
continued monitoring and enforcement efforts.
Elimination of Investment Restrictions. In the past, China
has imposed a variety of onerous foreign investment
restrictions, including export targets, local content
requirements, and pressure to transfer technology, which hinder
firms seeking to do business in China. As a part of its WTO
accession agreement, China has agreed to end local content and
export performance requirements and to ensure that laws on the
transfer of technology will be consistent with WTO obligations
to protect intellectual property rights. Again, these
commitments will require active monitoring and enforcement if
U.S. firms are to receive the expected benefits.
Trading and Distribution Rights. China has limited imports
by restricting ``trading rights''--the ability of companies to
import and export from China. Additionally, China restricts the
ability to distribute goods and to provide after-sales
services. These restrictions are particularly important to the
semiconductor industry because they interfere with key means of
competition. Design and development of application-specific
chips requires extensive contact between semiconductor
producers and the ultimate end-users. As part of its accession
obligations, China has agreed to grant trading rights to all
firms and to open the market for distribution services and
after-sales servicing within three years after accession for
most sectors.
Protection of Intellectual Property Rights. China has
patent, copyright, and trademark laws, but does not have a
strong record of enforcing them. China's accession to the WTO
means that it will be bound by the obligations in the TRIPs
Agreement. Further, China has agreed to be bound by these
obligations without any transition period. This commitment is
an important step toward protecting U.S. intellectual property
rights in China.
Non-Market Economy Antidumping Rules. 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. Although
China is moving towards a market economy, we should not let its
accession to the WTO obscure the fact that China is very
different from most other WTO Members. The level of state
involvement in the economy and control of prices presents
special challenges and conditions which must be addressed. In
realization of these facts, the United States has secured the
right to continue to use the non-market economy (NME)
methodology in the application of its antidumping laws against
China for 15 years after China's accession to the WTO.
Congress Should Approve PNTR Status for China.
In order to secure the benefits of China's accession to the
WTO, Congress must approve PNTR status for China. The United
States would gain nothing by declining to grant PNTR status to
China, and by failing to grant PNTR status to China we would be
shooting ourselves--our business, workers, and communities--in
the foot. China will join the WTO. If we do not grant PNTR
status, then when China joins it will not be obliged to comply
with its WTO obligations vis-à-vis the United States.
Meanwhile, it is likely that we will continue to grant NTR
status to China annually. Each year for the past twenty years
we have extended NTR status to China--providing access to our
market as if it were already a WTO Member. The only result from
not granting PNTR status to China, then, will be that U.S.
businesses and workers will lose out to foreign companies in
the race to develop China and to take advantage of the benefits
that a market of almost one-fifth of the world's population
will provide.
Therefore, SIA urges Congress not to pass up on this
important opportunity to bring China into the world trading
system and to permanently normalize trade relations with China.
The significant market reforms that China will undergo as a
result of its accession to the WTO will benefit both China and
foreign firms by promoting the growth and continued development
of the Chinese economy. Further, as China liberalizes its
market, these changes will strengthen those within China
seeking a more open and democratic system as well. China's
accession to the WTO can therefore serve as an important force
in making China a more productive member of the international
community.
Thank you for this opportunity to present the views of the
U.S. semiconductor industry.
Statement of U.S. Integrated Carbon Steel Producers
This statement sets out the views of the five major
integrated U.S. producers of carbon steel products--Bethlehem
Steel Corp., U.S. Steel Group, a unit of USX Corp., LTV Steel
Co., Ispat Inland Inc., and National Steel Corp.--on the need
to ensure that the future direction of the World Trade
Organization (WTO) properly serves the interests of U.S.
industries. Unless the health and wellbeing of American
industries--and the workers they represent--are fully accounted
for by the WTO, support for international trade will wane, and
the significant strides made by the United States and its
trading partners in this very important area over the last
decade will be put in jeopardy.
Perhaps more than any other domestic industry, the U.S.
steel industry has had to adjust to the new WTO framework
concluded during the Uruguay Round. During the last five years,
the steel industry has coped with the implementation of novel
and untested domestic legislation, a radically altered method
of dispute resolution, and, at the same time, an unprecedented
level of unfairly traded imports largely as a result of the
Asian and Russian financial crises. Even after five years, the
practical effects of these seminal events continue to emerge,
constantly presenting new challenges for domestic steel
producers.
As daunting as these challenges continue to be, they have
provided the steel industry with the appropriate landscape for
which to judge the effectiveness of the WTO system. The U.S.
steel industry is therefore well positioned to assess how the
WTO is in fact working, and the types of reforms that are
necessary.
The Need to Evaluate U.S. Participation in the WTO
The idea that U.S. participation in the WTO must be
evaluated is not controversial; practically all parties agree
that some type of modification of the WTO system may be
necessary. The need to evaluate the WTO was most recently
evidenced by the failure of the world's major trading partners
to agree on an agenda for negotiations in Seattle last
December. However, even before the Seattle Ministerial,
deficiencies that affect the manner in which the WTO operates
had been identified. For instance, one notably common view has
been that the WTO, as an institution, lacks the necessary
components of transparency and accessibility, particularly in
the area of dispute resolution, to gain widespread acceptance.
Accessibility and transparency in the decision-making process
are essential elements for any international institution,
particularly one as significant as the WTO. The setbacks
resulting from the WTO Ministerial conference in Seattle simply
exposed the inability of the WTO to take into account the
interests of all of the parties affected.
The Congress must now focus its attention towards two
related notions as it navigates the future course of the WTO.
First, the ability of domestic industries to rely on the U.S.
unfair trade laws in order to prevent illegal dumping and
subsidization must, at a minimum, be maintained. And second, it
is imperative that the WTO dispute settlement process be
modified in order to prevent abusive litigation by foreign
governments and to provide for a fair and transparent decision-
making process. Both of these notions are essential to the
global trading system, and U.S. support for international
trade.
The United States Must Maintain its Commitment to the Unfair Trade Laws
in Future Negotiations
In the months leading up to the WTO Ministerial conference,
the United States' firm position was that the WTO Antidumping
and Subsidies Agreements would not be the subject of
negotiations. For instance, in its 1997 markup of fast track
legislation, the Committee on Ways and Means approved without
dissent a provision instructing U.S. negotiators to reject any
agreement that would weaken existing disciplines against
dumping and subsidies. Further, over 200 members of the House
co-sponsored a resolution last year stating that the Congress
would not consider legislation to implement a trade agreement
that required changes to our trade laws. The U.S. position on
antidumping and anti-subsidy rules was set forth clearly and
did not undermine efforts to begin a round on those issues ripe
for negotiation by the WTO.
The Administration's actions in following through on its
commitment to keep the renegotiations of our trade laws off the
table is recognized and appreciated. At the same time, it
remains vital that this position be re-affirmed and that it be
made clear to our trading partners that the United States will
not discuss changes that will weaken the trade laws in future
bilateral or multilateral negotiations.
The U.S. Steel Industry Needs Strong Unfair Trade Laws
The United States is in a unique position in that its
market is the most open and transparent in the world while the
markets of certain foreign competitors remain largely closed to
outsiders. Consequently, U.S. steel producers, like other U.S.
industries, are particularly vulnerable to unfair trade
practices such as dumping and subsidization.
Unfairly traded steel imports continue to harm the American
steel industry and its workers. Since the beginning of the
current steel import crisis, over 10,000 jobs have been lost
and five companies have gone into bankruptcy at a period in
which the economy as a whole has witnessed unprecedented
growth. The steel industry's last line of defense against
unfairly traded imports is the antidumping and anti-subsidy
remedies available under the unfair trade laws.
Foreign unfair traders realize that the only significant
obstacle to unfettered abuse of the open U.S. market is the
unfair trade laws. Countries which have recently suffered
severe economic turmoil--Japan, Korea, and Russia--have
continued to target the U.S. market with dumped and subsidized
imports. Without the full force and effect of the unfair trade
laws, every indication is that massive foreign dumping and
subsidization will persist, and cause greater injury. In short,
further erosion of our trade laws will lead to further injury
to the domestic steel industry and its workers.
The Global Trading System Also Needs Strong Unfair Trade Laws
The antidumping and anti-subsidy rules enshrined in U.S.
law and the WTO Agreements, as well as in domestic legislation
throughout the world, are essential pillars of the global
trading system. Illegal trade practices such as dumping and
subsidization distort the marketplace and preclude the benefits
of open and fair global competition from coming to fruition.
Since its origin in 1947, the GATT has prohibited illegal
dumping and subsidization. Article VI of the GATT condemns
dumping that ``causes or threatens material injury to an
established industry or materially retards the establishment of
a domestic industry.'' Likewise, GATT Article XVI recognizes
subsidies as a distortion of the free flow of goods and
services and a major obstacle to a system of international
competition based on relative efficiencies. To remedy the
disruptive and injurious effects of dumped and subsidized
imports, Article VI permits the imposition of antidumping and
countervailing duties on unfairly traded imports through the
implementation of domestic laws, such as the U.S. trade laws.
These provisions are vital to the international trading
system--they promote free trade by ensuring fair trade.
Moreover, one of the primary objectives of the unfair trade
laws is to encourage foreign governments to abandon anti-
competitive practices and establish open and fair global
competition. Strong antidumping and anti-subsidy rules are
essential if global and regional open market policy objectives
are to be achieved and maintained. Quite simply, maintaining
open trade requires the enforcement of fair trade.
The current WTO unfair trade rules were comprehensively
negotiated and concluded only after spending substantial effort
and resources during the five years of Uruguay Round
negotiations. These rules were designed to ensure a basic level
of fairness and to prevent abuse by countries with closed
markets of other countries' open market policies. The U.S.
unfair trade laws now in place were significantly amended five
years ago in order to conform with the agreements negotiated
during the Uruguay Round. Re-opening negotiations on these laws
would only undermine confidence in the WTO system and future
negotiations, and would severely erode support for free trade.
THE WTO DISPUTE SETTLEMENT PROCESS MUST BE IMPROVED
At the conclusion of the Uruguay Round of negotiations, it
was widely acknowledged that the rules regarding WTO dispute
settlement would be among the most radical and striking
features of the post-Uruguay international trading system.
However, as several recent instances have demonstrated, the
rules governing WTO dispute settlement fail to provide for an
acceptable method of resolving legitimate claims in a fair and
judicious manner. Instead, the WTO dispute settlement process
has evolved into an alternative forum for foreign countries to
attempt to gain what they failed to achieve in multilateral
negotiations--the weakening of U.S. trade laws.
The WTO Dispute Settlement Process Punishes Transparency
The openness of our market and the transparency of our
trade laws has meant that the United States has increasingly
become the favorite target of foreign countries at the WTO. In
order to bring a claim before the WTO dispute settlement body,
the challenged domestic measure must be identifiable. The fact
remains that in the United States, the laws that regulate
trade, and the administrative and judicial processes by which
they are administered, are visible, accessible, and
transparent. However, the legal and political frameworks that
operate to regulate trade in many other countries are, in large
part, impenetrable and non-transparent.
The WTO has demonstrated an inability to deal effectively
with the elimination of non-transparent barriers to trade.
Therefore, in the future, the United States will continue to
find itself in front of the WTO dispute settlement body at the
behest of foreign competitors. A dispute settlement system that
punishes transparency and rewards hidden anti-competitive
practices is not in the interest of the U.S. industries, nor
the global trading system as a whole.
The WTO Dispute Settlement Process Is Subject To Abuse by
Foreign Countries
Since the inception of the WTO, U.S. trade laws have been a
primary target of foreign countries, in terms of both frequency
and significance. There are currently at least eight cases
attacking U.S. trade-related laws before a WTO panel, the WTO
appellate body, or in WTO consultations. A number of countries,
particularly Japan and Korea, are now trying to achieve through
the WTO dispute settlement system what they could not achieve
through multilateral negotiations.
In fact, Japan (with Korea following suit) has endorsed a
strategy to challenge at the WTO every U.S. trade law decision
that is adverse to the interests of the Japanese industry,
regardless of the merits of the claims. Such a strategy is
entirely inconsistent with the concept of a judicious method of
resolving disputes, and amounts to abuse of the dispute
settlement process. By categorically appealing every adverse
decision to the WTO, foreign governments effectively transform
the dispute settlement body into a bastardized forum for
bilateral or multilateral negotiations. In addition, since
panel decisions rarely result in total vindication for one
party, even in cases where the United States is victorious, the
strength of the U.S. trade laws will be partially weakened.
Over time, countries that are allowed to engage in this
strategy will achieve their desired result--gradual erosion of
the U.S. trade laws.
Important and hard-fought U.S. policies, previously
negotiated by U.S. lawmakers, are being superseded by the
decisions of unqualified foreign panelists. If the WTO dispute
settlement body is to be an effective forum for resolving
legitimate international trade disputes, measures must be in
place to prevent its abuse.
WTO Panel Decisions Are Rewriting Domestic Laws
The WTO dispute settlement body has effectively rewritten
domestic legislation by subverting international agreements
previously negotiated by the U.S. government. For instance, in
December of 1999, a WTO panel ruled in UK Bar that the WTO
Subsidies Agreement prevented the United States from imposing
countervailing duties on steel bars imported from the United
Kingdom after ownership of the heavily subsidized bar operation
had been privatized. This decision, if adopted, will gut the
anti-subsidy statute to its core--governments could use limited
subsidies to create or expand burgeoning industries and then
escape discipline by simply selling off their ownership
interest.
The UK Bar holding, of course, has ramifications beyond the
steel industry; all domestic industries that compete with
publicly owned or recently privatized foreign companies are
encompassed. Since U.S. industries are almost invariably
privately owned companies, and not state-run entities, the
decision is decidedly adverse to the interests of the country
as a whole.
The decision in UK Bar usurps the roles statutorily
assigned to the Department of Commerce and manufactures
obligations that the United States would never have agreed to
in multilateral negotiations by disregarding the standard of
review properly applicable to countervailing duty cases. In
doing so, the WTO panel ignored a prior WTO Ministerial
Declaration whose sole purpose was to ensure that
countervailing duty cases would use the same standard of review
as antidumping cases. Under the WTO Antidumping Agreement,
national authorities are assigned the primary role in
interpreting the complex provisions of the agreement, and their
reasonable interpretations must be upheld. In the Uruguay Round
negotiations, the United States fought for and gained (but not
without sacrifice) this largely deferential standard of review.
The panel's failure to apply that standard in UK Bar led to an
unacceptable result, and demonstrates the panel's unchecked
ability to rewrite the trade laws and agreements enacted by the
Congress and negotiated by the U.S. government.
WTO Panels Are Not Accessible or Representative And Must Be
Held Accountable
Decisions such as UK Bar highlight the many flaws in the
makeup, procedure and jurisdiction of WTO panels. WTO panels
are comprised of three foreign individuals who are not trained
nor necessarily qualified to serve in a judicial capacity, yet
these panelists can, without accountability, overrule laws
passed by the Congress and negotiated and administered by the
U.S. government.
The decision-making process itself does not afford basic
due process protections. Private parties are not allowed to
participate as a matter of right, and the proceedings are
conducted in an opaque and secretive fashion. Under the current
WTO system of resolving disputes, the parties most directly
interested and affected are effectively shut out of the
process. Such a system is entirely at odds with even the most
fundamental notions of fairness.
The disturbing prospect of having international bureaucrats
sitting in judgement of U.S. laws, with little or no
jurisdictional accountability, has been recognized by the
Congress. In 1995 Senators Dole and Moynihan proposed a bill,
endorsed by the Administration, that would establish a WTO
Dispute Settlement Review Commission in order to allow
effective monitoring of the operation of the WTO system to
ensure that U.S. rights are being protected.
This proposal would establish a commission of federal
judges to review the operation of the WTO dispute resolution
system and, particularly, decisions adverse to the United
States. The Commission would provide some accountability for
the actions of WTO panelists and appellate body members by
tying the Commission's findings to expedited procedures for
consideration of a joint resolution withdrawing Congressional
approval of the WTO agreements.
Creation of such a commission would in and of itself
discourage dispute resolution panels from exceeding their
authority, and would provide reassurance to Americans that
their laws were being respected. The Administration should work
with Congress to enact such a WTO Dispute Settlement Review
Commission.
Conclusion
The future direction of the WTO depends, in large part, on
the active participation of the United States, the world's
largest and most competitive market. In guiding the WTO's
future direction, the Congress must ensure that the interests
of U.S. industries are not undermined by the WTO system.
In order to accomplish this, the United States must
maintain its firm position that the unfair trade laws will not
be weakened through future multilateral negotiations. As the
recent steel import crisis has demonstrated, strong, effective
and vigorously enforced trade laws are necessary to ensure that
American industries and workers are not left defenseless
against unfairly traded imports. Moreover, the unfair trade
laws are essential to maintaining an open market policy in the
U.S., and encouraging the same abroad.
The United States must also make changes to the WTO dispute
settlement process. The current WTO dispute settlement process
rewards non-transparency. The process is being abused by
foreign parties to achieve the effective erosion of U.S. trade
laws--an effort that was flatly and rightfully rejected by U.S.
negotiators in Seattle. In addition, the current process
effectively shuts out the parties most affected, and operates
in an overly secretive fashion. The United States must provide
for accountability of WTO panel decisions in order to ensure
that international bureaucrats do not unfairly strike down the
U.S. trade laws without repercussions.
The administration of American trade policy is the proper
responsibility of the Congress, not international bureaucrats.
U.S. Wheat Associates
Washington, DC 20002
March 28, 2000
The Honorable Bill Archer, Chairman
House Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Dear Chairman Archer:
The wheat industry commends you on holding a hearing on the
tremendously significant issue of U.S. membership in the World Trade
Organization. We respectfully request that this letter be included in
the record for the hearing scheduled for March 30, 2000. The membership
in question is of vital importance to U.S. wheat growers.
The Uruguay Round Agreement, which created the WTO, marked a major
departure in how trade negotiations were conducted multilaterally. The
Agreement on Agriculture provides specific staged reductions in global
farm protection: the tariffication and reduction on non-tariff barriers
to trade; the capping and reduction on a volume and value basis for
export subsidies; and the aggregate measure of domestic support subject
to certain reduction commitments.
Without the pressure for greater market access, the elimination of
non-tariff trade barriers, and the disciplines on the use of export
subsidies the WTO affords, the livelihood of U.S. wheat growers would
be in greater jeopardy. While great strides were made during the
Uruguay Round, much work is left to liberalize world wheat trade. Wheat
growers have identified the WTO as the best means to further farm trade
liberalization. Export subsidies from the EU continue to be a thorn in
the side of U.S. wheat producers and without the leverage of other WTO
member countries further discipline of export subsidies would be
impossible. Additionally, the U.S. wheat industry is pressing for
greater disciplines under the auspices of the WTO on the structure and
practices of monopoly state trading entities such as the Canadian and
Australian Wheat Boards.
H.J. Resolution 90
According to USTR, opening markets by lowering trade barriers
contributed as much as a 36 percent increase to U.S. exports between
1994 and 1999 despite the Asian crisis which has been very hard on
American agriculture. The number of U.S. jobs supported by exports
increased by 1.4 million from 1994 to an estimated 11.7 million in 1998
(the last year available). Jobs supported by goods exported from the
United States are estimated to pay between 13 percent to 16 percent
more than the U.S. national average wage. Anyone serious about the
economic stability of American agriculture knows that we export over 30
percent of what we produce.
The approval of this legislation would deal a devastating blow to
the WTO and the current rules-based world trading system we depend
upon. It would be an affront to the promotion of free and fair trade.
This action would precipitate a return to an era of obscene tariffs,
outrageous non-tariff barriers to trade and massive trade distorting
subsidization. Choices for American consumers and open markets for our
producers provide the backdrop for U.S. progress and innovation. The
high and consistent growth of the U.S. economy necessitates an active
role for the U.S. in promoting global trade. We need to work with other
countries to strengthen and improve the WTO, not run from the
challenge.
The WTO and the market opening rules it provides are essential to
the health of U.S. agriculture and the future economic stability of our
entire economy. The wheat industry calls upon you and your colleagues
to quickly put an end to the resolution to take the U.S. out of the
WTO.
If you do not commit yourselves to this, what has been gained will
have no value. The United States leadership role in guiding world trade
and development will have ended and the economic future of the
agriculture industry will be severely hampered.
The Impact on Wheat Growers
In the past couple of years, an unfortunate series of unpredictable
events, the Asian financial crisis, natural disasters here at home and
a surge in world production have conspired to severely depress the U.S.
farm economy. Although our trading partners in Asia and other parts of
the world have experienced extreme economic upheavals, their
commitments to market opening agreements have permitted their markets
to remain open. While we have real stress going on in our rural
communities, and we see no end in sight in the short term, we know that
any future market growth lies in our ability to export to the world.
Trade is a big part of our eventual recovery. For many farmers,
trade and trade policy is an abstract concept, but for wheat farmers it
is a very necessary element in our businesses. The U.S. wheat industry
exports, on average, nearly half of total production. That accounted
for 28.9 million tons (MT) flowing out of our nation's ports last year
to over 130 countries worldwide. The WTO provides an effective rules
based system of world trade that strives to ensure free and fair
competition. Trade in wheat is an especially competitive business as
35.5 MT was exported by monopoly state-run trading entities (Canada and
Australia) while another export subsidy driven 15 MT left the European
Union last year.
The U.S. is a mature market; we can not expect much increase in
domestic consumption. With 96 percent of the world's consumers outside
of our borders we cannot delay negotiations to open world markets. For
the wheat industry there is no option but to push forward as rapidly as
possible with the WTO negotiations to further open world markets.
Conclusion
As the Seattle Ministerial approached, the industry was
consistently warned to moderate its expectations. We were told
repeatedly that Seattle was a beginning of a negotiation not an end.
Suspension of the talks in Seattle represents a delay in getting
started on a negotiating process that is not only inevitable but also
critically important. There is only one direction for the United States
to pursue at this point; we must move forward.
U.S. farmers are hurting now, and it is unrealistic to wait for
conditions in the world market to improve on their own. The President
and Congress can greatly assist in this effort by working together to
pass legislation approving Permanent Normal Trade Relations for China
and fast-track trade negotiating authority, and by soundly rejecting
House Joint Resolution 90.
Thank you for your attention to our comments and recommendations.
Sincerely,
Christopher Shaffer,
Wheat Export Trade Education Committee
U.S. Wheat Associates
Chairman Terry Detrick, President
National Association Wheat Growers
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